mortgage loan glossary word vocabulary terms phrases

A

A.M. Best Company: A company that establishes financial-strength ratings for insurance carriers by evaluating their balance sheet strength, operating performance, and business profile.
accrual rate: The rate at which interest is calculated. For a particular remittance date for an MBS pool, it is the mortgage interest rate due under the terms of the mortgage note during the period beginning on the second day of the month preceding the remittance date and ending on the first day of the month in which such remittance date occurs, less the lender’s servicing spread.
actual/actual remittance type: A remittance type that requires the lender to remit to Fannie Mae only the actual interest due (if it is collected from borrowers) and the actual principal payments collected from borrowers.
Additional Data Elements: A Fannie Mae Web-based application that allows lenders to electronically deliver housing goals information to Fannie Mae after a loan has been submitted through Loan Delivery.
adjustable-rate mortgage (ARM): A mortgage loan that permits the lender to periodically adjust the interest rate on the basis of changes in a specified index.
affiliated projects: Condo, co-op, and PUD projects that are under the same master association or share the use of common facilities that are either owned individually or as part of a master association or development. Multiple condo, co-op, or PUD projects that do not have one of these characteristics, but are managed by the same management company, are considered unaffiliated projects.
allonge: An attachment to a legal document that is used to insert language or signatures when there is no space for them on the document itself. Frequently used to add endorsements to the mortgage note.
all-risk insurance: An insurance policy that provides coverage for every conceivable risk except those specifically excluded by the policy itself, as opposed to a “named-perils” policy that covers only those risks specifically set forth in the policy.
amenities: Features that enhance the project but are not essential to the project’s use. Examples include, but are not limited to, swimming pools, fitness centers, tennis courts, playgrounds, gardens, or beach access.
American Land Title Association (ALTA): A national association of title insurance companies, abstractors, and title agents. The association speaks for the abstract and title insurance industry and establishes standard procedures and title policy forms.
amortization: Gradual reduction of the mortgage debt through periodic payments scheduled over the mortgage term.
amortization schedule: A timetable for payment of a mortgage that shows the amount of each payment that should be applied to interest and principal and the remaining unpaid principal balance after each payment is applied.
appeal: A responsible party may dispute in writing a demand issued by Fannie Mae. The “appeal process” includes both the first and second appeals available to the responsible party.
application date: The date on which receipt of the borrower’s financial information first triggers the federal Truth in Lending disclosure requirements to the borrower in connection with the mortgage loan.
appraisal waiver: An optional offer to waive the appraisal requirement for certain loan casefiles underwritten in DU. Formerly known as a property inspection waiver or property fieldwork waiver.
appraisal: A report that sets forth an opinion or estimate of value.
ARM Flex: ARM MBS pools that provide interest accruals at a weighted-average pool accrual rate (which is developed by using either a fixed MBS margin or a weighted-average MBS margin). Because the application of the interest rate caps for the mortgage and the pool will coincide, the pass-through rate for a mortgage will not increase on any change date in which the interest rate cap limits the interest rate that is charged to the borrower.
ARM Flex Plus: ARM MBS pools that provide interest accruals at a weighted-average pool accrual rate (which is developed by using a fixed MBS margin) and allow interest rate caps to be applied independently to the individual mortgages in the pool and to the pass-through rate for the pool. This means that the pass-through rate for a mortgage may continue to increase even when no further increases can be made to the borrower’s interest rate.
As Soon As Pooled (ASAP) Plus settlement: A settlement option in which a lender can deliver individual mortgages to Fannie Mae as much as 60 days before they are redelivered for whole loan purchase or allocated to a specific MBS pool.
As Soon As Pooled (ASAP) Sale settlement: An MBS settlement option in which a lender delivers pools of mortgages to Fannie Mae and receives a cash payment for them, with the securities from the delivered pools being used to satisfy a trade with either Fannie Mae or a third party.
assignment of rents: A written agreement wherein the owner of a property gives another party, such as the mortgagee or creditor, the right to collect rents, manage the property, pay expenses, and apply the net income toward delinquent mortgage payments.
assumption: A transaction in which the purchaser of real property takes over the seller’s existing mortgage; the seller remains liable for the mortgage unless released by the lender from this obligation. The terms describing whether or not the loan is assumable are typically set forth in the security instrument.
Automated Clearing House (ACH): An electronic drafting system that debits (or credits) an authorized bank account and electronically transfers funds to (or from) another designated account.
automated valuation model (AVM): AVMs are statistically based computer programs that use real estate information, such as comparable sales, property characteristics, tax assessments, and price trends, to provide an estimate of value for a specific property.

B

back-end buyout fee: A fee that applies when a lender fails to deliver the mandatory delivery amount under a non-conversion Master Agreement or the sum of all the mandatory delivery amounts under a conversion Master Agreement by the specified expiration date of the applicable Master Agreement.
balances-to-limits ratio: The relationship between the outstanding balance(s) on an individual’s revolving debt(s) to the total credit limit allowed for the revolving debt(s).
balloon mortgage: A mortgage that has level monthly payments that would fully amortize it over a stated term, but which provides for a lump-sum payment to be due at the end of an earlier specified term.
balloon payment: The outstanding balance due on a balloon mortgage that must be paid in a lump sum at the end of the mortgage term.
bankruptcy: A legal proceeding in federal court in which a debtor seeks to restructure his or her obligations to creditors pursuant to the Bankruptcy Code. This generally affects the borrower’s personal liability for a mortgage debt, but not the lien securing the mortgage.
basis points (bps): One one-hundredth of one percent. For example, 7½ basis points equal 0.075 percent or 0.00075.
Best’s Insurance Reports: A publication issued by the A.M. Best Company, which establishes ratings for property insurance carriers by evaluating their assets and liabilities.
blanket insurance policy: A single policy that covers more than one piece of property (or more than one person).
blanket mortgage: A mortgage that is secured by a co-op project, as opposed to the share loans on individual units within the project.
book-entry delivery: An electronic system that allows for the issuance, maintenance, and transfer of mortgage-backed securities on the records of the U.S. Federal Reserve Banks. The system may be accessed through financial institutions that have book-entry accounts at one of the Federal Reserve Banks. Book-entry for Fannie Mae’s securities is available through all of the Federal Reserve Banks.
book-entry delivery date: The actual date that Fannie Mae issues mortgage-backed securities to the designated book-entry account for a financial institution that has such an account with one of the Federal Reserve Banks. The book-entry delivery date and the settlement date for the securities may be the same day.
borrower: The person to whom credit is extended. On a mortgage loan, the person who has an ownership interest in the security property, signs the security instrument, and signs the mortgage/deed of trust note (if his or her credit is used for qualifying purposes). See also co-borrower.
bridge (or swing) loan: A short-term loan secured by the borrower’s present home (which is usually for sale) that allows the proceeds to be used for closing on a new house before the present home is sold.
broker origination: A mortgage loan that is originated under circumstances where a person or firm other than a mortgage loan seller or lender correspondent is acting as a “broker” and receives a commission for bringing together a borrower and a lender. The broker performs some of the loan processing functions (such as taking loan applications; ordering credit reports, appraisals, and title reports; and verifying a borrower’s income and employment), but does not underwrite the loan, fund the loan at settlement, or service the loan. Typically, the mortgage loan is closed in the name of the mortgage loan seller or lender correspondent that commissioned the broker’s services, but may also include so-called “table-funded” mortgage loans where the loan is closed in the broker’s name, but is funded by the mortgage loan seller or the lender correspondent.
broker price opinion (BPO): A written estimate of the probable sales price of a property performed by a real estate broker or sales person with or without an interior property inspection. Commonly used for quality control and loss mitigation.
builder’s risk insurance: A type of property insurance that is obtained for improvements that are being constructed, which protects against losses during the construction period that are the result of theft, vandalism, and acts of nature (including fire, flood, and wind damage). (This type of insurance was previously referred to as construction site insurance.)
business day: A day other than (1) a Saturday or Sunday, (2) a day on which the Federal Reserve Bank of New York (or other agent acting as Fannie Mae’s fiscal agent) is authorized or obligated by law or executive order to remain closed, or (3) a day on which the main offices of Fannie Mae in the District of Columbia are scheduled to be closed. In this Guide, the word “day” without the modifier “business” refers to a calendar day.
buydown account: An account in which funds are held so that they can be applied as part of the mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.

