A

"A" credit
Consumers with the highest credit rating; usually able to obtain a loan from a conventional lender.

Acceleration Clause
A clause in a mortgage note or loan contract that allows the lender to [1] speed up the rate at which your loan comes due -or- [2] to demand immediate payment of the entire balance of the loan in the event of default. 

Accounts Payable:
Monies a company owes for goods and services; any outstanding debt that a company has.

Accounts Receivable:
Invoices which have not yet been paid by a company's customers.

Accounts Receivable Aging Report:
A report that shows the breakdown of outstanding customer invoices usually sorted by date and amount.

Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based upon an index. Also referred to as the renegotiable rate mortgage or variable rate mortgage. 

Adjustment Interval
On an adjustable rate mortgage, the time interval between changes in the interest rate and/or monthly payment. 

Advance Rate:
The percent of the face amount of an annuity (or any other income stream) that a funding source will advance to a client.

Amortization
[1] The retirement of a debt and/or capital recovery through scheduled repayments. [2] Loan payment calculated to pay off the debt at the end of a fixed period, including interest on the outstanding balance.

Annual Percentage Rate (APR)
The cost of credit as a yearly rate.

Assignability:
The ability to assign (or sell) an asset or income stream to other individuals or businesses.

Assignee:
An individual or business entity who obtains or buys the right to an asset.

Assignment:
The transfer of rights, title or interest in any debt instrument owned by another party.

Assignor:
A person granting or selling an asset.

Assumption
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt.

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B

"B" through "D" credit customers:
Consumers with less than perfect credit and who typically do not qualify for traditional financing (sub-prime credit customers).

Bad Debt:
A delinquent debt that has been written off as uncollectable.

Balance sheet:
A financial statement that summarizes a business' current financial condition.

Balloon (Payment) Mortgage 
Usually a short-term fixed-rate loan that is not fully amortized at maturity.  Smaller initial payments are made with a large lump sum (balloon) payment due at maturity. 

Bankruptcy:
An insolvent individual or organization who has no ability to pay debts.

Beneficiary:
A person or party entitled to receive the benefits of a life insurance policy upon the death of the person insured.

Broker
An individual who acts as an intermediary bringing together two or more parties in a market transaction. 

Bridge Loan
Short term financing between the termination of one loan and the commencement of another.  Examples: construction/permanent loans, temporary loans used for acquiring and rehabilitating properties prior to sell or conversion to a permanent mortgage. 

Buydown
A lump-sum payment to a lender that reduces the interest rate and/or payments of the borrower.

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C

Cash flow:
The flow of cash through a business; the inflow/outflow cycle of revenues and expenses.

Cash flow instrument:
Future payment or series of payments.

Cap - (Interest)
A limitation on the amount the interest rate (on an adjustable rate mortgage) may change per year and/or over the life of the loan.

Cap - (Payment)
A limitation on the amount monthly payments (on an adjustable rate mortgage)  may change.

Capitalization
A process of converting income to value. (See also direct capitalization and yield capitalization). 

Certificate of Title
A certificate (issued by a title company or a written opinion provided by an attorney) of ownership stating that the seller has good marketable and insurable title to the property which he is offering for sale.  The certificate of title offers no protection against hidden defects. The issuer of a certificate of title is liable only for damages due to negligence.

Chain Of Title
A historical record of all encumbrances and conveyances which affect a property title. Extends from the time original patent was granted (aka abstract of title). 

Chattel mortgage:
A mortgage on personal property given to secure debt and typically used in the sale of a business.

Collateral:
An asset that is pledged as security for the repayment of a debt. If the borrower defaults, the lender has a legal right to seize the collateral.

Collateral-based income streams:
Cash flow instruments secured by collateral.

Commitment Fee
The fee a borrower pays to the lender who agrees to make a loan  at some future date.  Usually expressed as a percentage of the anticipated loan amount. 

Commitment - Loan
A written agreement between lender and borrower to loan money at a future date subject to the stated conditions.

Contingency-based income streams:
Cash flows in which the recipient is not necessarily entitled to receive payment, or a condition in which the amount of payment is uncertain or contingent upon some outside factors.

Credit Ratio
A ratio (expressed as a percentage)  used by lenders to judge a borrower's repayment ability.  Long term monthly payment obligations are divided by net income (FHA/VA loans) or gross monthly income (Conventional loans). 

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D

Debt instrument:
A debt one party owes to another party.

Debtor:
One who owes a sum of money and who makes payments to a creditor.

