Broker
An independent middleman who arranges deals between borrowers and lenders. A broker is compensated for his services by the borrower and/or by the lender.
Closed-End Home Equity Loan
A loan made for a specific amount and time period.
Combined LTV
The method by which a lender calculates the Loan-to-Value ratio on a home equity loan. It is based on the sum of the mortgage debt, compared to the fair market value of the home.
Conforming and Non-Conforming Loans
Types
of loans available to different categories of borrowers. While conforming
loans follow the strictest guidelines for eligibility, non-conforming loans
are offered by many lenders in the form of a range of programs, which are
tailored to individual circumstances. Ratings for conforming loans are "A" while for non-conforming loans they are "A-"; "B"; "C"; and "D." Consumers with an "A-" rating have good credit histories while those with a "D" are
considered to be a higher credit risk.
Debt Service
The combined principal and interest due on loans each month.
Earned and Unearned Income
While earned income is based on wages, salary, or business profits, unearned income refers to interest, dividends, rental income, pension benefits, and the like.
First Lien
A primary claim by the lender for satisfaction of outstanding debt.
GSEs
Government-sponsored enterprises such as Fannie Mae and Freddie Mac that are beginning to participate in the home equity lending industry.
HOEPA
Passed
by Congress in 1994, the Homeowners’ Equity Protection Act, prevents some
predatory lending practices. It established regulations for closed-end loans
made at higher rates or costs and fees.
Home Equity Lines of Credit
Similar
to a credit card, money used from that "account" is borrowed against
the equity of the home.
Index Rate
A composite rate used by lenders that reflects general trends of interest rates such as those on Treasury notes. When determining changes in interest rates on adjustable rate mortgages, lenders charge a set amount above the index rate.
Loan-to-Value Ratio
A comparison of the amount of the loan to the appraised value of the property.
Origination Fees
The fees
or "points" a lender charges to process a loan. Usually based on
the amount of the loan, one point equals one percent of that loan amount.
Pre-Payment Penalty
A fee imposed by certain lenders if the mortgage is paid off before it matures.
RESPA
The Real Estate Settlement Procedures Act requires that consumers receive disclosures at various times in the borrowing process and outlaws kickbacks that increase the cost of settlement services.
Securitization
Bundling a number of individual home equity mortgages to spread the risk for investment.
TILA
The Truth in Lending Act was primarily enacted to prevent abuses in consumer credit cost disclosures and to require uniformity in such disclosures throughout the credit industry by making terms of credit known to consumers.
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