C

capitalization: The addition of certain amounts due under the mortgage—such as tax and insurance payments made by the servicer or delinquent interest installments—to the unpaid principal balance of the mortgage, either because the borrower was unable to pay them or the servicer paid them on the borrower’s behalf.
cash back pair-off: A process under which Fannie Mae provides a lender cash back if the lender is unable to meet the terms of a mandatory whole loan delivery commitment and, because of market fluctuations, the applicable whole loan price at commitment is greater than the price at the time of pair-off.
cash-out refinance: A refinancing transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens.
closing costs: Money paid by the borrower to effect the closing of a mortgage loan. This generally includes an origination fee, title exam, title insurance, survey, attorney’s fees, prepaid items such as taxes and insurance escrow payments, and any discount points paid.
co-borrower: For Fannie Mae’s purposes, this term is used to describe any borrower other than the first borrower whose name appears on the mortgage note, even when that person owns the property jointly with the first borrower (and is jointly and severally liable for the note).
coinsurance clause: A provision in a property insurance policy that states the minimum amount of coverage that must be maintained—as a percentage of the total value of the insurable property, in order for claims for insurance losses to be paid based on replacement costs up to the total coverage amount of the insurance policy.
combined loan-to-value (CLTV) ratio: A ratio that is used for a mortgage loan that is subject to subordinate financing, which is calculated by dividing the sum of (1) the original loan amount of the first mortgage, (2) the drawn portion (outstanding principal balance) of any HELOC from which the borrower has withdrawn funds, and (3) the unpaid principal balance of all other subordinate financing, by the lower of the property’s sales price or appraised value.
commercial space: Space in a condo, co-op, or PUD project or in buildings in which a condo, co-op, or PUD project is located that is used for non-residential purposes. Examples include, but are not limited to, office space, retail shops, or apartment rentals.
common area assessments: Mandatory periodic or regularly charged fees or dues (also referred to as common charges or common expense assessments) assessed against individual unit owners in a condo or PUD project for additional capital to defray the homeowners’ association’s costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.
common elements (areas): Those portions of a building, land, or amenities owned or managed by the homeowners’ association of a condo or PUD project (or by a co-op project’s co-op corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas are defined in the project documents and may include, but are not limited to, swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, and means of ingress and egress. (Also see amenities and common area assessments.)
community facilities districts: Localities that have been empowered by state law to levy special taxes on their residents to fund the capital costs of a wide variety of public improvements (such as roads and sewer services), as well as the ongoing operation and maintenance costs of a limited number of public services (such as schools, police and fire protection services, libraries, etc.) that benefit the community.
Community Seconds: A subsidized second mortgage typically made by a federal, state, or local government agency, a nonprofit organization, a regional Federal Home Loan Bank under one of its affordable housing programs, a federally recognized Native American tribe and its sovereign instrumentalities, or an employer.
compensatory fee: A fee Fannie Mae charges to compensate for damages that maybe incurred as the result of a lender’s failure to comply with a specific policy or procedure or to emphasize the importance Fannie Mae places on a particular aspect of the lender’s performance.
condemnation: Depending on context, may refer to a determination that a building is not fit for use or is dangerous and must be destroyed, or the taking of private property for a public purpose through an exercise of the right of eminent domain.
conditional project approval: The first stage of Fannie Mae’s approval of a condo, co-op, or PUD project. It is issued after a preliminary review of the project, and it specifies any conditions that must be satisfied before Fannie Mae will issue a final approval for the project.
conditional right to refinance: A provision in Fannie Mae’s balloon mortgage documents that gives a borrower the right to refinance the balloon mortgage on (or shortly before) the balloon maturity date, as long as certain eligibility criteria are satisfied.
conditional tender of payment: A procedure whereby a lender offers a borrower an opportunity to “refinance” a mortgage at minimal or no cost through modification of the existing mortgage, endorsement of the mortgage note, and assignment of the original mortgage, rather than by satisfaction of the existing mortgage debt.
Condo Project Manager (CPM): A web-based application available to lenders that supports a lender’s Full Review of a condo project by providing key project eligibility questions to assist the lender in determining whether the project meets Fannie Mae’s eligibility requirements.
condominium (condo): A unit in a condominium project. Each unit owner has title to his or her individual unit, an individual interest in the project’s common areas, and, in some cases, the exclusive use of certain limited common areas.
condominium (condo) conversion: Legal change in the ownership of an existing building (usually a rental project) to the condominium form of ownership through the recording of a declaration or master deed.
condominium (condo) hotel: Any project that is managed or operated like a hotel, motel, resort, inn, or lodge where the individual units are either sold as co-op or condo units.
condominium (condo) unit: A unit in a condominium project. Each unit owner has title to his or her individual unit, an individual interest in the project’s common areas, and, in some cases, the exclusive use of certain limited common areas.
conforming mortgage loan: A conventional mortgage loan that has an original loan amount not exceeding the current Fannie Mae loan limit (“current” refers to when Fannie Mae purchased or securitized the mortgage). If a mortgage was originated prior to the current year, the loan limit that was in effect on the origination date is disregarded.
construction site insurance: See builder’s risk insurance.
construction-to-permanent mortgage: A mortgage that provides funds for the acquisition or refinancing of unimproved land and the construction of a residential dwelling on the land.
consumer reporting agency (or bureau): An organization that is engaged in the preparation of reports that are used by credit grantors to determine the credit and public records history of an individual. The agency obtains data for these reports from repositories of accumulated credit records as well as from other sources.
conventional mortgage: A mortgage that is not insured or guaranteed by a federal government agency—the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), or Rural Development (RD). Conventional mortgages delivered to Fannie Mae must also be conforming mortgages.
converted ARM resale commitment: A type of whole loan commitment to provide coverage for the redelivery of converted ARMs that were originally in an MBS pool that had a take-out post-conversion disposition option.
convertible ARM: A type of adjustable-rate mortgage that includes an option for the borrower to change the mortgage to a fixed-rate mortgage in the early years of the mortgage term.
cooperative (co-op) corporation: A business trust entity that holds title to a co-op project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.
cooperative (co-op) mortgages: Mortgages related to a co-op project. This usually refers to multifamily mortgages covering the entire project.
cooperative (co-op) project: A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.
cooperative (co-op) share loan: A loan secured by a co-op unit that finances (or refinances) the purchase of an ownership interest and the accompanying occupancy rights in a co-op housing corporation. It is secured by an assignment of the occupancy agreement and a pledge of the co-op shares.
correction: Action taken by the lender, typically through delivery of documentation or information to Fannie Mae, that demonstrates that the identified significant defect (i) did not, in fact, exist at the time of loan purchase or securitization; or (ii) has been corrected in the time frame and manner specified in the Lender Contract such that the defect is no longer considered by Fannie Mae to be a significant defect.
correspondent origination: A mortgage loan that is originated by a party other than a mortgage loan seller and is then sold to a mortgage loan seller. A lender correspondent performs the loan processing functions (such as taking loan applications; ordering credit reports, appraisals, and title reports; and verifying a borrower’s income and employment) without the assistance of a broker. The lender correspondent typically underwrites the mortgage loan, but correspondent loans may also include mortgage loans where the correspondent has not received delegated underwriting authority from a mortgage loan seller and, accordingly, did not underwrite the loan. The lender correspondent funds the mortgage loan at settlement, and the mortgage loan is closed in the name of the lender correspondent, which may or may not service the mortgage loan.
cost approach to value: A method of measuring the value of a property based on the cost of producing a substitute residence that has the same use as the property that is being appraised.
Cost Of Funds Index (COFI): An index that is used to determine interest rate changes for certain ARM plans. It represents the weighted average of the cost of savings, borrowings, and advances to member banking institutions of the Federal Home Loan Bank of San Francisco (the 11th District).
credit life insurance: A type of insurance purchased by a borrower to pay off the mortgage debt if the borrower dies while the policy is in force.
credit score: A numerical value that ranks an individual according to his or her credit risk at a given point in time, as derived from a statistical evaluation of information in the individual’s credit file that has been proven to be predictive of loan performance. When this term is used by Fannie Mae, it is referring to the classic FICO score developed by Fair Isaac Corporation.
CUSIP number: A nine-digit number, which is required for book-entry delivery of mortgage-backed securities, that uniquely identifies the MBS to which it is assigned.
custodial account: A bank account that a lender must establish to hold the funds of others—the borrower and Fannie Mae—as opposed to any account established to hold the lender’s corporate funds.
custody documents: The original mortgage note, an original unrecorded assignment to Fannie Mae (or a copy of the original recorded assignment), and, in some cases, the original mortgage insurance or loan guaranty certificate, and, if the mortgage has been modified, the modification agreement.

