Adjustable-Rate mortgage (ARM): A mortgage with an interest rate and payment that change periodically over the life of the loan based on changes in a specified index.
Charge-Off: The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.
Conventional Mortgage: A mortgage loan that is not insured or guaranteed by the federal government.
Credit Enhancement: A method to reduce credit risk by requiring collateral, letters of credit, mortgage insurance, corporate guarantees, or other agreements to provide an entity with some assurance that it will be recompensed to some degree in the event of a financial loss.
Credit Scoring: A process that uses recorded information about individuals and their loan requests to assess - in a quantifiable, objective, and consistent manner - their future performance regarding debt repayment.
Debt security: A security in which the issuing company generally agrees to repay the principal (typically, the original amount borrowed) and make interest payments according to an agreed schedule.
Default: The failure of a borrower to comply with the terms of a note or the provisions of a mortgage.
Delinquency: A mortgage loan on which a payment has not been made by the due date.
Duration: The weighted-average life of the present value of all future cash flows, both principal and interest, of a security. It is used as a measure of the sensitivity of the value of a security to changes in interest rates.
Earnings per share (EPS): The net earnings of a corporation divided by the average number of shares of its common stock outstanding during a period. A common method of expressing a corporation's profitability.
Loan Servicing: The tasks a lender performs to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.
Loan-To-Value (LTV) Ratio: The relationship between the dollar amount of a borrower's mortgage loan and the value of the property.
Mortgage: A legal document that pledges property to a lender as security for the repayment of the loan. The term also is used to refer to the loan itself.
Mortgage-Backed Security (MBS): A Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.
Multifamily Housing: A building with more than four residential rental units.
Preforeclosure Sale: A procedure in which the borrower is allowed to sell his or her property for an amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the borrower's debt.
Repayment Plan: An agreement between a lender and a borrower who is delinquent on his or her mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.
Reverse Mortgage: A financial tool which provides seniors with funds from the equity in their homes. Generally, no payments are made on a reverse mortgage until the borrower moves or the property is sold. The final repayment obligation is designed to not exceed the proceeds from the sale of the home.
Secondary Mortgage Market: The market in which residential mortgages or mortgage securities are bought and sold.
Security: A financial instrument showing ownership of equity (such as common stock), indebtedness (such as a debt security), a group of mortgages (such as MBS), or potential ownership (such as an option).
Serious Delinquency: A single-family mortgage that is 90 days or more past due, or a multifamily mortgage that is two months or more past due.
Underwriting: The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's ability and willingness to repay the debt and the value of the property.
