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A Glossary of Mortgage Loan Investing Terms

Alternative investments don't need to be confusing. Not a mortgage broker; a mortgage investor.


Accredited investor: Investor that is allowed to purchase securities by satisfying SEC requirements regarding their income, net worth, and/or professional experience.

Amortizing mortgage loan: Mortgage loan that requires scheduled payments of principal and interest, with the majority of the interest paid at the beginning of the loan.

Arrears: Unpaid interest during a period of mortgage loan default.

Assignment of mortgage/deed of trust (AOM): Recorded document that transfers ownership interest of a lien to a subsequent lender.

Allonge: Paper attached to a promissory note that transfers ownership of the note to a new lender.

Allonge chain: All of the endorsements/allonges required to transfer the note from the original lender through to the current lender.

AOM chain: All of the mortgages/deeds of trust required to transfer ownership of the lien from the original lender through to the current lender.

Automated Valuation Model (AVM): A sophisticated modeling software that determines property values by combining property data with recent sales transactions.

Balloon payment: A one-time payment required to fully pay off a mortgage prior to its full amortization.

Bankruptcy: Legal process through which individuals or entities who cannot repay debts to creditors may seek relief from some or all their debts.

Bankruptcy discharge: Upon completion of a bankruptcy case, an order that releases the debtor from personal liability for certain specified types of debts.

Bankruptcy dismissal: An order prior to bankruptcy discharge that closes the bankruptcy case without any legal protections for the debtor.

Bankruptcy lien strip: A bankruptcy filing that eliminates a junior lien without equity.

Bankruptcy trustee: Party responsible for overseeing the debtor’s estate in a bankruptcy case.

Borrower: The party who pays back a mortgage loan in equal installments in accordance with the promissory note.

Broker Price Opinion (BPO): The estimated value of a property as determined by a real estate broker or other qualified individual or firm.

Cherry picking: An industry term for bidding on individual loans of an investor’s choice versus purchasing an entire pool.

Collateral custodian: Business that handles all mortgage loan collateral–related needs for investors.

Collateral file: All the required documents relating to a mortgage loan.

Collateral property: The property that the lien is filed against and pledged by the borrower as security for a mortgage loan.

Creditor: A bankruptcy term for the party that is owed money.

Cutoff date: The date after which all borrower payments will belong to the purchaser of a mortgage loan.

Debtor: A bankruptcy term for the party who owes money.

Deed: Legal instrument used to transfer property ownership from the old owner to the new owner.

Deed in lieu of foreclosure: An agreement in which a borrower agrees to transfer ownership of a property to the lender in exchange for dismissal of a foreclosure action.

Deed of trust: A recorded instrument securing a loan to the collateral and used mainly in nonjudicial foreclosure states.

Default: Occurs when a borrower stops making required payments on a mortgage loan.

Deferred balance: Usually occurring in a loan mod, the postponement of a portion of a loan balance to a later date and without any regularly scheduled monthly payments.

Discount: A mortgage loan sale price for less than the full UPB.

Due diligence: The steps taken by an investor to determine whether a mortgage loan is a proper investment.

Endorsement: A stamp on the original promissory note that is used to transfer ownership of the instrument to a new lender.

Equity: The current value of a property minus any debt owed by the owner.

Escrowee: A third party used to oversee a mortgage loan purchase between parties.

Estoppel affidavit: Typically used for self-serviced loans; a notarized statement from the borrower agreeing to certain stated loan terms, usually the UPB.

Financial calculator: A specialized calculator used to calculate yield to maturity.

Financial institution: A banking entity that lends depositor funds to borrowers.

First lien: The mortgage recorded first; retains right to first priority for payoff.

Forbearance agreement: A short-term agreement that allows a borrower to temporarily pause or reduce their payments during a time of hardship.

Forced-placed insurance policy: An insurance policy placed by a lender when the property owners’ insurance is canceled or has lapsed.

Foreclosure: A legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.

Funding date: In an LSA, the date that the funds are due to the seller.

Health Savings Account (HSA): A tax-advantaged medical savings account available to individuals who are enrolled in a high-deductible health care plan.

