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Making sense of foreclosures

Friday, May 9, 2008 | 5:55 p.m. CDT; updated 3:56 p.m. CDT, Tuesday, July 22, 2008

FORECLOSURE GLOSSARY

Adjustable-rate mortgage (ARM)

A mortgage on which the interest rate, after an initial period, can be changed by the lender.

Credit score

A single numerical score based on an individual’s credit history that measures that individual’s credit worthiness.

Default

Failure of the borrower to honor the terms of the loan agreement. Lenders (and the law) usually view borrowers delinquent 90 days or more as in default.

Delinquency

A mortgage payment that is more than 30 days late.

Equity

In connection with a home, the difference between the value of the home and the amount of outstanding mortgage loans on the home.

Fannie Mae, Freddie Mac

Two federal agencies that purchase home loans from lenders. Both agencies finance their purchases primarily by packaging mortgages into pools, then issuing securities against the pools. The securities are guaranteed by the agencies. They also raise funds by selling notes and other liabilities.

FHA mortgage

A mortgage on which the lender is insured against loss by the Federal Housing Administration, with the borrower paying the mortgage insurance premium. The major advantage of an FHA mortgage is that the required down payment is very low, but the maximum loan amount is also low.

Fixed rate mortgage

A mortgage on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the mortgage.

Hybrid ARM

An ARM on which the initial rate is fixed for some period after which it becomes adjustable rate.

Indexed ARM

An ARM on which the interest rate adjusts mechanically based on changes in an interest rate index.

Mortgage broker

An independent contractor who offers the loan products of multiple lenders, termed wholesalers.

Mortgage modification

A change in the terms of a loan, usually the interest rate and/or term, in response to the borrower’s inability to make the payments under the existing contract.

Prepayment penalty

A charge imposed by the lender if the borrower pays off the loan early. The charge is usually expressed as a percent of the loan balance at the time of prepayment, or a specified number of months interest.

Source: mtgprofessor.com


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