D

de minimis correction: Minor amount not to exceed $500 (or such higher amount as the lender and Fannie Mae may agree) that, when remitted, refunded, or otherwise provided, corrects or otherwise resolves an identified significant defect.
debt: Borrowed money, the repayment of which may be either secured or unsecured, with various possible repayment schedules.
debt-to-income ratio: A ratio derived by dividing the borrower’s total monthly obligations (including housing expense) by his or her stable monthly income. This calculation is used to determine the mortgage amount for which a borrower qualifies. This term is used interchangeably with “total debt-to-income ratio” and “expense ratio.”
deed in lieu of foreclosure (or deed-in-lieu): A transfer of title from a delinquent borrower to the lender in satisfaction of the mortgage debt to avoid foreclosure; also called a voluntary conveyance.
default: The failure to make a mortgage payment or to otherwise comply with one or more covenants of the mortgage.
defect: A loan-level deficiency that breaches a term contained in the Lender Contract in effect at the time of loan purchase or securitization.
defect rate: The number of loans, expressed as a percentage, reflecting the total loans with defects discovered in the loan review process divided by the total loans reviewed.
delinquency advance: An amount advanced by a lender in respect of interest or principal on one or more mortgage loans, as required by their servicing contract, even though the lender has not collected the actual funds from the related borrowers. A lender may reimburse itself for delinquency advances from subsequent collections in accordance with its servicing contract.
delivery versus payment settlement: Also called “delivery against funds” or “existing issue.” A settlement option for trades of existing MBS under which Fannie Mae will credit the lender’s account at the institution that wires the security to its trading desk as soon as the security is received.
demand: A repurchase or other remedy request issued by Fannie Mae to a responsible party to provide a specific remedy as provided in the Lender Contract.
demand deposit account: A bank account in which the funds are available for withdrawal at any time without penalty.
Demotech, Inc.: A company that establishes ratings for property and casualty insurance carriers and title insurance companies by evaluating their assets and liabilities.
Desktop Originator (DO): A Web-based application that gives originators access to DU through a sponsoring lender.
Desktop Underwriter (DU): Fannie Mae’s automated underwriting system.
designated threshold amount: A level of unsecured exposure an “in the money” party will accept before making a margin call on the “out of the money” party.
deterioration: See physical depreciation.
direct surety bond: A class of bond that is written to afford protection for the direct acts of the principal in the event of a loss caused by the principal’s negligence, lack of ability, or dishonest act.
disbursement date: The date the loan funds are disbursed for the subject mortgage. The disbursement date may occur on or after the note date.
discount: The amount by which the sales price of a note is less than its face value. The purpose of a discount is to adjust the yield upward in lieu of interest.
Document Certification: A Web-based application for document custodians to electronically submit whole loan and MBS pool certifications to Fannie Mae and the lender. It also can be used to give a warehouse lender notification about the lender’s wiring instructions.
document custodian: A financial institution that maintains custody of certain mortgage documents on behalf of Fannie Mae.
domestic partner: An unrelated individual who shares, and intends to continue sharing, a committed relationship with a borrower who signs the note.
due-on-sale provision: A provision in a mortgage that allows the lender to demand full payment of the outstanding balance if the mortgaged property is transferred without the lender’s permission.
Duff & Phelps Credit Rating Company: A company that, among other things, establishes ratings for title insurance companies by evaluating their assets and liabilities.