Deed of Release

A legal instrument by which the property securing a mortgage is absolved from the lien of the mortgage.  Must be subscribed  and acknowledged by the mortgagee (lender).  Can be a partial or whole release.  

Default

Failure to repay a loan or otherwise meet the terms of your credit agreement.

Deficiency Judgment

A judgment awarded in a suit initiated to recover the difference between a legally imposed indebtedness and the money received from a foreclosure sale of the debtor's assets. 
 

Delinquency

Failure to make payments on time.  May result in foreclosure. 

Direct Reduction Mortgage

A mortgage loan repaid in periodic (usually equal) installments that includes a repayment of part of the principal and interest due on the unpaid balance.  

Discount Rate

[1] The term used to explain the compound interest rate used in the in approach to value to convert expected future cash flows into a present value. [2] A benchmark for interest rates - the rate charged by the Federal Reserve System on overnight loans to banks.   An increase in the rate not only discourages borrowing, but it also serves as a signal to the money market that interest rates are probably going to increase. Accordingly, interest rates charged by banks to customers usually increase as a result of an increase in the discount rate.

Down Payment

Money paid to make up the difference between the purchase price and mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on Conventional loans, and no money down up to 5 percent on FHA and VA loans.

Due diligence:
Thorough research, investigation or analysis. In lending, due diligence typically involves credit checks, appraisals, UCC searches, lien searches, or on-site visits.

Due-On-Sale Clause

A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.  This clause prohibits an assumption of the note by a new buyer.

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E

Equity

The difference between the fair market value and any outstanding indebtedness against the property. 
 

Equity Capitalization Rate

An income rate that reflects the relationship between a single year's cash flows (or an annual average of several year's pre-tax cash flows) and the owner's equity investment  (aka equity dividend rate, cash on cash rate, or cash flow rate).
 

Equity Yield Rate

The annualized rate of return on equity capital.  Includes "return on" and "return of" the investment. 

Escrow

Refers to a neutral third party who carries out the instructions of  the buyer and seller to handle all the paperwork of settlement or "closing." Escrow could also refer to an account held by a lender into which a homebuyer pays money for tax or insurance payments.

F

Face value:
The current principal balance of an income stream.

Factor:
A funding source that specializes in funding account receivables.

Factoring:
The purchase or sale of a business' accounts receivable at a discount.

Fee Simple
Absolute ownership not encumbered by any other interest or estate and subject only to the four powers of government; [1] taxation, [2] escheat, [3] eminent domain, [4] police power. 

First Mortgage

A mortgage that has priority over all other liens.   
 

Foreclosure

A legal process in which a lender forces the sale of property to recover all or part of the defaulted loan proceeds. 

Funding source:
An individual or investment company that buys income streams.

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G

Graduated Payment Mortgage (GPM)

A flexible-payment mortgage where payments increase for a specified period of time then level off. This type of mortgage can have include negative amortization. 
 

Grantee

The buyer or "recipient" in a deed or instrument. 
 

Grantor

The seller or "giver"  in a deed or instrument.

Going-Concern Value

A value created by the proven/successful business operation.  It is a separate entity valued with an established business. 

Government-based income streams:
A cash flow or series of cash flows paid by a government entity, either directly or through an insurance company.

H

Hypothecation:
Borrowing funds from a lender then investing those funds into a debt instrument that is concurrently given to the lender as the collateral for the loan.

I

Impound

That portion of a borrower's monthly payments held by the lender (fiduciary) to pay for taxes, assessments, hazard insurance, mortgage insurance, lease payments, etc. as they become due  (aka reserves).

Index

[1] A benchmark interest rate   (such as 1, 3, or 5-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by S & Ls, or the monthly average Costs-of-Funds incurred by S & Ls)  used by lenders to determine pricing for adjustable rate mortgages.  The spread between their rate charged and the base rate for other investments depends on market conditions.  Rates may be adjusted up or down.  [2] A lease that provides for periodic adjustments in the rent based on a specified index such as the cost-of-living index.
 

Installment Contract

A purchase contract whereby payments are made to the seller.  Title is generally not transferred/recorded  until the contract is paid in full and installment payments are usually forfeited if the buyer defaults.  (aka installment land contract).  

Institutional lender:
Savings and loan associations, local and regional banks, mortgage companies, finance companies, and/or commercial lenders.

Intangible personal property:
Something of value that is not a tangible asset such as a trademark, copyright, patent, or trade secret.

Investment Value

Value/price to a particular investor based on his/her individual investment requirements; as distinguished from market value which is impersonal and detached.

