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Abstract of Title - A summary of
recorded transactions concerning
Acceleration Clause - Provision
in a mortgage that gives the lender the right to require
immediate repayment of the loan balance if regular
mortgage payments are not made or if other clauses
in the mortgage are breached.
Accrued Interest - Interest earned
but not yet paid.
Adjustable-Rate Mortgage (ARM) -
A mortgage in which the interest rate can be changed
or adjusted by the lender based on a preselected rate
index. ). Payments can be low if interest rates are
low and will increase if rates rise.
Adjustment Interval - The time between
changes in the interest rate on an ARM
Amortization - A monthly repayment
schedule calculated to pay off a debt by a set date
with specific amounts allocated to the loan's interest
and principal.
Annual Percentage Rate (APR) - The
annual percentage rate is a measure of the cost of
credit on a yearly basis. APR takes into account interest,
points, origination fees, and mortgage insurance,
so it will be slightly higher than the interest rate
on the loan.
Appraisal - A written estimate of
a property's current market value prepared by a skilled
and licensed professional appraiser. The appraisal
is based on the condition of the property and neighborhood
as well as recent sales for similar properties. Typically
the lender selects the appraiser, but the borrower
pays the appraisal fee.
Approval - Conditional loan approval
based on information provided to the lender and subject
to the verification and/or receipt of additional information.
Once all closing conditions and lender requirements
are satisfied, the loan will receive final approval.
ARM - See Adjustable Rate Mortgage
Assessment - A local tax levied
against properties for civil improvements such as
road or sidewalk repair, new sewer lines, or street
lights.
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Balloon Mortgage - A fixed-rate
loan or debt that is not fully amortized. The borrower
pays low monthly payments and then, at the end of
the loan term (which can be 5, 7, 10 or 15 years)
all of the outstanding debt is due in a large lump
sum or balloon payment.
Basis Point - A unit of measure: 1/100th
of one percent. For example, the difference between
a 9.0% loan and a 9.5% loan is 50 basis points.
Bimonthly mortgage - A mortgage on which
the borrower pays half the monthly payment on the
first day of the month, and the other half on the
15th.
Biweekly mortgage - A mortgage on which the
borrower pays half the monthly payment every two weeks.
Because this results in 26 (rather than 24) payments
per year, the biweekly mortgage amortizes before term.
Blanket Mortgage - A mortgage covering at
least two pieces of real estate, both of which serve
as collateral for the loan.
Borrower (Mortgagor) - An individual who
applies for and receives a loan in the form of a mortgage.
Bridge loan (Swing loan) - A short-term loan,
usually from a bank, that bridges the period between
the closing date of a home purchase and the closing
date of a home sale.
Buyer's Broker - An hired by a buyer to locate
a property for purchase and to represent the buyer
in negotiations with the seller's broker for the best
possible deal for the buyer.
Buyer's Market - Market conditions that favor
buyers. With more sellers than buyers in the market,
buyers have ample choice of properties and can negotiate
lower prices.
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Caps - Provisions on adjustable rate
mortgages that limit how much the interest rate or mortgage
payments may increase or decrease in an adjustment period
or over the life of the loan.
Cash Out Refinance - A refinance for more than
the balance of the original mortgage, so that money
is taken out of the equity built up in the house.
Cashier's Check - A check whose payment is
guaranteed because it was paid for in advance and is
drawn on the bank's account instead of the customer's.
Ceiling - The maximum allowable interest rate
of an adjustable-rate mortgage.
Chain of Title - The chronological order of
conveyance of a property from the original owner to
the present owner.
Clear Title - A marketable title, free of clouds
and disputes.
Closing (or Settlement) - Meeting between the
buyer, seller, and lender or their agents at which property
and funds legally change hands.
Closing Costs - Fees incurred in a real estate
or mortgage transaction and paid by borrower and/or
seller during the closing of the mortgage loan. These
typically include a loan origination fee, discount points,
attorney's fees, title insurance, appraisal, survey,
and any items that must be prepaid, such as taxes and
insurance escrow payments. The cost of closing is usually
about 3 percent to 6 percent of the mortgage amount.
