**Mortgage
terminology.**

**Adjustable
rate mortgage (ARM).**

A
mortgage on which the interest rate, after an initial period, can be changed
by the lender. While ARMs in many countries abroad allow rate
changes at the lender’s discretion (“discretionary ARMs”),
in the US most ARMs base rate changes on a pre-selected interest
rate index over which the lender has no control. These are
“indexed ARMs”. There is no discretion associated
with rate changes on indexed ARMs.

**Alternative
documentation.**

Expedited and simpler
documentation requirements designed to speed up the loan approval
process. The documentation modifications can range from the
modest, such as substituting payroll stubs for tax returns,
to no documentation whatever. Borrowers looking for the latter
should expect to pay at least 30%, and more likely 40% down.

**Amortization.**

The repayment of
principal from mortgage payments that exceed the interest
due. The payment less the interest equals amortization —
which is the same as the reduction in the loan balance. If
the payment is less than the interest due, the balance rises,
which is negative amortization.

**Amortization
schedule.**

A table showing the
mortgage payment, broken down by interest and amortization,
the loan balance, and perhaps other data.

**Application.**

Solicitation
of a loan by a borrower through the provision of a written
request
that includes information about the borrower, the property
and the requested loan. In a narrower sense, the application
refers to a standardized federal application form called
the “1003” which the borrower is obliged to fill
out.

**Application
fee.**

A fee that some lenders
charge to accept an application. It may or may not be refundable
if the lender declines the loan.

**APR.**

The Annual Percentage
Rate, which must be reported by lenders under Truth in Lending
regulations. It is a comprehensive measure of credit cost
to the borrower that takes account of the interest rate, points,
and flat dollar charges. It is also adjusted for the time
value of money, so that dollars paid by the borrower up-front
carry a heavier weight than dollars paid ten years down the
road. However, the APR is calculated on the assumption that
the loan runs to term, and is therefore potentially deceptive
for borrowers in short time applications.

**Approval**.

Acceptance of the
borrower’s loan application. Approval means that the borrower
meets the lender’s qualification requirements and also its
underwriting requirements. In some cases, especially where
approval is provided quickly as with automated underwriting
systems, the approval may be conditional on further verification
of information provided by the borrower.

**Assumable
mortgage.**

A
mortgage contract that allows, or does not prohibit, a creditworthy
buyer from
assuming the mortgage contract of the seller. Assuming a
loan
will save the buyer money if the rate on the existing loan
is below the current market rate, and closing costs are avoided
as well. A loan with a”due-on-sale” clause stipulating
that the mortgage must be repaid upon sale of the property,
is not assumable.

**Automated
underwriting.**

A computer-driven
process for informing the loan applicant very quickly, sometimes
within a few minutes, whether the applicant will be approved,
rejected, or asked for additional information. The quick decision
is based on information provided by the applicant, which is
subject to later verification, and other information retrieved
electronically including information about the borrower’s
credit history and the subject property.

**Balance.**

The amount of the
original loan remaining to be paid. It is equal to the loan
amount less the sum of all prior payments of principal.

**Balloon
mortgage.**

A mortgage which
is payable in full after a period that is shorter than the
term. It therefore has a balloon that must be repaid or refinanced.
On a 7-year balloon loan, for example, the payment is usually
calculated over a 30-year period, and the balance at the end
of the 7th year must be repaid or re-financed at that time.

**Balloon.**

The loan balance
remaining at the time the loan contract calls for full repayment.
as in 5/20 2/28 5/15

**Biweekly
mortgage.**

A mortgage on which
the borrower pays half the monthly payment every two weeks.
Because this results in 26 (rather than 24) payments per year,
the biweekly mortgage amortizes before term. a very popular
option paying off a 30 yr. mortgage in 24 years

**Bridge
loan.**

A
short-term loan, usually from a bank, that “bridges” the period between
the closing date of a home purchase and the closing date of
a home sale. To qualify for a bridge loan, the borrower must
have a contract to sell the existing house.