E

earnest money deposit: A deposit submitted with a purchase offer to show that the buyer’s offer is being made in good faith.
eBoutique: A Web-based application that supports the servicing of reverse mortgages.
economic obsolescence: See external depreciation.
electronic: Relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.
electronic imaging: A method of reproducing a facsimile of a document or photograph with a computer or another electronic device.
electronic mortgage (eMortgage): A mortgage for which the promissory note and possibly other documents (such as the security instrument and loan application) are created and stored electronically rather than by using traditional paper documentation that has a pen and ink signature. Most (but not all) eMortgages typically consist of a paper security instrument and an electronic note. The terms “electronic mortgage,” “electronic mortgage loan,” “eMortgage,” and “eMortgage loan” used in this Guide have the same meaning.
electronic record: A contract or other record created, generated, sent, communicated, received, or stored by electronic means.
electronic signature: An electronic sound, symbol, or process, attached to or logically associated with, a contract or other record executed or adopted by a person with the intent to sign the record.
employer-assisted housing mortgage: Any mortgage for which a borrower’s employer is either offering mortgage payment assistance or providing down payment or closing costs assistance (through a grant, an unsecured loan, or a secured subordinate mortgage).
environmental hazard assessment: An evaluation of the environmental soundness of a project development based on information gathered from various sources. A Phase I assessment involves a screening process that focuses on reviewing available documentation, interviewing people knowledgeable about the project, and inspecting the site, the building, and adjoining properties. A Phase II assessment provides a more detailed review of the site (with specific physical sampling for each hazard that was not acceptable under the Phase I assessment) and a review of historical records to determine the presence or absence of specific environmental liabilities or to quantify the extent of an observed or suspected environmental liability.
errors and omissions coverage: A type of indirect loss insurance used to cover losses that occur because of an error or neglect on the part of an employee to whom a specific responsibility has been assigned.
escrow account: A trust account that is established to hold funds allocated for the payment of a borrower’s property taxes and assessments by special assessment districts, ground rents, insurance premiums, condo or homeowners’ association or planned unit development association dues and similar expenses as they are received each month in accordance with the borrower’s mortgage documents and until such time as they are disbursed to pay the related bills.
ESIGN: Electronic Signatures in Global and National Commerce Act. A federal law that gives broad legal effect to the use of electronic signatures and records in interstate commerce.
existing issue: See delivery versus payment settlement.
external depreciation (economic obsolescence): A loss in value that is caused by negative influences that are outside of a property’s site, such as economic factors or environmental changes.

F

facsimile signatures: A form of signature that is electronically reproduced or copied in another acceptable manner. Such signatures are acceptable under certain conditions as long as they are valid and enforceable in the jurisdictions in which they are used.
factory-built housing: Prefabricated single-family housing (such as panelized, modular, or sectional housing), which is constructed in a factory (and, if applicable, in accordance with the building codes of the state in which the factory is located) and is subsequently joined together at a permanent building site, assumes the characteristics of site-built housing (such as permanent connections to water, electrical, and waste disposal systems), and is legally classified as real property. (Collectively, this term also may refer to manufactured homes. See the definition of that term for distinctions between the different types of factory-built housing.)
Fair Access to Insurance Requirement (FAIR) plan: A program established within a state to provide access to insurance for property owners in designated urban areas or specific beach and windstorm areas.
Fannie Mae: Federal National Mortgage Association.
Fannie Mae losses: Losses, damages, penalties, settlements, liabilities, judgments, claims, counterclaims, defenses, actions, costs, expenses, attorneys’ fees, and other legal fees (collectively, “Fannie Mae losses” or “losses incurred by Fannie Mae”).
Fannie Majors: See multiple pool.
Federal Emergency Management Agency (FEMA): A federal agency that provides assistance in areas that have suffered a major disaster or other emergency. It also maintains flood insurance rate maps that identify the Special Flood Hazard Areas in which Fannie Mae requires flood insurance.
Federal Emergency Management Agency (FEMA) disaster area: A city, county, or parish designated by FEMA as eligible for individual assistance as a result of a natural disaster.
Federal Housing Administration (FHA): FHA, also a part of HUD, provides mortgage insurance on loans made by FHA-approved lenders.
Federal Housing Finance Agency (FHFA): The safety, soundness, and mission regulator for Fannie Mae. FHFA replaced the former regulator, the Office of Federal Housing Enterprise Oversight (OFHEO).
fee simple estate: An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condo project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
FHA-insured mortgage: A mortgage by the FHA; may be referred to as a “government” mortgage.
fidelity bond: A type of bond that is obtained by an employer to protect against economic loss from dishonest acts of its employees.
fidelity/crime insurance: A type of insurance that a condo or PUD homeowners’ association or a co-op corporation obtains to protect itself against economic loss from dishonest or fraudulent acts of anyone who either handles (or is responsible for) funds the association or corporation holds or administers, whether or not that individual receives compensation for services.
final project approval: The eligibility determination that is issued for a condo, PUD, or co-op project to indicate that the project’s physical characteristics and marketability are acceptable to Fannie Mae, and that mortgages or share loans on units within the project may be delivered to Fannie Mae for purchase or securitization.
financed mortgage insurance premium: A mortgage insurance premium for which the borrower is not required to make an advance payment from his or her own funds. Rather, the amount required to pay for a lump-sum premium is financed by including it as part of the original mortgage amount.
Financial Institutions Reform, Recovery, and Enforcement Act: The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 modified federal laws governing thrift and bank regulation. Title XI of the Act includes real estate appraisal reform amendments.
first mortgage: A mortgage that is the primary lien against a property.
first-time home buyer: An individual is to be considered a first-time home buyer who (1) is purchasing the security property; (2) will reside in the security property as a principal residence; and (3) had no ownership interest (sole or joint) in a residential property during the three-year period preceding the date of the purchase of the security property. In addition, an individual who is a displaced homemaker or single parent also will be considered a first-time home buyer if he or she had no ownership interest in a principal residence (other than a joint ownership interest with a spouse) during the preceding three-year time period.
fiscal year: Any 12-month period used for financial reporting and preparation of balance sheets, profit and loss statements, and other financial summaries.
Fitch, Inc.: A credit rating agency that, among other things, assigns credit ratings to debt issuers and the debt instruments themselves, as well as to title insurance companies and custodial depositories by evaluating their assets and liabilities.
fixed installment: That portion of a mortgage payment that is applied toward principal and interest. When a mortgage negatively amortizes, the fixed installment does not include any amount for principal reduction.
fixed-rate mortgage: A mortgage that provides for only one interest rate for the entire term of the mortgage. Fannie Mae acquires fixed-rate mortgage loans that are fully amortizing.
Flash MBS: Expedited processing of an MBS pool submission that results in the issuance of securities to the designated book-entry account within three to five business days after the lender electronically transmits its pool documentation to Fannie Mae.
flood insurance: Insurance that compensates for physical property damages resulting from flooding. It is required in federally designated Special Flood Hazard Areas.
Flood Insurance Rate Map (FIRM): The official map of a community on which FEMA has delineated both the special hazard areas and the risk premium zones applicable to the community.
forbearance: Willingness to refrain, in full or in part, from pursuing remedies against a delinquent borrower for a period of time (specified or unspecified), but without modification of the loan terms. See also modification.
foreclosure: The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Freddie Mac: Federal Home Loan Mortgage Corporation (FHLMC). A congressionally chartered corporation that purchases mortgage loans in the secondary mortgage market.
full payment amount: The monthly payment required, at each interest change date, to amortize the then outstanding principal balance of an ARM at the new interest rate over the remaining mortgage term.
fully amortizing ARM: An adjustable-rate mortgage that has a monthly payment sufficient to amortize the unpaid principal balance-at the interest accrual rate-over the mortgage term.
functional depreciation (obsolescence): A loss in value that is caused by defects in the design of a structure or by changes in market preferences that result in some aspect of a property being considered obsolete by current standards.