Closing Statement (also known as HUD-1) - The
final statement of costs incurred to close on a loan
or to purchase a home.
Collateral - Property that you pledge as a
guarantee that you will repay a debt. If you don't repay
the debt, the lender can take your collateral and sell
it to get its money back. With a home equity loan or
line of credit, you pledge your home as collateral
Combined Loan-to-Value (CLTV) - The unpaid
principal balances of all the mortgages on a property
divided by the property's appraised value.
Commission - Fee charged by an agent or broker
for negotiating a real estate or loan transaction. Amount
is generally a percentage of the property or loan.
Commitment - A formal offer by a lender to
make a loan under certain terms or conditions to a borrower.
Conforming Loan - A loan eligible for purchase
by the two major federal agencies that buy mortgages,
Fannie Mae and Freddie Mac (up to $333,700 for a one-unit
property).
Construction Loan - A short-term interim loan
to fund the construction of buildings or homes, which
usually advances the money to the builder as work progresses.
After completion a permanent loan is used to pay off
the construction loan.
Contingency - A condition that must be satisfied
before a contract is legally binding-before a sale can
close.
Contract of Sale - The agreement between the
buyer and seller on the purchase price, terms, and conditions
of a sale.
Conventional Loan - A mortgage not insured
by the FHA or guaranteed by the VA.
Conversion Clause - A provision in some ARMs
that allows you to change an ARM to a fixed-rate loan,
usually after the first adjustment period. The new fixed
rate will be set at current rates, and there may be
a charge for the conversion feature.
Convertible ARMs - Ajustable rate mortgages
with the option of conversion to a fixed loan during
a given time period.
Credit Report - A report of an individual's
credit history prepared by a credit bureau and used
by a lender in determining a loan applicant's credit
worthiness. Also see FICO
Credit Risk - The possibility that the borrower
may default on financial obligations to the lender.
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Deed - The legal document transferring
title to a property from one owner to another. The
deed contains a description of the property, and is
signed, witnessed, and delivered to the buyer at closing.
Deed of Trust - Document used in some states
in place of a mortgage. In such an arrangement, the
borrower transfers legal title to a trustee who holds
the property in trust as security for the repayment
of the debt.
Default - Failure to meet mortgage payments
on a timely basis or to comply with other mortgage
requirements. A mortgage is generally considered to
be in default when a payment is 30 days past due.
Deferred Interest - Interest added to the
balance of a loan when monthly payments are not sufficient
to cover it. (See Negative Amortization.)
Delinquency - Failure to make payments
on time.
Discount Points (or Points) - Money paid
to a lender at closing in exchange for lower interest
rates. Each point is equal to 1% of the loan amount.
Down Payment - Money paid for a house from
one's own funds at closing. The down payment will
be in the amount of the difference between the purchase
price and mortgage amount.
Due-on-Sale Clause - Provision in a mortgage
or deed of trust allowing the lender to demand repayment
in full if the borrower sells the property that serves
as security for the mortgage.
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Encumbrance - A legal right or interest
in a property that affects title and lessens the property
value. Encumbrances can take the form of claims, liens,
unpaid taxes, and so on. These will usually have to
be taken care of before a buyer will want to purchase
the property
Equity - The percentage of property value
held by the owner; the difference between how much
a home is worth and how much the homeowner owes on
the mortgage (or mortgages, if there are more than
one).
Equity Loan - A loan based on the borrower's
equity in his or her home.
Escrow - An item of value, money or documents
deposited with a neutral third party (escrow agent)
to be delivered upon the fulfillment of a condition,
such as funds to be disbursed upon the closing of
a property sale The escrow agent can be a title company
or an attorney depending on the state regulations.
Escrow Account - Account held by
a lender containing funds collected as part of mortgage
payments for annual expenses such as taxes and insurance,
so that the homeowner does not have to collect a large
sum when these fall due.
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FICO - The numerical credit score
that credit bureaus give to you based on the amount
of debt you have and whether you pay your bills on
time. FICO is named after Fair Issac Corp, the company
that pioneered credit scoring. Scores average between
300 and 850, the higher the better.