**Cap.**

A pricing option
exercised by the borrower at the time of the application wherein
the rates and points prevailing at the time cannot rise if
market rates rise, but they can decline if market rates decline.
A cap costs the borrower more than a lock because it is more
costly to the lender. Caps vary widely in terms of how often
the borrower can exercise (usually only once), and exactly
when the borrower can exercise. Do not confuse with interest
rate increase caps and payment increase caps.

**Cash-Out
refinance.**

Refinancing
for an amount in excess of the balance on the old loan plus
settlement
costs. The borrower takes “cash-out” of the transaction.

**Closing
costs.**

Costs
that the borrower must pay at the time of closing, in addition
to the down
payment and points. Also referred to as “settlement
costs”

**Conforming
mortgage.**

A loan eligible for
purchase by the two major Federal agencies that buy mortgages,
Fannie Mae and Freddie Mac.

**Conversion
option.**

The option to convert
an ARM to an FRM at some point during its life. These loans
are likely to carry a higher rate or points than ARMs that
do not have the option.

**Correspondent.**

A lender who delivers
loans to a wholesaler against prior price commitments the
wholesaler has made to the correspondent. The commitment protects
the correspondent against pipeline risk.

**Credit
Report.**

A report from a credit
bureau containing detailed information on an individual’s
credit history.

**Credit
Score.**

A single numerical
score, based on an individual’s credit history, that measures
that individual’s credit worthiness. Credit scores are as
good as the algorithm used to derive them.

**Cumulative
interest. **

The
sum of all interest payments to date or over the life of
the loan. This is an
incomplete measure of the cost of credit to the borrower
because it does not include up-front cash payments, and
it is not
adjusted for the time value of money. See
effective rate.

**Current
index value.**

The most recently
published value of the index used to adjust the interest rate
on indexed ARMs.

**Deferred
interest.**

See negative amortization.

**Discount.**

See points.

**Down-payment.**

The difference between
the purchase price of the property and the loan amount, expressed
in dollars, or as a percentage of the price. For example,
if the house sells for $100,000 and the loan is for $80,000,
the down payment is $20,000 or 20%. The loan amount used in
this calculation does not include any prepaid finance charges
that are included in the loan. For example, if the $80,000
loan in the example above includes a $1,000 up-front mortgage
insurance premium, the down payment is $21,000.

**Due-on-sale
clause.**

A provision of a
loan contract that stipulates that if the property is sold
the loan balance must be repaid. This bars the seller from
transferring responsibility for an existing loan to the buyer
when the interest rate on the old loan is below the current
market. A mortgage containing a due-on-sale clause is not
an assumable mortgage.

**Effective
rate.**

A
term used in two ways. In one context it refers to a measure
of interest cost
to the borrower that is identical to the APR except that
it
is calculated over the time horizon specified by the borrower.
The APR is calculated on the assumption that the loan runs
to term, which most loans do not. uses the term in this
way. In most texts on the mathematics of finance, however,
the “effective rate” is the quoted rate adjusted
for intra-year compounding. For example, a quoted 6% mortgage
rate is actually a rate of .5% per month, and if interest
received in the early months is invested for the balance of
the year at .5%, it results in a return of 6.17% over the
year. The 6.17% is called the “effective rate” and
6% is the “nominal” rate.

**Equity.**

The
difference between the value of a home and the outstanding
loan balance
on the home.

**Fees.**

The sum of all up-front
cash payments required by the lender as part of the charge
for the loan. Origination fees and points are expressed as
a percent of the loan. Junk fees are expressed in dollars.

**FHA
mortgage.**

A mortgage on which
the lender is insured against loss by the Federal Housing
Administration, with the borrower paying the mortgage insurance
premium. The major advantage of an FHA mortgage is that the
required down payment is very low, but the maximum loan amount
is also quite low. While it varies from area to area depending
on local prices, in many areas the maximum is below $250,000.