G

good delivery: The delivery of mortgage-backed securities to Fannie Mae’s trading desk at the parameters agreed on at the time of the trade and in an amount that meets the minimum trade requirements; the delivery of eligible portfolio mortgages that meet all of Fannie Mae’s legal and underwriting criteria and that satisfy the terms of the original cash commitment before the expiration date of the commitment.
government mortgage loan: A mortgage loan that is insured or guaranteed by a government agency. Examples include FHA-guaranteed mortgage loans, VA-insured mortgage loans, and RD-guaranteed mortgage loans.
ground rent: The amount of money that is paid for the use of land when title to a property is held as a leasehold estate, rather than as fee simple.
group home: A residential structure utilized for occupancy by persons with disabilities.
guaranty fee: Compensation that a lender pays Fannie Mae for the right to participate in the MBS program. The amount of the fee will differ depending on whether the lender selects the regular or special servicing option.
guaranty fee buydown: An agreement to reduce the guaranty fee remittance rate for an MBS mortgage below the contractual rate for the applicable servicing option and remittance cycle in return for the lender’s payment of a fee to Fannie Mae.
guaranty fee buyup: An agreement to increase the guaranty fee remittance rate for an MBS mortgage above the contractual rate for the applicable servicing option and remittance cycle in return for Fannie Mae’s paying a fee to the lender.
Guide: The Fannie Mae Selling Guide and Servicing Guide, as modified, amended, or supplemented from time to time.
gut rehabilitation project: A project that has been developed by rehabilitating an existing building and creating individual units. The building is stripped down to its shell and, as rehabilitated, contains all new mechanical equipment including heating, exhaust, insulation, roofing, plumbing, and electrical. Individual units and common areas have new interiors, fixtures, appliances, and flooring.

H

higher-priced mortgage loan: A mortgage loan that meets the corresponding definition under Regulation Z of the Truth in Lending Act. Only principal residences are included in this category.
higher-priced covered transaction: A mortgage loan that meets the corresponding definition under Regulation Z of the Truth in Lending Act, and applies to both principal residences and second homes.
home equity combined-loan-to-value ratio (HCLTV): A ratio that is used when a mortgage financing package includes home equity lines that are potential liens; a ratio that is developed by dividing the sum of the original loan amount of the first mortgage, the amount of the HELOC (whether or not there have been any draws), and the unpaid principal balance of all other subordinate financing by the lower of the property’s sales price or appraised value.
home equity line of credit (HELOC): A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain cash advances at his or her discretion, up to an approved amount that represents a specified percentage of the borrower’s equity in a property.
homeowner’s insurance: Insurance coverage available for owner-occupied properties to protect against personal liability and physical property damages for a dwelling and its contents.
homeowners’ association (HOA): An entity formed to manage the day-to-day operation and long term interests of residential dwelling communities, including condo, co-op, and PUD projects. The HOA is typically created and vested with specific roles, responsibilities, and rights by the project’s legal documents in compliance with applicable laws. For Fannie Mae’s purposes, the term “HOA” includes a homeowners’ association, a common interest community association, a cooperative corporation, and other similar entities.
HomePath property: A HomePath property is a property that was owned and sold by Fannie Mae through a transaction resulting in the disposition of its real estate owned.
HomeReady: Fannie Mae’s flexible, affordable lending product designed to meet the needs of low- to moderate-income home buyers and homeowners. HomeReady is a standard product with underwriting recommendations available through DU and manual underwriting.
HomeStyle Renovation mortgage: A mortgage that enables eligible borrowers to obtain financing to renovate, remodel, repair, or upgrade their existing home or a home that they are purchasing.
housing expense ratio: A ratio derived by dividing the borrower’s housing expense by his or her stable monthly income.
HUD-1: HUD-1 Settlement Statement. See “settlement statement.”
HUD-guaranteed mortgage: A mortgage guaranteed under Section 184 of the Housing and Community Development Act of 1992, which created the Native American Housing Loan Guarantee Fund.

I

impasse process: An option available to an eligible lender to use to resolve loan-level disputes that were not resolved through the appeal process.
inclusionary zoning: A practice by which state or local governments impose zoning restrictions that require a specified percentage of new development in a designated area to be set aside to provide housing for low- and moderate-income persons.
income approach to value: A method of measuring the value of a property based on the market rent or income that the property can be expected to earn.
Independent Dispute Resolution (IDR): IDR is a process that is available for eligible lenders to use to resolve loan-level disputes that were not resolved through the appeal, impasse, or management escalation processes.
index: A number used to compute the interest rate for an ARM. The index is generally a published number or percentage, such as the average interest rate or yield on U.S. Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps on the maximum or minimum interest rate that may be charged on the mortgage, as stated in the note.
index disclosed to the borrower: The value of the selected index for an ARM that is given to the borrower when the mortgage is closed. When subsequent index values differ from this value, it reflects changes in market conditions.
in-file credit report: An objective account, normally computer-generated, of credit and public record information obtained from a credit repository.
initial interest rate: The original interest rate of the mortgage when it is closed. This rate (which is often referred to as the “start rate”) changes for adjustable-rate mortgages. Also referred to as the initial note rate.
installment debt: Borrowed money that is repaid in several successive payments, usually at regular intervals, for a specific amount and for a specified term (for example, an automobile loan or a furniture loan).
installment land contract: An agreement to transfer title to a property once conditions of the contract have been fulfilled. Also known as a contract or bond for deed.
institutional lender: A financial institution that invests in mortgages and keeps them in its own portfolio.
inter vivos revocable trust (or living trust): A trust that an individual creates during his or her lifetime that becomes effective during his or her lifetime, but which can be changed or canceled at any time for any reason during its creator’s lifetime.
interest accrual rate: The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.
interest rate buydown plan: An arrangement wherein the property seller or any other party deposits money to an account so that it can be released each month to reduce the borrower’s payments during the early years of a mortgage. During the specified period, the borrower’s effective interest rate is “bought down” below the actual mortgage interest rate.
interest rate cap: For an adjustable-rate mortgage (ARM), a limitation on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.
interest rate change date: The date on which the mortgage interest rate changes for an ARM; the date on which interest begins to accrue at a new rate for an ARM MBS pool.
interest rate change interval: The period that elapses between interest rate change dates for an ARM.
interest rate differential: See yield difference.
interest rate shortfall: The interest rate shortage that occurs when Fannie Mae’s return on a mortgage (the net note rate) is less than Fannie Mae’s required yield.
interested party contributions: Costs that are normally the responsibility of the property purchaser that are paid (directly or indirectly) by someone else who has a financial interest in, or can influence the terms and the sale or transfer of, the subject property. These persons or entities include, but are not limited to, the property seller, the builder/developer, and the real estate agent or broker (or an affiliate who may benefit from the sale of the property and/or the sale of the property at the highest price possible).
intermediate-term mortgage: A mortgage that amortizes over an original term from 10 to 20 years.
investor-purchased mortgage insurance: Mortgage insurance coverage obtained by Fannie Mae after the purchase of a mortgage; a type of financial backing used for some second mortgages in lieu of borrower-purchased or lender-purchased mortgage insurance.
issue date: The first day of the month in which MBS backed by an MBS pool of mortgage loans are issued.
issue date principal balance: The principal balance of each mortgage in an MBS pool after crediting the principal portion of any monthly payments due on or before the issue date for the related MBS (whether or not it was actually collected) and after crediting any unscheduled partial payment or other recovery of principal received on or before the issue date (as long as it was not accompanied by payment of an interest amount that represented scheduled interest due for the month after the payment was made).

