Loan Modification: A transaction in which a lender agrees to modify any or some of the terms of the mortgage. This is a process where an existing note is modified, but not cancelled. Changes may include: extending the term of the loan, changing the monthly payments, changing the interest rate, etc.
Amortization: Repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years)
Annual Percentage Rate (APR): Calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.
ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap.
Bankruptcy: A federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
Borrower: A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Credit history: History of an individual's debt payment; lenders use this information to gauge a potential borrower's ability to repay a loan.
Credit report: A record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history.
Debt-to-income ratio (DTI): A comparison of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
Deed-in-lieu: To avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process doesn't allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.
Delinquency: Failure of a borrower to make timely mortgage payments under a loan agreement.
Equity: An owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s) from the fair market value of the property.
Fair market value: The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Fixed-rate mortgage: A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
Foreclosure: A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
Forbearance: A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.
Forbearance Agreement - An agreement made between a mortgage lender and delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her payments. A forbearance agreement is not a long-term solution for delinquent borrowers; it is designed for borrowers who have temporary financial problems caused by unforeseen problems such as temporary unemployment or health problems
Government Sponsored Enterprises (GSE): The government sponsored enterprises (GSEs) are a group of financial services corporations created by the United States Congress. Their function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market more efficient and transparent. The desired effect of the GSEs is to enhance the availability and reduce the cost of credit to the targeted borrowing sectors: agriculture, home finance and education.
Good faith estimate (GFE): An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
Hard expenses: Hard expenses are monthly expenses that are definite and documented. Examples include installment debt like mortgage payments, car loans, and personal loans. Most hard expenses will be included on one’s credit report.
Interest: A fee charged for the use of money.
Interest rate: The amount of interest charged on a monthly loan payment expressed as a percentage.
Interest Only: A feature of some MLCC loan programs that allows the borrower to pay only the interest on a loan, without paying down any principal with each monthly payment.
Lender: To give/lend money on condition that it is returned and that interest is paid for its temporary use. Banks are commonly known as lenders. Your mortgage broker is not a lender, but rather sold your loan to a lender.
Lien: A legal claim against property that must be satisfied when the property is sold.
Loan-to-value (LTV) ratio: A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.
Loss mitigation: A process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan. - A negotiation between the lender and the borrower, usually conducted by a third party intermediary, to arrive at a work out alternative to a foreclosure. The process includes the same principle as a loan pre-qualification where as the borrower's income, assets, credit, and employment documents are presented to the lender to exhibit just how much the borrower can afford. Often times, the lender will restructure the loan accordingly by reducing the interest rate and apply the arrears to the end of the loan.
Misleading Disclosures- The act of creating a disclosure document in such a language as to intentionally confuse the client in regards to the terms and conditions of a contract when more concise language is an option as in layman terms. Example: Borrower A thought he was getting a 30 year fixed rate mortgage. The language on the loan documents read this; "this loan is to amortized over a 360 month period at the rate of 6.5% subject to the index published in the Wall Street Journal in the 13th month following the first year in which hence the margin of 2.25% shall apply to said index" In other words, Borrower A was duped into signing loan documents agreeing to a 2 year fixed rate mortgage at 6.5%. It took 2 years for this borrower to find out that he didn't have a 30 year fixed rate mortgage. Clear and comprehensible language was clearly not the intent of the documents originator in this example. Plain and simple: "this loan is a 24 month fixed rate at 6.5% and the rate thereafter shall be adjusted annually based on the margin of 2.25% plus the Index as published in the Wall Street Journal on the date of the adjustment for a period of 336 months."
Misrepresentation- The revision of any terms of agreement on a contract without your consent. Example: Your original Purchase agreement states that "Buyer shall apply and qualify for a 30 year fixed rate mortgage bearing interest at 6.00%" You have determined that under those terms, the payments would be affordable. You then apply for a loan under those terms and your initial loan application reflects these terms accordingly. You then receive all the compliance disclosures in the mail which appears to be a little different then what you applied for. You are told that you do not need to sign those disclosures because they are simply "Compliance Disclosures." As time goes on, the lender modifies the loan terms even more and fails to notify you in writing, or require you to execute (sign) a modification agreement. Then at closing, you are presented with a "take it or leave it" set of loan documents that grossly changes your original intent. All the while, you have paid for an appraisal, an earnest money deposit, given a 30 day notice to your landlord, did your packing, and made utility arrangements for your new home. Simply put, you were taken advantage of and put into a loan that sounded good and were told that it was the only loan you could get.
