Chapter 4: Financing

A demand for immediate payment of all amounts remaining unpaid on a loan or extension of credit by a mortgage lender or carryback seller.

Acceleration

A variable interest rate note, often starting out with an introductory teaser rate, only to reset at a much higher rate in a few months or years based on a particular index.

Adjustable Rate Mortgage (ARM)

The relative cost of credit as determined in accordance with Regulation Z of the Board of Governors of the Federal Reserve System for implementing the Federal Truth in Lending Act.

Annual Percentage Rate (APR)

A transfer to another of rights held by a person. A transfer to another of a person's rights under a contract such as a mortgage, lease, purchase agreement or option.

Assignment

A promise to pay the debt of another, typically a mortgage, given by a buyer of property.

Assumption

Any final payment on a note which is greater than twice the amount of any one of the six regularly scheduled payment immediately preceding the date of the final/balloon payment.

Balloon Payment

One entitled to the benefits of a trust. One who receives benefits from an estate, the title of which os vested in a trustee. The lender holding a note and deed of trust.

Beneficiary

A mortgage which is secured by two or more parcels of real property.

Blanket Mortgage

An independent California state agency that makes low-rate housing loans through the sale of taxable and tax exempt bonds.

CalHFA (California Housing Finance Agency)

A program administered by the State Department of Veterans Affairs for the direct financing of farm and home purchases by eligible California veterans of the armed forces.

CalVet

A loan made to finance the actual construction or improvement on land. Funds are usually dispersed in increments as the construction progresses.

Construction Loan

A mortgage securing a loan made by investors without governmental underwriting, i.e., which is not FHA insured or VA guaranteed. The type customarily made by a bank or savings and loan association.

Conventional Mortgage

Percentage of monthly gross income that goes towards paying debt.

Debt-to-Income (DTI)

A deed to real property accepted by a lender from a defaulting borrower to avoid the necessity of foreclosure proceedings by the lender.

Deed-in-lieu of foreclosure

A judgment awarded by a court in a judicial foreclosure when the value of mortgage property on the borrower's default is insufficient to pay off the mortgage debt.

Deficiency Judgment

A fall in the pricing of goods or property(the opposite of inflation).

Deflation

A trust deed provision used by lenders to call the loan immediately due and payable, a right triggered by the owner's transfer of any interest in the real estate, with exceptions for intra-family transfer of their home.

Due-on-Clause

Called Fannie Mae, is a quasi-public agency whose primary function is to buy, own and sell mortgages in the secondary market.

Federal National Mortgage Association (FNMA)

The federal banking system of the United States managed by a central board of governors (Federal Reserve Board) and comprising a bank in each of twelve geographical districts with broad powers for setting monetary policy to control the level of price inflation and employment, primarily accomplished through the setting of short-term interest rates.

Federal Reserve

A mortgage holder's remedy on a default in their mortgage by initiating a procedure noticing the sale of the mortgaged property to pay the debt.

Foreclosure

State and federal programs designed to facilitate homeownership, such as Federal Housing Administration (FHA)-insured loans, U.S. Department of Veterans' Affairs (VA)-guaranteed loans, and the California Housing Finance Agency (CalHFA).

Government Loan Programs

A mortgage providing for installment payments to be periodically increased by predetermined amounts to accelerate the payoff of principal.

Graduated Payment Mortgage

Real estate loans made by private lenders funded in cash.

Hard Money Loan

A mortgage loan enabling a homeowner to borrow against their home's equity, as though the equity was an ATM.

Home Equity Line of Credit (HELOC)

To pledge a thing as security without the necessity of giving up possession of it. To mortgage a property.

Hypothecate

A money reserve of a mortgage borrower's funds held by a lender or carryback seller to pay for annual property obligations owed by the owner to others.

Impound Account

The price change in consumer goods and services, stated in the consumer price index (CPI) as a figure which is reported as a change over one year ago.

Inflation

The percentage are charged for the use or the delay in payment of money. Rent or charge paid for use of money, expressed as an annual percentage of the sum borrowed.

Interest Rate

The business of originating mortgages for lenders or selling existing mortgages to investors.

Loan Brokerage

The cost for default insurance incurred by a borrower on a FHA-insured mortgage set as a percent of the mortgage amount paid up front and an annual rate on the principal balance paid with monthly principal and interest for the life of the mortgage.