J

No Applicable Terms

K

Kroll Bond Rating Agency, Inc. (Kroll): A nationally recognized statistical rating organization that, among other things, provides independent financial strength ratings for title insurance companies and for regulated depositories in the U.S. based upon their financial information.

L

late charge: A penalty that a borrower must pay when a mortgage payment is made a stated number of days (usually a minimum of 15) after its due date.
last paid installment date: The due date of the last paid installment that had been collected for the mortgage.
lease: A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.
leasehold estate: A way of holding title to a property wherein the borrower does not actually own the property but rather has a recorded long-term lease on it.
lender-purchased mortgage insurance: Mortgage insurance coverage for a conventional mortgage loan that the lender pays for by using its own funds, rather than requiring the borrower to include periodic accruals for such coverage as part of his or her mortgage payment.
liability insurance: Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party.
LIBOR index: An index that is used to determine interest rate changes for certain ARM plans. LIBOR is an acronym for London Interbank Offered Rate. It represents the interest rates at which banks lend to each other within the London interbank market.
limited cash-out refinance: A refinance transaction in which the mortgage amount generally is limited to the sum of the unpaid principal balance of the existing first mortgage, closing costs (including prepaid items), points, and the amount required to satisfy any mortgage liens if the documented proceeds of the subordinate financing were solely used to acquire the property (if the borrower chooses to satisfy them), and other funds for the borrower’s use (as long as the amount does not exceed the lesser of $2000 or 2% of the principal amount of the new mortgage).
limited liability company (LLC): A flexible form of business enterprise that blends elements of partnership and corporate structures.
living trust: See inter vivos revocable trust.
loan amount: The original amount of the loan as indicated by the note; also known as the original loan amount or original principal balance.
Loan Delivery: A Fannie Mae Web-based application that allows a lender to electronically prepare, edit, and transmit information from the Schedule of Mortgages for various MBS pool purchase transactions and whole loan/cash deliveries.
loan estimate: A form required by federal law that provides disclosures to borrower(s) to help them understand the key features, costs, and risks of the mortgage loan for which they are applying. References to the “loan estimate” include the Loan Estimate and Good Faith Estimate forms, as applicable, based on the application date of the mortgage loan.
Loan Quality Center (LQC): A division of Fannie Mae that reviews acquired loans to confirm that the loans meet underwriting and eligibility requirements.
loan-level price adjustment (LLPA): LLPAs are assessed based on certain eligibility or other loan features, such as credit score, loan purpose, occupancy, number of units, product types, etc. For whole loan transactions, LLPAs will be deducted from (or credited to) the loan proceeds.
loan-to-value (LTV) ratio: The relationship between the original loan amount of the first mortgage and the property’s appraised value (or sales price, if it is lower).
long-term standby purchase commitment: A negotiated structure that enables a lender to reduce its credit exposure by paying a monthly commitment fee on an identified portfolio of mortgages in exchange for the lender’s agreement to deliver on a mandatory basis, and Fannie Mae’s agreement to purchase any mortgage at par should it become a specified number of months delinquent after the date of the commitment.
look-back period: The date on which the index value that will be used to establish the next interest rate change for an ARM is determined. It is a specified number of days (at least 45) before the interest rate change date.
losses incurred by Fannie Mae: See Fannie Mae losses.