**First
mortgage. **

The first-priority
claim against the property in the event the borrower defaults
on the loan.

**Fixed
rate mortgage (FRM).**

A mortgage on which
the interest rate is specified in the loan contract and remains
unchanged throughout the term of the mortgage.

**Float.**

An
option which the borrower may exercise at the time of the
application to allow
the rate and points to vary with changes in market conditions
rather than to “lock in” those prevailing at that
time. The borrower may elect to lock at any point but must
do so a few days before the closing.

**Fully
amortizing payment.**

The monthly mortgage
payment which, if maintained unchanged through the remaining
life of the loan at the then-existing interest rate, will
pay off the loan over the remaining life. On some ARMs the
mortgage payment may not rise whenever the interest rate increases,
or the payment increase may be limited by a payment increase
cap. In such case, the payment is not fully amortizing —
if maintained it will not pay off the loan at term — and
at some point it will have to be raised to make it fully amortizing.

**Fully
indexed interest rate.**

The current index
value plus the margin on an ARM. Most ARMs have initial interest
rates well below the fully indexed rate. If the index does
not change from its initial level, after the initial rate
period ends the interest rate will rise to the fully indexed
rate after a period determined by the interest rate increase
cap. For example, if the initial rate is 4% for 1 year, the
fully indexed rate 7%, and the rate adjusts every year subject
to a 1% rate increase cap, the 7% rate will be reached at
the end of the third year.

**Good
faith estimate.**

The list of settlement
charges that the lender is obliged to provide the borrower
within three business days of receiving the loan application.

**Graduated
payment mortgage (GPM).**

A mortgage on which
the payment rises by a constant percent for a specified number
of periods, after which it levels out over the remaining term
and amortizes fully. For example, the payment might increase
by 7.5% every 12 months for 60 months, after which it is constant
for the remaining term at a fully amortizing level.

**Graduation
period.**

The interval at which
the payment rises on a GPM.

**Graduation
rate.**

The percentage increase
in the payment on a GPM.

**Hazard
insurance.**

Insurance
purchased by the borrower, and required by the lender, to
protect the
property against loss from fire and other hazards. It is
the
second “I” in PITI.

**Historical
scenario.**

The assumption that
the index value to which the rate on an ARM is tied follows
the same pattern as in some prior historical period.

**Homeowner’s
equity.**

See equity.

**Housing
expense.**

The sum of mortgage
payment, hazard insurance, property taxes, and homeowner association
fees.

**Housing
expense ratio.**

The
ratio of housing expense to borrower income, which is used
(along with the
total expense ratio and other factors) in qualifying borrowers.
See qualification requirements.

**Initial
interest rate.**

The
interest rate that is fixed for some specified number of
months at the
beginning of the life of a mortgage. On an ARM, the initial
rate is
sometimes referred to as a “teaser” because it
is below the fully indexed interest rate.

**Initial
rate period.**

The number of months
for which the initial rate holds. On ARMs this period can
range from 3 months to 10 years, but on an FRM the initial
rate holds for the life of the loan.

**Investor.**

A borrower who owns
or purchases a property as an investment rather than as a
primary residence.

**Interest
due.**

The portion of the
mortgage payment which goes toward interest on the loan, expressed
in dollars. It is computed by multiplying the loan balance
at the end of the preceding period times the annual interest
rate divided by 12 (on a biweekly mortgage it is divided by
26). It is the same as interest payment except when the total
mortgage payment is less than the interest due, in which case
the difference is added to the balance and constitutes negative
amortization.

**Interest
payment. **

The dollar amount
of interest paid each month. It is the same as interest due
except when the total mortgage payment is less than the interest
due, in which case the interest payment is less than the interest
due; the difference is added to the balance and constitutes
negative amortization.

**Interest
rate.**

The rate charged
the borrower each period, by custom quoted on an annual basis.
A rate of 6%, for example, means a rate of 1/2% per month.
For a monthly payment mortgage the rate divided by 12 is multiplied
by the balance at the end of the preceding month to determine
the monthly interest due.