Fannie Mae and Freddie Mac - Fannie
Mae refers to the federally chartered company, the
Federal National Mortgage Association, which is the
nation's largest supplier of home mortgage funds.Freddie
Mac refers to the Federal Home Loan Mortgage Corporation.
Both are organizations created by Congress to buy
loans from lending institutions.
Federal Home Loan Mortgage Corporation (FHLMC,
or Freddie Mac) - Quasi-governmental agency
that purchases conventional mortgages from insured
depository institutions and HUD-approved mortgage
bankers.
Federal Housing Administration (FHA)
- Government agency, division of the Department of Housing
and Urban Development, that insures residential mortgage
loans made by private lenders and sets standards for
underwriting mortgage loans.
Federal National Mortgage Association (FNMA,
or Fannie Mae) - Corporation created by Congress
that buys and sells residential mortgages, providing
funds for one in seven mortgages.
First Mortgage - A mortgage that is
in first lien position, taking priority over all other
liens. In the case of a foreclosure, the first mortgage
will be repaid before any other mortgages.
Fixed Rate - An interest rate that is fixed
for the term of the loan.
Fixed-Rate Mortgage - A mortgage whose interest
rate does not change for the life of the loan. Payments
are also fixed.
Float - Allowing the rate and points to vary
with changes in market conditions. The borrower may
elect to lock the rate and points at any time but must
do so a few days before the closing.
Float-down - A rate lock, plus an option to
reduce the rate if market interest rates decline during
the lock period. Also called a cap.
Flood Insurance -A form of hazard insurance
required by lenders to cover properties in flood zones.
Floor - The minimum rate of interest payable
on an adjustable-rate mortgage.
Foreclosure (or Repossession) - Legal process
by which the lender forces the sale of a property because
the borrower has not met the mortgage terms.
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Ginnie Mae or GNMA - See Government
National Mortgage Association.
Good Faith Estimate - Written estimate of
costs the borrower will have to pay at closing, provided
by a lender within three days of a loan application.
Government National Mortgage Association (GNMA, or
Ginnie Mae) - A federal agency that guarantees
mortgage securities that are issued against pools
of FHA and VA mortgage loans.
Graduated Payment Mortgage (GPM) - Mortgage
in which initial low payments (with potential negative
amortization) increase regularly for several years
and then level off.
Grace Period - The period of time after the
payment date during which the borrower can make a
loan payment withhout incurring a late penalty.
Gross Income - Total income before taxes
or expenses are deducted.
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HELOC - Stands for Home Equity Line
of Credit. Home equity lines of credit have revolving
balances and work like a credit card.
Home Equity Loan - A loan secured by the
equity in your home. These are sought for a variety
of purposes, including home improvements, major purchases
or expenses, and debt consolidation. Interest paid
is usually tax-deductible.
Homeowners Warranty - A type of insurance
that covers repairs to specified parts of a house
for a specific period of time.
Housing and Urban Development (HUD) - A U.S.
government agency established to implement federal
housing and community development programs; oversees
the Federal Housing Administration.
Housing Expense-to-Income Ratio - The ratio,
expressed as a percentage, that results when a borrower's
housing expenses are divided by his/her gross monthly
income.
HUD - See Housing and Urban Development.
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Impound (or Reserves) - Portion
of a borrower's monthly payments held by the lender
to pay for taxes, insurance, and other items as they
become due.
Impound Account - Savings account
for accumulating that portion of a borrowers monthly
payments designated for future payments of taxes and
insurance. (Required by certain lenders or with certain
types of financing.)
Index - A published rate used by lenders to calculate
interest adjustments on ARMs (Index + Margin = Interest
Rate). Some indexes are more volatile than others.
Initial Rate - The rate charged
during the first interval of an ARM.
Interest Rate - The periodic charge paid
for borrowing money, calculated as a percentage of
the amount borrowed.
Interest Rate Cap - A safeguard built into
ARMs to prevent drastic changes in interest rates.
Interest Rate Change Date - Those dates upon
which the rate of interest is subject to change. Initial
change date and subsequent change dates may feature
different terms.
Joint Liability - Liability shared
among two or more people, each of whom is liable for
the full debt.