M

make whole payment: The amount that a party responsible for a breach of a selling representation or warranty or a servicing breach must pay Fannie Mae so that Fannie Mae does not incur a loss on the mortgage or the property.
management escalation process: An option available to an eligible lender to use to resolve loan-level disputes that were not resolved through the appeal or impasse processes.
mandatory delivery commitment: A whole loan commitment that generally requires the lender to deliver eligible mortgages equal to at least the minimum required delivery amount (which is an amount that will not be less than the original commitment amount by more than $10,000 or 2.5% of the original amount) by the expiration date of the commitment.
margin: The amount that is added to an index value to create the mortgage interest rate for an ARM; an amount (expressed as a percentage) that is used in the calculation of the purchase price for an As Soon As Pooled transaction.
margin call: When two parties have entered into one or more MBS trades, one party has the right to request funds from the other party due to a change in the market value of the securities. The right of one party to make a margin call on another party may be subject to a designated threshold amount and minimum transfer amount.
market data approach: See sales comparison approach to value.
market-rate option: A post-conversion disposition option that allows the lender to determine whether it wants to redeliver a repurchased convertible adjustable-rate mortgage that was in an MBS pool to Fannie Mae following its conversion to a fixed-rate mortgage or to retain the repurchased mortgage for its portfolio.
Master Agreement: A negotiated contract that enables lenders to submit multiple transactions—both standard and negotiated—under the terms of a single agreement. Terms are specifically negotiated with each lender.
master association: A governing association in a large condo or PUD community that is made up of representatives from associations covering specific areas within the project. In effect, it is an “umbrella” association that handles matters affecting the entire development, while the “sub” associations handle matters affecting their particular portions of the project.
master servicer: A Fannie Mae approved servicer that is contractually obligated to service one or more mortgage loans for Fannie Mae and has contracted with a subservicer under a subservicing arrangement.
maximum claim amount: The lesser of the appraised value of a property and the maximum loan amount that FHA can insure for a one-unit residence in the area where the property is located; a component that is used in determining the borrower’s principal limit for an FHA home equity conversion mortgage.
maximum pool accrual rate: The maximum interest rate that can accrue on an ARM MBS pool. For stated-structure ARM MBS pools, it must be evenly divisible by 0.125% and must be less than or equal to the lowest mortgage interest rate ceiling in the pool (after appropriate deductions have been made for the guaranty fee and the minimum servicing fee).
maximum weighted-average pool accrual rate: The weighted average of the mortgage interest rate ceilings (less the lender’s retained spread) of the mortgages in a weighted-average ARM MBS pool.
MBS Express pool: An MBS pool for which the servicer remits “unscheduled” principal payments to Fannie Mae on the 4th business day of the month and “scheduled” principal and interest payments on the 18th calendar day (or the preceding business day if the 18th is not a business day).
MBS Express remittance cycle: A payment cycle used for scheduled/scheduled remittance types for MBS pools that has two different remittance dates—one for unscheduled principal payments and one for scheduled principal and interest payments.
MBS margin: One of the factors used to establish the pool accrual rate for an ARM MBS pool on each interest rate change date. For stated-structure ARM MBS pools, it is the difference between the lowest mortgage margin in the pool and the sum of the guaranty fee and the minimum servicing fee. For weighted-average ARM MBS pools, the MBS margin may be a fixed margin that the lender specifies or a weighted-average margin. A “fixed” MBS margin is attained by varying the servicing fee for individual mortgages to equalize the differences in their mortgage margins. A “weighted-average” MBS margin is attained by reducing the various mortgage margins by the applicable guaranty fee and a fixed servicing fee that the lender specifies, thus developing a different MBS margin for each mortgage.
MBS pool: All of the mortgages or participation interests in mortgages (delivered under one or more contracts) that will secure an individual issuance of MBS.
MBS pool delivery: Group or groups of mortgages (or participation interests in mortgages) delivered by a lender for the purpose of creating a pool to back an MBS issuance. These deliveries are accepted in one or more pool purchase transactions, rather than being accepted as individual mortgages (or participation interests) to be held in Fannie Mae’s portfolio. Deliveries under this program are, therefore, referred to as MBS pool deliveries.
MBS mortgage: A mortgage or participation interest in a mortgage that is part of an MBS pool.
Megas: A pass-through security backed by groups of existing Fannie Mae MBS or other existing Megas.
Message Manager: A Web-based application that allows lenders to access, view, and download reports on pools and whole loans submitted to Fannie Mae through Loan Delivery.
minimum borrower contribution: The minimum borrower contribution is an amount of funds described as a percentage that is generally required to be paid toward the down payment, closing costs, and financial reserves. The contribution may be required from the borrower’s own funds or in some cases from other eligible sources of funds.
minimum coupon rate: The rate of interest due Fannie Mae for a participation pool, which ensures that Fannie Mae receives the required yield and the servicer receives an appropriate servicing fee; it is generally derived by multiplying the required commitment yield by Fannie Mae’s percentage interest in the pool and then adding the applicable minimum servicing fee to the result.
minimum transfer amount: A specified amount of money that must be exceeded before a margin call can be made.
mixed use project: A project comprised of residential and non-residential (commercial) space, often featuring separate associations that represent the different components.
modification: The act of changing any of the terms of the mortgage by agreement between the borrower and the note holder.
monthly operating income: Income from the rental of an investment property that is determined by reducing the annual effective gross income for the property by the annual operating expenses and dividing the result by 12. This calculation is used to determine whether a borrower who will occupy one unit of a two- to four-unit property as his or her principal residence qualifies for a mortgage.
monthly payment: The monthly payment of principal and interest collected by mortgage lenders. This may also include escrow items for taxes and insurance and is therefore called the housing payment.
monthly payment mortgage: A mortgage that requires payments to reduce the debt once a month.
monthly remittance: The total of the interest and principal distribution amounts that a lender is obligated to remit to Fannie Mae on each remittance date. For scheduled/scheduled remittance types, this represents scheduled principal reductions and scheduled interest accruals, whether or not payments were collected from the borrowers. For scheduled/actual remittance types, this represents scheduled interest accruals (whether or not payments were collected from the borrowers) and actual principal collections.
Moody’s Investors Service: A credit rating agency that, among other things, assigns credit ratings to debt issuers and the debt instruments themselves, as well as to title insurance companies and custodial depositories, by evaluating their assets and liabilities.
mortgage: Collectively, the security instrument, the note, the title evidence, and all other documents and papers that evidence the debt (including the chattel mortgage, security agreement, and financing statement for a co-op share loan).
Mortgage Electronic Registration System, Inc. (MERS): An electronic system that assists lenders, investors, and others in tracking mortgages, servicing rights, and security interests, thus streamlining and reducing the costs associated with servicing transfers, lien releases, and quality control processes related to registered mortgages.
Mortgage Identification Number (MIN): An 18-digit identifier that MERS assigns to each registered mortgage, which is used to track the mortgage within MERS’ electronic system.
mortgage impairment insurance: A type of insurance coverage that protects the lender against the lack or inadequacy of insurance coverage for a specific mortgage if the lender is not directly responsible for the insufficiency.
mortgage insurance (MI): A financial backing type under which a private insurer (and sometime a state or local entity) insures the mortgagee against losses from borrower default, by agreeing to cover a percentage of the losses in return for the payment of a specified mortgage insurance premium.
mortgage interest rate: The rate of interest in effect for the periodic installment due. For fixed-rate mortgages or for ARMs that have an initial fixed-rate period, it is the rate in effect during that period. For ARMs after any initial fixed-rate period, it is the sum of the applicable index and the mortgage margin (rounded as appropriate and subject to any per-adjustment or lifetime interest rate ceilings).
mortgage interest rate ceiling: For an ARM, the maximum interest rate over the life of the loan. It is determined by applying a “lifetime cap” to the initial mortgage interest rate.
mortgage loan: An individual secured loan that is sold to Fannie Mae as a whole loan or in a pool of mortgages underlying Fannie Mae-guaranteed MBS. The term includes a participation interest in a mortgage loan where context requires. In this Guide, a mortgage loan also may be referred to as a mortgage or a loan.
mortgage margin: The amount that is added to the index value to establish the mortgage interest rate on each interest rate change date (subject to any limitations on the interest rate change) for an ARM.
mortgage note: The note or other evidence of indebtedness for a mortgage loan.
Mortgage Selling and Servicing Contract (MSSC): The contract that establishes the basic legal relationship between a lender and Fannie Mae.
mortgage-backed security (MBS): An investment instrument that represents an undivided interest in a pool of mortgages.
mortgagee interest insurance: See mortgage impairment insurance.
multi-dwelling units: Properties that provide separate housing units for more than one family, although they secure only a single mortgage; e.g., two to four units.
multifamily mortgage: A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.
multiple pool: An MBS pool that consists of pools of mortgages delivered by more than one lender; also called Fannie Majors.
multiple pool transaction: An MBS transaction in which mortgages delivered by several individual lenders are combined into one large pool for the sole purpose of backing all or part of an issuance of MBS.
multiwidth manufactured home: A manufactured home that is created by joining two or more single-width sections that are built and towed separately to the site and joined together to create one living unit. Typical models are 24 feet wide and 60 feet long, offering about 1,400 square feet of living area.
municipal utility districts: See special assessment districts.