Home Equity Line of Credit (HELOC): Usually a junior lien mortgage in which the lender provides a mortgage loan and the collateral is the borrowers equity in their house.

Indicative bid: An initial bid placed by an investor on a mortgage loan subject to certain conditions.

Individual Retirement Account (IRA): A tax-advantaged account designed for retirement savings.

Interest rate: A fee charged by a lender in exchange for a loan, usually payable in installments.

Investment to value (ITV): The amount of money invested by an investor to purchase a mortgage loan, divided by the value of the property.

Judicial foreclosure: A foreclosure action required to go through the court system.

Lender: An individual or business that lends money.

Lender’s title policy: A policy that protects the lender from problems or claims against a property’s title.

Lien: Provides a lender a legal claim on a property until a debt is paid off.

Loan modification: A written agreement that changes the original terms of a mortgage contract agreed to by the lender and borrower.

Loan sale agreement (LSA): The formal contract used to sell a mortgage loan between parties.

Loan servicer: Private company that collects payments and handles administrative responsibilities required for a mortgage loan in exchange for a fee.

Loan to value (LTV): The amount of money owed by a borrower, divided by the value of the property.

Lost note affidavit: An affidavit filed to justify the loss or destruction of a note secured by a deed of trust or mortgage.

Maturity date: The date on which the final payment is due on a mortgage loan.

Mortgage: A recorded instrument securing a loan to the collateral and used mainly in judicial foreclosure states.

Nonjudicial foreclosure: A foreclosure action that is not required to go through the court system.

Nonperforming loans (NPLs): Mortgage loans that have gone at least ninety days without payment.

Notarization: The witnessing of a legal signature by a licensed third party.

Owner occupied: A property that is a borrower’s primary residence.

Par: A mortgage loan sale price for 100 percent of the UPB.

Partial loan purchase: The sale from an existing mortgage loan of a specified number of payments at a specified yield to a third-party investor.

Pay history: A servicing record used to verify the existing balance and monthly and late payments for a mortgage loan account.

Performing loan: A mortgage loan that is current and in good standing with its lender.

Primary residence: The dwelling where a borrower personally lives the majority of the time.

Principal: The amount of debt a borrower owes; also a noninterest portion of a monthly mortgage loan payment.

Promissory note (note): A legal instrument in which a borrower promises in writing to repay a loan under specific terms.

Reperforming loans (RPL): Loans that were previously delinquent but have resumed performing status, frequently under modified terms.

Representations and warranties: In an LSA, statements and promises of good faith from a seller to a buyer.

Roth IRA: Type of IRA in which deposits are made from post-tax income, in which future growth is tax-free.

Schedule A: An addendum to the LSA listing the loans being sold and their individual data, including UPB.

Second lien (junior lien): The mortgage recorded second; retains right to second priority for payoff.

Secondary market: The market in which whole mortgage loans are sold after origination.

Secured creditor: A bankruptcy term for a creditor whose loan is guaranteed by some form of collateral.

Secured loan: A loan in which collateral is promised to guarantee the repayment of the loan.

Self-directed IRA: An individual retirement account that allows alternative investments for retirement savings.

Self-servicing: A mortgage loan that is serviced by an individual investor; not recommended.

Seller financing: A loan provided by the seller of a property to the purchaser.

Servicing transfer: The process of transitioning a loan between servicers in accordance with applicable state and federal laws.

Sophisticated investor: An investor who is deemed to have sufficient experience and industry knowledge to understand an investment offering.

Tape: An industry term for a spreadsheet that contains data on mortgage loans for sale.

Title report: A researched document that outlines the legal status of a property and related information on its ownership.

Traditional IRA: Type of IRA in which taxes are deferred until the funds are accessed in retirement.

Underwrite: Formal steps taken to determine the risk profile of a loan.

Unpaid Principal Balance (UPB): The portion of a mortgage loan at a certain point in time that has not yet been repaid to the lender.

Unsecured loan: Loan issued only based on the borrower’s credit worthiness, without any collateral.

Whole loan: An individual loan issued to a borrower in which the lender retains 100 percent ownership interest in the debt owed.

Yield: An investor’s annual return over the life of an investment.

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