Mortgage (Mortgage Backed Security): A lien on the property that secures the Promise to repay a loan.
Mortgage banker: A company that originates loans and resells them to secondary mortgage lenders like: Fannie Mae or Freddie Mac.
Mortgage broker: A firm that originates and processes loans for a number of lenders.
Mortgage insurance: A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price.
Over Stated Income- The over stating of income on a "Stated Income" loan that grossly exceeds the reasonable income of the applicant's job description as posted on Salaries.com. Often times the income as stated on the original loan application that the borrower signs is within reasonable limits. Then, when the borrower signs the final loan documents, a revised loan application with unreasonable income is presented for the applicant's signature. This is evidence that the applicant could not afford any future mortgage payments when the loan recasts because the reasonable income could not be used for qualifying debt to income ratios. In other words, you obviously couldn't afford that particular mortgage product from the get go and yet the lender put you into it anyway for the likely purpose of a higher commission.
Over Stated Values- The over evaluation of a property's true market value by an appraiser who is an employee of the lender, or is a fee appraiser influenced by future business from a lender. Appraisers who uses unrealistic comparable sales when exact model matches were available, or nonexistent amenities to justify a value has essentially "over stated the value." This action could cause you to pay much more for a home in the beginning than what it was actually worth. Thus, you were backwards in value before the receding market began. Because the appraiser was influenced by his/her employer, or by the needs of a listing agent or lender from whom they get business, you paid much more for the house than you should have. Nobody can say it's your fault because nobody offered you an option to choose your own appraiser.
Principal Balance Reduction: Instance where the bank forgives a portion of your principal balance as part of a loan modification. The mortgage payment due for this note is based off the new loan amount. Only applicable in heavily depreciated areas.
Refinancing: Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).
Repayment Plan: Adding a portion of the delinquent mortgage balance on top of the normal monthly payments until caught up.
RESPA: Real Estate Settlement Procedures Act (visithttp://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm for details) - "Real Estate Settlement And Procedures Act" is a consumer protection statute, first passed in 1974. One of its purposes is to help consumers become better shoppers for settlement services. Another purpose is to eliminate kickbacks and referral fees that increase unnecessarily the costs of certain settlement services. RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers. RESPA also prohibits certain practices that increase the cost of settlement services. Section 8 of RESPA prohibits a person from giving or accepting any thing of value for referrals of settlement service business related to a federally related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed. Section 9 of RESPA prohibits home sellers from requiring home buyers to purchase title insurance from a particular company. Generally, RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. HUD's Office of Consumer and Regulatory Affairs, Interstate Land Sales/RESPA Division is responsible for enforcing RESPA.
Reverse Engineering- The act of computer alterations of a document or documents after the documents have been executed by the parties to a contract. Example: Your loan originator has you sign the final loan documents bearing terms and conditions you have agreed to. After funding, the originator sells that loan to a wholesale pool who alters the terms and conditions to increase the Note's value then sells it on the secondary market for a higher premium. This could go unnoticed by the borrower for years if not forever. On an adjustable rate mortgage, a simple change in the rate's margin would reap a substantial profit when the note is sold to a secondary market investor.
Short Sale: A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes.
Soft expenses: Monthly expenses that fluctuate and are difficult to document. These include food, gas, incidentals, entertainment and are not reported on one’s credit report.
Teaser Rate: A temporary rate reduction at the inset of a loan.
TILA: Truth in Lending Act. (Visit http://www.fdic.gov/regulations/laws/rules/6500-200.html for details)
For more information, or for help, go to http://www.fredsolomon.net or call for help: (800) 811-7709
The most common mortgage modifications are listed below:
lowering the mortgage interest rate
reducing the mortgage principal balance
fixing adjustable interest rates within the mortgage
increasing the loan term throughout the mortgage
forgiveness of payment defaults and fees
or any combination of the above.
Posted by: beachdude | February 01, 2009 at 07:49 AM