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J  K  L 

Judgment

A statutory lien on real/personal property of a judgment debtor; created by the judgment itself.
 

Judgment Creditor

A person/entity who has received a decree (judgment) from the court against the debtor for money due.
 

Judgment Debtor

A person/entity against whom a judgment has been issued by the court for money owed. 
 

Jumbo Loan

A loan greater (more than $203,150) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans are not funded by these two agencies, they usually carry a higher interest rate.
 

Junior Lien

A secondary lien placed after a previous lien has been made/recorded.

Lien

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Leverage:
The ratio of debt to total assets.

Loan Servicing

The administration and collection of  periodic mortgage payments from homeowners usually performed by a bank acting for itself or the mortgagee.  
 

Loan-To-Value Ratio

The relationship (%)  that expresses the difference between the amount of the mortgage loan and the appraised value of the property. 

M

Margin

The amount a lender adds to the index on an adjustable rate mortgage. 
 

Market Value

The most probable price a property will sell [1] after reasonable market exposure in a competitive market, [2] under all conditions requisite to a fair sale, [3] buyer and seller acting knowledgeably/prudent and for their self-interest, [4] neither buyer or seller is under undue duress, [5] with cash, cash equivalent terms, or with typical market financing.  Market value may is not always the price a property actually sells for nor is it the highest price paid.   It is defined in the concept of a typical buyer and willing seller. 
 

Marketable Title

A title that is free and clear of any objectionable liens, clouds, or  title defects.  

Marginal credit customers:
A consumer, business, or borrower who may have had some slow pay problems but generally pays their bill.

Mortgage

A lien or claim against real property pledged by the buyer to a  lender as security for money borrowed. Under government-insured or loan-guarantee provisions, payments may include an escrow for taxes, hazard insurance, and special assessments. 
 

Mortgage Commitment

A written notice provided by the bank stating it will advance mortgage funds to enable a buyer to purchase a home. 
 

Mortgage Insurance

Fees paid to insure a  mortgage when the down payment is less than 20 percent. See Private Mortgage Insurance (PMI) or FHA Mortgage Insurance .
 

Mortgage Insurance Premium

The insurance payment charged each year by the lender - usually for transmittal of the loan to HUD to help defray the cost of the FHA mortgage insurance program.  It provides  a reserve fund to protect lenders against loss in insured mortgage transactions. For FHA insured mortgages,  this usually  represents an annual rate of 1/2 % paid by the mortgagor on a monthly basis.
 

Mortgage Note

A written contract/agreement  to repay a loan. It is secured by a mortgage, serves as proof of indebtedness, and states the [1] repayment terms and conditions, [2]  amount borrowed, [3] interest rate, and other terms/conditions. 
 

Mortgage (Open-End)

A mortgage that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges.  Open-end provisions usually limit borrowing to no more than the original loan figure. 
 

Mortgagee

The lender.
 

Mortgagor

The borrower or homeowner.

N

Negative Amortization

Occurs when loan payments are not sufficient to pay all the interest due on the loan. If interest continues to accrue faster that payments can retire the principal, then it is possible to owe more than the original amount of the loan. 

Non-Assumption Clause
A statement in a mortgage contract that prohibits the assumption of the mortgage without prior approval from the lender.

Nonconforming Use
A structure that was lawfully erected or altered but no longer conforms to present zoning because of subsequent changes in the ordinance.
 

Nonconventional Mortgage
Mortgages that are either guaranteed or insured by the federal government (Veterans Administration, Federal Housing Administration, etc.) or privately insured.
 

Nonrecourse Loan
A clause in a debt agreement secured by real estate that states that the lender has no claim against the debtor if he/she defaults and may only recover the property. 

Notice of Pre-lien:
A document that gives notice to a property owner that a lien could be placed against the real property if materials or services furnished to the real property are not paid for.

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O 

Origination Fee

A fee charged by a lender to prepare loan documents, make credit checks, and process the loan.  (Usually computed as a percentage of  the loan amount).

Owner financing:
A type of financing in which the seller accepts a promissory note as a portion of the purchase price.

P

Permanent Loan

A loan used to finance the purchase of a completed structure.  It is usually long term and distinct from a temporary construction  loan.

Personal guaranty:
A contractual agreement between a funding source and seller whereby the seller assumes personal responsibility/liability for the obligations of the income stream.

PITI

Principal, interest, taxes, and insurance (aka the monthly housing expense).

