Mortgage Glossary

Below are some terms and their meanings.
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.
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.
The failure of a borrower to comply with the terms of a note or the provisions of a mortgage.
Fixed-Rate Mortgage
A mortgage loan in which the interest rate does not change during the entire term of the loan.
The lender’s postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.
The legal process by which property that is mortgaged as security for a loan may be sold to pay a defaulting borrower’s loan.
Guaranty Fee
Compensation paid by a lender to Fannie Mae for the guarantee of timely payments of principal and interest to MBS security holders.
Intermediate-Term Mortgage
A mortgage loan with a contractual maturity at time of purchase equal to or less than 20 years.
Loan-to-Value (LTV) Ratio
The relationship between the dollar amount of a borrower’s mortgage loan and the value of the property.
Medium-Term Notes
Unsecured general obligations of Fannie Mae with maturities of one day or more and with principal and interest payable in U.S. dollars.
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.
Abbreviation for Notice Of Default.
Notice of Default
An official notice filed and recorded by a designated trustee at the request of a lender indicating lender has commenced foreclosure action.
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 that 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.
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.
Short Refinance
Short refinance is the replacement of a mortgage, usually with a reduced mortgage, when the borrower is already in default. This is done to transition the borrower to a more affordable payment structure. The lender has to write off the difference between the old mortgage and the new mortgage, but in some cases, this may be preferable to foreclosure.
Short Sale
To sell a home through negotiation with the bank or lender, who agrees to accept less than the full amount owed to satisfy the debt allowing the debt to be ‘paid off’, short. Short sales are subject to bank approval and are often used as options in lieu of foreclosure.
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.


Related: Common Real Estate Terms – A glossary