**Interest
rate adjustment period.**

The frequency of
rate adjustments on an ARM after the initial rate period is
over. The rate adjustment period is sometimes but not always
the same as the initial rate period. As an example, using
common terminology, a 3/3 ARM is one in which both periods
are 3 years while a 3/1 ARM has an initial rate period of
3 years after which the rate adjusts every year.

**Interest
rate index. **

The
specific interest rate series to which the interest rate
on an ARM is tied,
such as “Treasury Constant Maturates, 1-Year,” or
“Eleventh District Cost of Funds.” All the indices
are published regularly in readily available sources.

**Interest
rate ceiling**.

The
highest interest rate possible under an ARM contract; same
as “lifetime
cap.” It is often expressed as a specified number of
percentage points above the initial interest rate.

**Interest
rate floor.**

The lowest interest
rate possible under an ARM contract. Floors are less common
than ceilings.

**Interest
rate increase cap.**

The maximum allowable
increase in the interest rate on an ARM each time the rate
is adjusted. It is usually 1 or 2 percentage points.

**Interest
rate decrease cap.**

The maximum allowable
decrease in the interest rate on an ARM each time the rate
is adjusted. It is usually 1 or 2 percentage points.

**Jumbo
mortgage.**

A mortgage larger
than the maximum eligible for purchase by the two Federal
agencies, Fannie Mae and Freddie Mac, currently $227,150 (see
Non-conforming mortgage). However, some lenders use the term
to refer to programs for even larger loans, such as, e.g.,
greater than $500,000.

**Junk
fees.**

Fees charged the
borrower by the lender for a wide variety of services, actual
and hypothetical, expressed in dollars rather than as a percent
of the loan amount.

**Lien.**

The
lenders
right to claim the borrowers property in the event
the borrower defaults. If there is more than one lien, the
claim
of the lender holding the first lien will be satisfied before
the claim of the lender holding the second lien, which in
turn will be satisfied before the claim of a lender holding
a third lien, etc.

**Loan
amount.**

The amount the borrower(s)
promise to repay, as set forth in the mortgage contract. It
differs from the amount of cash disbursed by the lender by
the amount of points and other credit charges.

**Loan-to-value
ratio.**

The loan amount divided
by the lesser of the selling price or the appraised value.
Also referred to as LTV.

**Lock.**

An
option exercised by the borrower, at the time of the loan
application or later,
to “lock in” the rates and points prevailing in
the market at that time. The lender and borrower are committed
to those terms, regardless of what happens between that point
and the closing date.

**Lock
period.**

The number of days
for which any lock or cap holds.

**Margin.**

The amount added
to the interest rate index, ranging generally from 2 to 3
percentage points, to obtain the fully indexed interest rate
on an ARM.

**Maturity.**

The period until
the last payment is due.

**Maximum
loan amount.**

The largest loan size permitted on a particular
loan program. For programs where the loan is targeted for
sale to Fannie Mae or Freddy Mac, the maximum will be the
largest loan eligible for purchase by these agencies. On FHA
loans, the maximums are set by the Federal Housing

Administration, and vary somewhat by geographical area.

**Maximum
loan to value ratio.**

The maximum allowable
loan-to-value ratio on the selected loan program.

**Maximum
lock. **

The maximum period
for which the lender will provide a rate/point commitment
on any program. The most common maximum lock period is 60
days, but on some programs the maximum is 90 days; only a
few go beyond 90 days.

**Minimum
down-payment.**

The minimum allowable
ratio of down-payment to sale price on any program. If the
minimum is 10%, for example, it means that you must make a
down-payment of at least $10,000 on a $100,000 house, or $20,000
on a $200,000 house.

**Monthly
housing expense.**

The sum of the monthly mortgage payment
(which includes principal and interest), taxes and insurance.