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Prepaids

Expenses paid in advance in an escrow account to cover anticipated costs for items such as taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment

A clause in a mortgage that permits the borrower to make payments in advance of the due date.

Prepayment Penalty

An extra charge by the lender for early repayment of debt. Prepayment penalties are allowed in  36 states and the District of Columbia but they may not always be imposed.

Principal

The outstanding portion of debt, excluding interest, remaining on a loan.

Private Mortgage Insurance (PMI)

Insurance provided by a private mortgage lender to insure against loss resulting from borrower default.  PMI is charged when the loan-to-value (LTV) ratio exceeds 80% (less than 20% down payment).   Lenders will usually allow a down payment as low as 5 % to qualifying borrowers.   Private mortgage insurance usually requires an initial premium payment of  1 to 5% of  the  mortgage amount and may require an additional monthly fee depending upon how the loan is structured.

Privately held:
Owed to a private individual or business rather than a bank or other institution.

Profit and loss statement:
A financial statement that details the historical record of a business' income and expenses.

Promissory note:
A written promise to pay a specified amount to a specified party over a certain period of time.

Purchase Money Mortgage

A mortgage given by a buyer to the seller as partial payment for the purchase of real property.

Q  R

Replevin:
A legal proceeding in the courts to seize property (other than real estate) given as security for a debt that is in default.

Reserve:
An amount held in an account to cover potential payment defaults. After a certain period, the funding source will usually rebate the reserve amount to the client less any fees or charges for delinquency (aka a bad debt reserve).

Real Estate Settlement Procedures Act (RESPA)

RESPA is a federal law that allows consumers to review information on estimated settlement costs. 

Recission

The right established by law that gives a homeowner the opportunity to cancel a mortgage contract within three days after it has been signed,  if the mortgage is secured by the borrowers primary home.  

Refinancing

The process of  paying off one loan with the proceeds from another loan.

S

Satisfaction:
The discharge of an obligation as a result of payment in full (i.e., the satisfaction of an IRS lien or the satisfaction of a mortgage).

Secondary Mortgage Market

Markets created by government and private agencies for the purchase and sale of existing mortgages; these markets facilitate liquidity within lending institutions.  

Section 8 Housing

A federal program that provides assistance for lower income households.  HUD pays the difference between the HUD-established allowable rent and the occupants contribution to the project owner.

Security Interest

A creditor's legal right to take property or a portion of property offered as security.

Servicing

The services and operations performed by the lender to keep a loan in good standing to include collection of payments,  payment of taxes and  insurance, property inspections, etc. 

Securitization:
The bundling and sale of debt instruments to investors that are licensed and regulated by the SEC.

Security interest:
An interest in property, other than real estate, which is given as security for a debt. It is created by execution of a security agreement and one or more financing statements under the Uniform Commercial Code.

Seller:
A person or company that holds a debt instrument and is willing to sell it.

Servicing:
The collection of payments of interest, principal, and escrow items such as fire insurance, taxes, etc., in accordance with the terms of the note. Lender servicing also includes the process of accounting, bookkeeping, insurance, tax records, loan payment follow-up, delinquent loan follow-up and loan analysis.

Simple Interest

Interest paid only on the original principal, not on any interest accrued. 

Subordination:
The act of a creditor acknowledging in writing that a debt due him/her shall be inferior to the debt due another creditor by the same debtor.

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T

Tail:
The repayment of an income stream and/or balloon payment that is subsequent to another party's right and interest in the income stream. Usually, it is the back half of a payment stream when another party has purchased the front half.

Tangible personal property:
Personal property other than real estate, such as cars, boats, stocks, or other assets.

Time value of money:
The cost or value of money over a period of time.

Title

A document evidencing an individual's ownership of property.

Title commitment:
A commitment to provide the proposed insured with a title insurance policy once a title search has been conducted,

Title Insurance

A policy issued by a Title Insurance company that insures a homebuyer against errors in the title search. The cost of the policy is usually based on the value of the property. 

Title Policy:
An insurance policy that insures a party against loss due to a defective title.

Title Search

An examination of public records to determine the legal ownership of property. 

U  V  W  X  Y  Z

Uniform Commercial Code (UCC):
Standardized set of guidelines protected by law that establish how business transactions must be conducted. 

Underwriting

The decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

Yield, Yield Rate

[1] A measure of investment return applied to a series of revenues (NOI) and reversion to obtain the present value of each (examples - interest rate, the discount rate, the internal rate of return, and the equity yield rate). [2] Yield to Maturity - The total return realized from an investment from purchase to sale.

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