Mortgage Insurance Premium (MIP)

Occurs when monthly installment payments are insufficient to pay the interest accruing on the principal balance, requiring the unpaid interest to be added to principal.

Negative Amortization

The notice filed to begin the nonjudicial foreclosure process. Generally, the NOD is filled following three or more months of delinquent mortgage payments.

Notice of Default (NOD)

A mortgage containing a clause permitting the mortgagor to borrow additional money after the loan has been reduced without rewriting the mortgage.

Open-ended Mortgage points

A provision in a note giving a lender the right to levy a change against a borrower who pays off the outstanding principal balance on a loan prior to expiration of the prepayment provision.

Prepayment Penalty

Default mortgage insurance coverage provided by private insurers for conventional loans with loan-to-value ratios higher than 80%.

Private Mortgage Insurance (PMI)

Legislation prohibiting brokers from giving or accepting referral fees if the broker or their agent is already acting as a transaction agent in the sale of a one-to-four unit residential property which is being funded by a purchase-assist, federally-related consumer mortgage.

Real Estate Settlement Procedures Act (RESPA)

A document executed by a trustee named in a trust deed to release the trust deed lien from title to real estate, used when the secured debt is fully paid.

Reconveyance

A property owner or junior lienholder's right to clear title to property of a trust deed lien prior to the completion of the trustee's sale by paying all amounts due on the note and trust deed, including foreclosure charges.

Redemption

A component of the Truth-in-Lending Act requiring consumer mortgage lenders to timely disclose a loan's annual percentage rate and all associated costs to potential borrowers, enabling borrowers to competitively shop for loans.

Regulation Z (Reg Z)

A property owner or junior lienholder's right to reinstate a mortgage and cure any default prior to five business days before the trustee's sale by paying the delinquent amounts due on the note and trust deed, plus foreclosure charges.

Reinstatement

Upon the payment of a specific sum of money to the holder of a blanket mortgage, the mortgage lien on a specifically described parcel is reconveyed, leaving the mortgage as a lien on the remainder of the secured parcels.

Release Clause

A financial arrangement allowing an owner of a property they occupy to sell the property and retain occupancy by agreeing to lease the property from the buyer as part of the purchase agreement negotiated. The seller receives cash while the buyer is assured a tenant and a fixed return on their investment.

Sale and Leaseback

A loan on which the borrower has consistently made payments when due for an extended period of time.

Seasoned Loan

A market for the sale of bonds collaterally secured by a pool of mortgages.

Secondary Mortgage Market

A note and trust deed executed by a buyer of real estate in favor of the seller for the unpaid portion of the sales price on closing. Also known as an installment sale, credit sale or carryback financing.

Seller Financing

A type of split-rate note calling for the property owner to periodically pay interim interest at a fixed rate, and when the balance is due, to further pay the holder of the note as additional interest an agreed fraction of the property's increased value.

Shared Appreciation Mortgage (SAM)

A sale of encumbered property in which the mortgage lender accepts the net proceeds at closing in full satisfaction of a greater amount of mortgage debt.

Short Sale

A note calling for the entire amount of its principal to be paid together with accrued interest in a single lump sum when the principal is due.

Straight Note

An agreement entered into by a mortgage holder to permit their security interest in title to the mortgaged property to take an inferior position to another encumbrance.

Subordination

A security device which attaches a money obligation as an encumbrance on a marketable interest in real estate.

Trust Deed

A law designed to protect buyers applying for a consumer mortgage with a lender which requires lenders to make upfront disclosure of mortgage rates and charges.

Truth-in-Lending Act (TILA)

A limit on the lender's interest rate yield on nonexempt real estate loans.

Usury

Mortgages held by loan brokers until they are bundled with other mortgages and sold on the secondary mortgage markets.

Warehousing

Also known as a(n) ,An all-inclusive trust deed (AITD), reduces the seller's risk of loss and defers more profit taxes than a regular second trust deed note.: The AITD variation of a note is common in carryback transactions. The AITD note, also known as a wraparound or overriding note, typically calls for the buyer to pay the carryback seller constant monthly installments of principal and interest. The carryback seller then pays the installments as they become due on the underlying (senior) mortgage, generally out of the payments received on the AITD note.

Wraparound Mortgage

A borrower who poses a higher risk of not repaying a loan as agreed.

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