**Monthly
debt service.**

Monthly payments
required on credit cards, installment loans, home equity loans,
and other debts but not including payments on the loan applied
for.

**Monthly
total expenses.**

Monthly housing expense
plus monthly debt service.

**Mortgage
broker.**

The
person who offers the loan products of multiple lenders,
termed wholesalers.
A mortgage broker counsels on the loans available from different
wholesalers, takes the application, and usually processes
the loan. When the file is complete, but sometimes sooner,
the lender underwrites the loan and funds it. In contrast
to a correspondent, a mortgage broker does not fund a loan.

**Mortgage
insurance.**

Insurance provided
the lender against loss on a mortgage in the event of borrower
default.

**Mortgage
insurance premium.**

The up-front and/or
annual charges that the borrower pays for mortgage insurance.
There are different mortgage insurance plans with differing
combinations of monthly, annual and up-front premiums.

**Mortgage
payment.**

The monthly payment
of principal and interest made by the borrower. **Mortgage
program.**

A
bundle of characteristics of a mortgage including whether
it is an FRM, ARM, or Balloon,
the term, the initial rate period on an ARM, whether it is
FHA-insured or VA-guaranteed, and if is not FHA or VA whether
it is “conforming” (eligible for purchase by Fannie
Mae of Freddie Mac) or “non-conforming”.

**Negative
amortization.**

A rise in the loan
balance when the mortgage payment is less than the interest
due. Sometimes called deferred interest.

**Negative
amortization cap.**

The maximum amount
of negative amortization permitted on an ARM, usually expressed
as a percentage of the original loan amount (e.g., 110%).
Reaching the cap triggers an automatic increase in the payment,
usually to the fully amortizing payment level, overriding
any payment increase cap.

**No change
scenario.**

The assumption that
the value of the index to which the rate on an ARM is tied
does not change from its initial level.

**Non-conforming
mortgage.**

A mortgage that does
not meet the purchase requirements of the two Federal agencies,
Fannie Mae and Freddie Mac, because it is too large or for
other reasons such as poor credit or inadequate documentation.

**Non-Permanent
resident alien.**

A non-citizen with
a green card employed in the US. As distinct from a permanent
resident alien, which lenders do not distinguish from US citizens.
Non-permanent resident aliens are subject to somewhat more
restrictive qualification requirements than US citizens.

**Origination
fee.**

An up-front fee charged
by some lenders, expressed as a percent of the loan amount.
Should be added to points in determining the total fees charged
by the lender that are expressed as a percent of the loan
amount.

**Payment
adjustment interval.**

The period between
payment changes on an ARM, which may or may not be the same
as the interest rate adjustment period. Loans on which the
payment adjusts less frequently than the rate may generate
negative amortization.

**Payment
increase cap.**

The maximum percentage
increase in the payment on an ARM at a payment adjustment
date.

**Payment
decrease cap.**

The maximum percentage
decrease in the payment on an ARM at a payment adjustment
date.

**Payment
rate.**

The interest rate
used to calculate the payment, which is usually but not necessarily
the interest rate.

**Payment
shock.**

A very large increase
in the payment on an ARM that may surprise the borrower.

**Payoff
month.**

The month in which
the loan balance is paid down to zero. It is the same as the
term on most loans.

**Pipeline
risk.**

The lender’s risk
that between the time a commitment is given to the borrower
and the time the loan is closed, interest rates will rise
and the lender will take a loss on selling the loan.

**PITI.**

Shorthand for principal,
interest, taxes and insurance, which are the components of
the monthly housing expense.

**Points.**

An
up-front cash payment required by the lender as part of
the charge for
the loan, expressed as a percent of the loan amount; e.g., “3
points” means a charge equal to 3% of the loan balance.
It is common today for lenders to offer a wide range of rate/point
combinations, especially on fixed rate mortgages (FRMs), including
combinations with negative points. On a negative point loan
the lender contributes cash toward meeting closing costs.
Positive and negative points are sometimes termed “discounts”
and “premiums,” respectively.