Joint Tenancy - The ownership of property
by two or more persons with the survivor taking the
share of the deceased.
Jumbo Loan - A mortgage larger than the limits
set by the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation, currently
more than $333,700. Because jumbo loans cannot be funded
by these two agencies, they usually carry a higher interest
rate.
Junior Mortgage - A mortgage subordinate or
secondary to another mortgage. In the case of a foreclosure
a senior mortgage will be paid first.
No terms available at this time
Loan Application Fee - Fee paid
by prospective buyer to lender when applying for a
mortgage.
Loan Origination Fee - Fee charged by a lender
for processing a mortgage, usually expressed as a
percentage of the loan (or points), which pays for
the work in evaluating and processing the loan.
Loan Servicing (or Loan Administration) -
The collection of mortgage payments from borrowers
and related responsibilities (such as handling escrows
for property tax and insurance, foreclosing on defaulted
loans and remitting payments to investors).
Loan to Value Ratio (LTV) - The ratio between
what you owe on your house and what it's worth. If
your house is worth $200,000 and you still owe $150,000,
your loan-to-value ratio is 75 percent, because $150,000
is 75 percent of $200,000.
Lock or Lock In - A written agreement in
which the lender guarantees the borrower a specified
interest rate, provided the loan closes within a set
pierod of time.
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Margin - A pre-determined spread
or amount which, when added to the Index, establishes
a new rate of interest.
Market Rate -The average rate charged by
lenders for conventional, fixed-rate loans.
Maturity - The period until the last payment
is due. This is usually but not always the term, which
is the period used to calculate the mortgage payment.
Monthly Housing Expense -Total monthly expense
of principal, interest, taxes and insurance.
Mortgage - A loan or lien on a property/house
that has to be paid over a set period of time.
Mortgagee - The lender in a mortgage loan
transaction.
Mortgage Insurance - Insurance purchased
by a buyer to cover the lender's risk when a down
payment is less than 20 percent of the purchase price.
MIP (Mortgage Insurance Premium) - Insurance
purchased by borrower to insure against default on
government (FHA or VA) loans.
Mortgage Loan - A loan for which real estate
serves as collateral to provide for repayment in case
of default.
Mortgagor -The borrower in a mortgage loan
transaction.
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Negative Amortization - (Sometimes
called deferred interest) A rise in the loan balance
when the mortgage payment is restricted by a payment
cap and is less than the interest due. Negative amortization
arises most frequently on ARMs. Unpaid deferred interest
is added to the loan balance, which means that the borrower
ends up owing more than the original amount of the loan.
Negative Points - Points paid by a lender for
a loan with a rate avbove the rate on a zero point loan.
Sometimes called rebates because they are used to reduce
a borrower's settlement costs.
No Asset Loan - A documentation requirement
where the applicant's assets are not disclosed.
No Income Loan - A documentation requirement
where the applicant's income is not disclosed.
Non-Assumption Clause - A statement in a mortgage
contract forbidding the assumption of the mortgage by
another borrower without the prior approval of the lender.
Non-Conforming Loan - Loan that does not comply
with the purchasing guidelines of the two federal agencies,
Fannie Mae or Freddie Mac, because it is too large or
for other reasons such as poor credit or inadequate
documentation.
Note - Legal document stating the terms of
a debt and a promise to repay it.
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Origination Fee - Fee charged by a
lender for processing a mortgage, usually expressed
as a percentage of the loan (or points), which pays
for the work in evaluating and processing the loan.
Owner Financing - A purchase in which the seller
provides all or part of the financing.
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Payment Cap - Pre-determined limit
on the amount by which a borrower's ARM payments may
increase, regardless of rise in interest rates; may
result in negative amortization.
Payment Change Date -Those dates upon which
the payment amount is subject to change. Products featuring
negative amortization typically will include a payment
change date which differs from the interest rate change
date in frequency.
Per Diem Interest - Interest calculated per
day. (Depending on the day of the month on which closing
takes place, you will have to pay interest from the
date of closing to the end of the month. Your first
mortgage payment will probably be due the first of the
following month.)
Periodic Interest Cap - Interest Caps that work to
restrict the degree to which adjustable rate mortgages
may increase and/or decrease at pre-determined change
dates.
