The Complete Dictionary of Mortgage & Lending Terms Explained Simply: What Smart Investors Need to Know

The Complete Dictionary of Mortgage & Lending Terms Explained Simply

What Smart Investors Need to Know

The Complete Dictionary of Mortgage & Lending Terms Explained Simply: What Smart Investors Need to Know

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The complete dictionary of mortgage & lending terms explained simply : what smart investors need to know / by Atlantic Publishing Group, Inc.

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ISBN-13: 978-1-60138-014-2 (alk. paper)

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Table of Contents

Foreword

Introduction

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B

C

D

E

F

G

H

I

J

K

L

M

N

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Q

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Foreword

The American educational system has always served as a model and a worldwide leader in its ability to teach fundamentals in mathematics and reading. Despite the results of our standardized tests suggesting weaknesses in certain geographic communities, our schools continue to produce professionals in all walks of life who lead the world in producing innovative solutions and new technologies.

Unfortunately, most observers would agree about the need for more financial training, as this sphere of learning is generally acquired through on-the-job experience. We have shown glaring weaknesses in the ability to manage a budget and make sound investment decisions, and in the government, handle our national debt.

That is one reason why The Complete Dictionary of Mortgage & Lending Terms Explained Simply fills a vital need for financial novices and professionals alike. Both graduates and self-made executives need tools to support them in their current careers, as the days since school, for many of us, have long past.

As the president of a national residential mortgage firm, Guaranteed Home Mortgage Company, I interact with branch managers across the nation who are looking to our corporate headquarters to provide tangible support for their operations. In the process, many of them have shown a high degree of financial sophistication, but from time to time, evidence reveals major gaps in their knowledge.

In order to effectively converse with them, we need to share a common language — a need filled by this book. When our department heads in underwriting, compliance, branch development, operations, and quality assurance distribute company-wide memos, they often use technical terms unfamiliar to some of our employees. This book helps to bridge the gap in our financial backgrounds.

Secondly, American citizens outside of the financial industry have learned all too well the dangers of poor education in this field. The amount of consumer debt we have compiled as a society shows an inability to make even the most elementary budget decisions. And, government budgetary matters also demonstrate the danger of a poor financial background.

In my field, we have seen outright fraud perpetuated through the promotion of adjustable-rate mortgages to homeowners unable to meet future obligations. Established companies such as Guaranteed suffer from these outliers who took advantage of the system, and our entire industry gets painted with a broad uncomplimentary brush as a result.

The public has suffered from a lack of financial literacy in its investment decisions in other arenas as well. Derivatives and other complicated financial products have become so esoteric only those with intimate knowledge of their workings are even able to understand the associated problems. As our societies become increasingly interconnected, it is essential to avoid misunderstandings and to be able to communicate in a clear and effective manner.

Of course, many of these issues require more targeted publications — books and trade publications, business journals, and white papers — to serve as an explanatory medium. But what happens when you are in the middle of a crucial section, and you stumble upon a word you do not understand?

Learning and reading a foreign language requires a French/English dictionary, so when you read a financial treatise, you should have the same support. When I was undergoing legal training, I could not have survived without Blackstone’s Legal Dictionary. This book provides the same essential service for the financial field.

David A. Wind, J.D., M.S.

President and chief executive officer

Guaranteed Home Mortgage Company, Inc.

David Wind, an attorney, is principal and president of Guaranteed Home Mortgage Company (Guaranteed, www.ghmc.com). Previously, he served as a financial analyst of mortgage-backed securities at Citicorp Investment Bank and clerked in the real estate finance department of the New York State Attorney General’s Office.

Founded in 1992, Guaranteed, a licensed mortgage investment and banking firm, comprises more than 300 mortgage professionals lending in 27 states. The company, previously named in the Inc. 500 list of the fastest growing companies in the United States, provides residential mortgage financing to a wide variety of consumers and real estate professionals.

Table of Contents

Introduction

Nikki Roberts had accomplished a lot of things in her life. She received her bachelor’s degree from a prestigious university and even graduated Summa Cum Laude. She also managed to score that primo public relations job with the firm she always admired while studying the field in college. Nikki had a wonderful husband, Desmond, who was quite successful himself. Most importantly, they made each other happy.

Even though there were some important milestones left to check off in their lives — always something new to accomplish — above all others, there was one Nikki could not get out of her head: Nikki wanted to own a home.

That dream was planted at an early age while spending so much time with her father and Uncle Joey, who was many things in life, but above all, he was someone who loved to invest in real estate. In fact, he did quite well with it. So with many of her other major goals in life checked off, Nikki decided it was time to find a house she could call her own.

Uncle Joey was getting older and, for the most part, had retired from real estate investing, but Nikki trusted his opinion in these matters above anyone else’s. She went to talk to him about it because she could not find a mortgage deal that would not completely strip her of all of the luxuries. Unfortunately, due to Nikki’s love for extra luxuries, her credit score was low and banks were hesitant about giving her a loan.

But never fear; Uncle Joey always had a plan. He told her the real estate market was one in which you could make a few mistakes but still end up on top because housing prices were always going up. History never lies, he said. This gave her the confidence to take out a somewhat pricey mortgage loan — something she was a little hesitant to do. When she took those first steps into her new home, she figured it was all worth it. She knew as housing prices continued to rise, she would be able to refinance, and her monthly mortgage payment would decrease. She just had to get through the growing pains that came with taking that next big step in life.

Unfortunately, Uncle Joey’s time away from the real estate market had left him a little rusty at calling his usual spot-on real estate shots. It is doubtful even he would have been able to predict the crash of the housing market in 2007. Not many people did. As the economy started to teeter and eventually fall flat on its face, Nikki and Desmond had to take pay cuts to keep their jobs. In fact, they were lucky to have jobs. Many of their friends did not. Where they were not lucky, though, was in their standing with the mortgage.

Nikki never really understood all that nonsense Stu, her mortgage broker, was spewing at her when she signed her name on the dotted line. So, when Stu told her there was no way she would ever refinance her loan, she was devastated.

Nikki and Desmond had to surrender the house just to survive. They rented a small apartment and did not get a good night sleep for quite a while after seeing the For Sale sign in their front yard. Nikki vowed never again to go into a deal without knowing more than her adversary sitting across the table. If things work out for her the way they did once upon a time, she might get that chance again.

Many people who were crushed in the 2007 housing market crash did not fully understand what they were getting themselves into when they signed their name to the mortgage documents. But you do not have to be one of those people. With The Complete Dictionary of Mortgage & Lending Terms Explained Simply in hand, you can easily translate every phrase that comes flying off your real estate agent and broker’s tongue.

With easy-to-understand definitions, this dictionary covers everything from accrued interest to wraparound mortgages. It covers types of mortgages, parts of loan agreements, types of insurance, and even home-inspection terms. This