**Pre-approval.**

A
commitment by a lender to make a loan prior to the identification
of a specific
property. It is designed to make it easier to shop for a
house. Unlike a pre-qualification, the lender checks the
applicant’s
credit. See What Is a Pre-qualification?

**Premiums.**

See “points”.

**Pre-payment.**

A
payment made by the borrower over and above the scheduled
mortgage payment.
If the additional payment pays off the entire balance it
is
a “pre-payment in full”; otherwise, it is a “partial
pre-payment.”

**Pre-payment
penalty.**

A charge imposed by the lender if the borrower
pays off the loan early. The charge is usually expressed as
a percent of the loan balance at the time of pre-payment.

**Pre-qualification.**

Same as qualification.

**Principal.**

The portion of the
monthly payment that is used to reduce the loan balance.

**Processing.**

What the lender does
with your loan application. Processing involves compiling
and maintaining the file of information about the transaction,
including the credit report, appraisal, verification of employment
and assets, and so on. The processing file is handed off to
underwriting for the loan decision.

**Qualification.**

The
process of determining whether a customer has enough cash
and sufficient income
to meet the qualification requirements set by the lender
on a
requested loan. It is sometimes referred to as “pre-qualification” because
it is subject to verification of the information provided
by the applicant. Qualification is short of approval because
it does not take account of the credit history of the borrower.
Qualified borrowers may ultimately be turned down because,
while they have demonstrated the capacity to repay, a poor
credit history suggests that they may be unwilling to pay.

**Qualification
ratios.**

Requirements stipulated
by the lender that the ratio of housing expense to borrower
income, and housing expense plus other debt service to borrower
income, cannot exceed specified maximums, e.g., 28% and 35%.
These may reflect the maximums specified by Fannie Mae and
Freddie Mac; they may also vary with the loan-value ratio
and other

factors.

**Qualification
rate.**

The interest rate
used in calculating the initial mortgage payment in qualifying
a borrower. The rate used in this calculation may or may not
be the initial rate on the mortgage.

**Qualification
requirements.**

Standards imposed
by lenders as conditions for granting loans, including maximum
ratios of housing expense and total expense to income, maximum
loan amounts, maximum loan-to-value ratios, and so on. Can
be viewed as a quantifiable subset of underwriting requirements,
which is more comprehensive and takes account of the borrower’s
credit record.

**Rate.**

See Interest Rate.

**Rate/point
options.**

All the combinations
of interest rate and points that are offered on a particular
program. On an ARM, rates and points may also vary with the
margin and interest rate ceiling.

**Rate
protection.**

Protection
against the danger that rates will rise between the time
a borrower
applies for a loan and the time the loan closes. This protection
can take the form of a “lock” where the rate and
points are frozen at their initial levels until the loan closes;
or a “cap” where the rates and points cannot rise
from their initial levels but they can decline if market
rates
decline. In either case, the protection only runs for a specified
period. If the loan is not closed within that period, the
protection expires and the borrower will either have to accept
the terms quoted by the lender on new loans at that time,
or start the shopping process anew.

**Recast
payment.**

Raising the mortgage
payment to the fully amortizing payment. Periodic recasts
are sometimes used on ARMs in lieu of negative amortization
caps.

**Required
cash.**

The total cash required
of the home buyer to close the transaction, including down-payment,
points and fixed dollar charges paid to the lender, any portion
of the mortgage insurance premium that is paid up-front, and
other settlement charges associated with the transaction such
as title insurance, taxes, etc. The total required cash is
shown on the Good Faith Estimate of Settlement that every
borrower receives.

**Scheduled
mortgage payment.**

The amount the borrower
is obliged to pay each period, including interest, principal,
and mortgage insurance, under the terms of the mortgage contract.

**Second
mortgage.**

The second-priority
claim against a property in the event that the borrower defaults
on the loan. The lender who holds the second mortgage gets
paid only after the lender holding the first mortgage is paid.