Permanent Loan - A long-term mortgage of 10
years or more.
PITI - Abbreviation for Principal, Interest,
Taxes and Insurance, the components of a monthly mortgage
payment; also called monthly housing expenses.
Pledged Account Mortgage (PAM) - Money is placed in
a pledged savings account and this fund plus earned
interest is gradually used to reduce mortgage payments.
Points (or Discount Points) - Interest prepaid
to the lender at closing. Each point is equal to 1%
of the loan amount. Paying more points at closing generally
reduces the interest rate (and therefore monthly payments)
on a loan.
Pre-approval - A commitment by a lender to make a mortgage
loan to a specified borrower, prior to the identification
of a particular property and designed to make it easier
to shop for a house. Unlike prequalification, the lender
checks the applicants credit.
Prepaid Expenses - Taxes, insurance, and assessments
paid in advance of their due dates, including at closing.
Prepaid Interest - Charged to a borrower at
closing to cover interest on the loan between closing
and the first payment.
Prepayment - Full or partial payment of the
principal before the due date. This might occur if the
borrower makes extra payments, sells the property, or
refinances the existing loan.
Prepayment Penalty - Fee charged by a lender
for early payment of debt.
Pre-payment Penalty - Many ARM loans contain
a provision against pre-payment without penalty. Terms
of pre-payment penalty clauses vary from product to
product, investor to investor, and state to state. Many
states and even local municipalities have, or are contemplating,
enacting legislation against pre-payment penalties associated
with high cost loans.
Prequalification - The process of determining
how much money a prospective homebuyer will be eligible
to borrow prior to application for a loan.
Primary Mortgage Market - Includes banks, savings
and loans, credit unions, and mortgage bankers who make
mortgage loans directly to borrowers. These lenders
sometimes sell their mortgages to lenders such as FNMA
in the secondary mortgage market.
Prime Rate - Lowest commercial interest rate
charged by a bank on short-term loans to its most credit-worthy
customers.
Principal - The amount of debt, not counting
interest, left on a loan.
Private Mortgage Insurance (PMI or MI) - Insurance
a buyer is generally required to purchase when a down
payment is less than 20% of the purchase price. PMI
is designed to protect the lender against default. Federal
law requires PMI be cancelled when you have paid off
a certain percentage of your mortgage or your homes
property value has increased to a certain percentage
above the value of the mortgage.
Profit and Loss Statement - Financial statement
showing sales, expenses, and profits over a period of
time.
Property Tax - A government tax based on the
market value of a property.
Purchase Agreement - Contract signed by buyer
and seller stating the terms and conditions under which
a property will be sold.
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Qualifying Rate - The interest rate
used in calculating the initial mortgage payment for
purposes of qualifying a borrower. This rate may or
may not be the initial or start rate on the loan.
Qualifying Ratio - Requirements stipulated
by the lender that the ratio of housing expense to borrower
income or housing expense plus other debt service to
borrower income cannot exceed specified maximums.
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Real Property - Land and everything
that is permanently affixed to it.
Rescission - The right of refinancing borrowers
under the Truth in Lending Act to cancel the deal
at no cost to themselves without three days of closing.
Reclamation - The right of the person with
title to a property to recover it from the debtor
in case of a bankruptcy.
Reconveyance -The transfer of property back
to the owner when a mortgage is fully repaid.
Recording -The act of entering documents
concerning title to a property into the public records.
Recording Fee -Money paid to an agent for
entering the sale of a property into the public records.
Refinancing - Paying off an old loan
while simultaneously taking on a new one secured by
the same property.
Reverse Mortgage - A loan to an elderly homeowner
on which the balance rises overtime and which is not
repaid until the owner dies, sells the house or moves
out permanently.
Sale Agreement - Contract signed
by buyer and seller stating the terms and conditions
under which a property will be sold.
Secondary Mortgage Market - Markets
in which mortgages or mortgage-backed securities are
bought and sold.
Second Mortgage - A subordinate mortgage
made in addition to a first mortgage.
Servicing (or Loan Administration)
- Administering loans between the time of disbursement
and the time the loan is fully paid off. This includes
collecting monthly payments from the borrower, maintaining
records of loan progress, and related responsibilities
(such as handling escrows for property tax and insurance,
foreclosing on defaulted loans, and remitting payments
to investors).
Settlement (or Closing) - Meeting between
the buyer, seller, and lender or their agents at which
property and funds legally change hands.
Settlement Costs - Costs that the borrower
must pay at the time of closing, in additin to the
down payment.
Shared Appreciation Mortgage (SAM) - Loan
in which the borrower is given a below-market interest
rate and the lender receives a portion of the future
appreciation of the property value.
Simple Interest - Interest that is computed
only on the principal balance.
Start Rate - Pre-determined rate of interest
that will be applied to the loan until the date of
the first interest rate change.
Subsidized Second Mortgage - Alternative
financing option for low- and moderate-income households
that also includes a down payment and a first mortgage,
with funds for the second mortgage provided by city,
county, or state housing agencies, foundations, or
nonprofit corporations. Payment on the second mortgage
is often deferred and carries low interest rates (if
any). Part of the debt may be forgiven for each year
the family remains in the home.
Subordination policy - The policy
of a second mortgage lender for allowing a borrower
to refinance the first mortgage while leaving the
second in place.
Swing loan - see bridge loan.
Tax Impound - Money paid to and
held by a lender for annual tax payments. See Impound
Account.
Tax Lien - Claim against a property
for unpaid taxes.
Tax Sale - Public sale of property
by a government authority as a result of nonpayment
of taxes.
Term - The number of years it will
take to pay off a loan.
Title - Document that gives evidence
of ownership of a property.
Title Company - A company that insures
title to property.
Title Insurance - Insurance which protects
the lender (lender's policy) or the buyer (owner's policy)
against loss due to disputes over ownership of a property.
Title Search - An investigation by
a title company to ensure that the seller is the legal
owner of a property. Process involves examining municipal
records and verifying that there are no liens or other
claims against that property.
Total debt ratio - Monthly debt and
housing payments divided by gross monthly income. Also
called obligations-to-income ratio or back-end ratio.
Transfer Tax - Tax paid when the title
of a property passes from one owner to another.
Trust Account - Account maintained
by a broker or escrow company to handle all money collected
for clients.
Trustee -Someone given legal responsibility
to hold property in the best interest of another.
Truth in Lending Act - A federal law
requiring a disclosure of credit terms using a standard
format. This is intended to facilitate comparisons between
the lending terms of different financial institutions.
Two-Step Mortgage - An adjustable mortgage
with a low fixed interest rate for 5, 7, or 10 years,
which is then adjusted to the current market rate plus
a predetermined margin for the remainder of the loan's
term.
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Underwriting -The process used by
lenders to examine credit history, verify employment
data and otherwise evaluate a loan for approval. The
underwriter determines if and how large a loan is
approved..
Usury - Interest charged in excess of the
legal rate established by law.
VA Loan - A long-term home loan
available to military veterans with little or no down
payment and guaranteed by the U.S. Veteran's Administration
Variable Rate Mortgage - See Adjustable-Rate
Mortgage (ARM).
Verification of Deposit (VOD) - Document
signed by the borrower's bank or other financial institution
verifying the borrower's account balance and history.
Verification of Employment (VOE)
- Document signed by the borrower's employer verifying
the borrower's position and salary.
Waive escrow - Authorization by
the lender for the borrower to pay taxes and insurance
directly.
Warehouse Fee - Mortgage firms often
borrow funds on a short-term basis in order to originate
loans that will later be sold to investors in the
secondary mortgage market. When the prime rate of
interest is higher on short-term loans than on mortgage
loans, the mortgage firm has an economic loss that
is offset by charging a warehouse fee.
Wraparound Mortgage - A mortgage
on a property that already has a mortgage, where the
new lender assumes the payment obligation on the old
mortgage, resulting in an interest rate somewhere
between the old rate and the current market rate.
Zoning Ordinances - Local law establishing
building codes and usage regulations for properties
in a specified area. This creation of districts specifies
different types of property uses such as commercial
or residential.
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