**Servicing.**

Administering loans
between the time of disbursement and the time the loan is
fully paid off. This includes collecting monthly payments
from the borrower, maintaining records of loan progress, assuring
payments of taxes and insurance, and pursuing delinquent accounts.

**Simple
interest mortgage.**

A mortgage on which
interest is calculated daily based on the balance at the time
of the last payment. The daily interest is thus the same during
the period between payments.

**Standard
mortgage.**

An FRM with a single
rate and level payments that fully amortizes over its term.

**Subordinate
financing.**

A second lien on
the property securing the loan at the time of closing. This
arises when there is a second lien on the property at the
time the new loan is taken out, and the new loan does not
pay it off.

**Swing
loan.**

See Bridge loan.

**Temporary
buy-down.**

A reduction in the
mortgage payment in the early years of the loan in exchange
for an up-front cash payment provided by the home buyer, the
seller, or both. As an illustration, a 2-1 buy-down on an
8% loan results in a payment in year 1 calculated at 6%, in
year two the payment is calculated at 7%, and in year 3 and
thereafter it is calculated at 8%. The up-front cash payment
must be large enough to cover the difference between the reduced
payments made in the first two years by the borrower and the
regular payment calculated at 8% received by the lender.

**Term.**

The period used to
calculate the monthly mortgage payment. The term is usually
but not always the same as the maturity. On a 7-year balloon
loan, for example, the maturity is 7 years but the term in
most cases is 30 years.

**Total
interest payments.**

The
sum of all interest payments to date or over the life of
the loan. This is an
incomplete measure of the cost of credit to the borrower
because it does not include up-front cash payments, and
it is not
adjusted for the time value of money. See
Effective Rate.

**Total
expense ratio.**

The
ratio of housing expense plus current debt service payments
to borrower income,
which is used (along with the housing expense ratio and other
factors) in qualifying borrowers. See
qualification requirements.

**Underwriting.**

The process of examining
all the data about the borrower(s), property, etc. to determine
whether the mortgage applied for by the borrowers should be
issued.

**Underwriting
requirements.**

The
standards imposed by lenders in determining whether a borrower
qualifies for
a loan. These standards are more comprehensive than qualification
requirements in that they include an evaluation of the borrowers
creditworthiness.

**VA mortgage.**

A mortgage on which
the lender is insured against loss by the Veterans Affairs
Administration. The major advantage of a VA mortgage is that
the required down payment is very low, and maximum allowable
loan amounts are higher than on FHA loans, but only veterans
are eligible.

**Waive
escrows.**

The
borrower has the right to pay taxes and insurance directly.
This is in
contrast to the standard procedure where the lender adds
a
charge to the monthly mortgage payment that is deposited
in an escrow account, from which the lender pays the borrowers
taxes and insurance when they are due. On some loans lenders
will not waive escrows, and on loans where waiver is permitted
lenders are likely either to charge for it in the form of
a small increase in points, or restrict it to borrowers making
a large down payment.

**Wholesaler.**

A lender who provides
loans to borrowers through mortgage brokers or correspondents.
The mortgage broker or correspondent initiates the transaction
and takes the borrower’s application.

**Worst
case scenario.**

The assumption that
the index to which the rate on an ARM is tied rises to 100%
in the second month and remains there. The resulting rise
in the interest rate will depend on the interest rate increase
cap and the interest rate ceiling.

**Wrap-around
mortgage.**

A mortgage on a property
that already has a mortgage, where the new lender assumes
the payment obligation on the old mortgage. Wrap-around mortgages
arise when the current market rate is above the rate on the
existing mortgage, and home sellers are frequently the lender.
A due-on-sale clause prevents a wrap-around mortgage in connection
with sale of a property.

**3/2
Down payment.**

Programs offered
by some lenders under which a borrower who is able to secure
a grant or gift equal to 2% of the down-payment will only
have to provide a 3% down payment from their own funds. This
can be a good deal for a cash-short borrower.