N

National Credit Union Administration (NCUA): The regulator of the credit union industry.
net cash flow: The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense (which includes PITI for the mortgage, homeowners’ association dues, leasehold payments, and subordinate financing payments).
net mortgage ceiling: The mortgage ceiling for an adjustable-rate mortgage after the minimum servicing fee has been subtracted.
net mortgage interest rate: The mortgage interest rate less the lender’s servicing spread (which may be a minimum servicing fee plus any excess yield or a servicing fee and a guaranty fee, depending on whether the mortgage is a portfolio mortgage or an MBS mortgage).
net mortgage margin: The mortgage margin shown in the ARM note and rider after the minimum servicing fee has been subtracted.
net note rate: The mortgage interest rate after the applicable servicing fee and any guaranty fee for Fannie Mae’s various product types have been subtracted.
net worth: The value of all of a company’s (or individual’s) assets—including cash—less its total liabilities. It is used to indicate financial strength.
newly converted project: A condo or co-op project that was converted from an apartment or other use is defined as a newly converted project until it fully meets Fannie Mae’s definition of an established project.
non-gut rehabilitation: A project that has been developed by rehabilitating an existing building and converted into individual units. The building, its mechanical equipment, and individual units typically have not been substantially rehabilitated or replaced.

O

obsolescence: See functional depreciation.
operating expenses: The costs of maintaining an investment property, such as expenses for electricity, gas, fuel oil, water/sewer, trash removal, pest control, license fees, painting/decorating, general repairs/maintenance, supplies, casual labor, professional management fees, and replacement reserves.
original issue settlement: The standard settlement option for a newly originated MBS, which results in the mortgage-backed security being assigned directly to Fannie Mae when the pools are delivered, and subsequently being delivered to the trading desk (which will wire the funds to pay for the security to the lender on the settlement date).
original loan amount: See loan amount.
origination fees: The fee(s) charged by a lender to prepare loan documents, make credit checks, inspect, and sometimes appraise a property. The fee(s) are usually computed as a percentage of the face value of the mortgage.

P

pair-off: A process under which a lender that is unable to meet the terms of a mandatory delivery commitment either pays Fannie Mae a fee or, under certain circumstances for whole loan transactions, receives cash back from Fannie Mae, calculated against the unused portion of the commitment.
par: The face value of the mortgage (the unpaid principal balance) equals its selling price (100%—there are no discounts or premiums).
participation certificate: The instrument that evidences an undivided interest in mortgages and obligations secured thereby.
participation interest: An individual interest in a mortgage, as specified in the applicable participation certificate.
pass-through rate: The rate at which interest is paid to Fannie Mae for a mortgage. For mortgages held in Fannie Mae’s portfolio, it is the lower of the required yield or the mortgage interest rate after deduction of a minimum servicing fee.
payee code: A number used to identify warehouse or wire transfer banks, which the lender places on its loan schedule for cash deliveries to ensure that purchase proceeds are sent to the appropriate party (if they are to be paid to anyone other than the lender).
payment change date: The date on which the payment changes for an ARM; the effective date that a new amount is due from a borrower. It must fall in the month immediately following an interest rate change date (unless an ARM provides for the monthly payment to change more frequently than the interest rate).
payment rate: The percentage rate used to calculate the mortgage payment when the payment will not fully amortize the mortgage. It differs from the interest accrual rate.
paystub: A paystub, pay slip, pay advice, paycheck notice, or payroll earnings statement is a document produced by the borrower’s employer and provided to the borrower that evidences the borrower’s income. Paystubs typically detail the gross income and all taxes and other deductions, such as retirement plan contributions, insurance, garnishments, or charitable contributions taken out of the gross amount for the current pay period. Paystubs generally include year-to-date earnings.
physical depreciation (deterioration): A loss in value that is caused by deterioration in the physical condition of a property’s improvements.
planned unit development (PUD): A real estate project in which each unit owner has title to a residential lot and building and a nonexclusive easement on the common areas of the project. The owner may have an exclusive easement over some parts of the common areas (for example, a parking space). Fannie Mae does not purchase or securitize mortgages secured by PUD projects; it does purchase or securitize mortgages on individual units in a project.
pool: A collection of mortgages (or participation interests) delivered pursuant to one or more pool purchase contracts that secure an individual issuance of MBS.
pool accrual rate: The rate of interest that accrues to the security holder of a stated-structure ARM MBS pool. It is subject to change in accordance with adjustments to the index.
pool issue date: The first day of the month in which MBS are issued.
pool purchase contract: A contract between Fannie Mae and a lender to buy and sell mortgages or participation interests for inclusion in an MBS pool. It will be uniquely identified by a pool purchase contract number that appears on its face.
pool purchase transaction: Any MBS transaction between Fannie Mae and a lender in which Fannie Mae purchases a group of mortgages or participation interests from the lender for the sole purpose of backing all or part of an issuance of MBS.
pool transaction amount: The total of the issue date principal balances of all mortgages or participation interests included in a pool purchase transaction.
portfolio mortgage: A whole mortgage purchased by Fannie Mae to hold in its mortgage portfolio.
prearranged refinancing agreement: A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.
premium pricing: When a borrower elects to pay a higher interest rate on a mortgage loan in exchange for a lender credit provided at closing (also referred to as premium financing).
prepayment penalty: A charge imposed for paying all or part of the transaction’s principal before the date on which the principal is due, other than a waived, bona fide third-party charge that the lender imposes if the borrower prepays all of the transaction’s principal sooner than 36 months after loan closing.
price-adjusted loan (PAL): One or more defects that, when considered with other loan features, and based on the facts of the loan as purchased or securitized by Fannie Mae, result in a loan that was otherwise eligible for delivery to Fannie Mae had the correct data been delivered and LLPA been paid to Fannie Mae by the lender.
price differential: The aggregate amount obtained by applying the pricing rate for an As Soon As Pooled Plus transaction to the purchase price on a daily basis (using a 360-day year) for the actual number of elapsed days beginning with the purchase date and ending with the date preceding the repurchase date.
pricing rate: The per annum percentage rate that is used for determining the price differential between the purchase price and the repurchase price for an As Soon As Pooled Plus transaction.
principal distribution amount: For a particular remittance date, Fannie Mae’s share of the aggregate principal portions of the monthly installments for mortgages in an MBS pool that became due from the second day of the preceding month to and including the first day of the remittance month (whether or not they were actually collected) and those unscheduled principal recoveries that were collected during the month preceding the month in which the remittance is made. This is the principal amount that will be drafted from the servicer’s custodial account.
project: A dwelling or dwellings comprising two or more single-family units established as a condo, co-op, or PUD project.
project documents: Recorded legal documents for a project and any master association that pertain to the formation of the project, the rights of the developer and limitations on the actions of the developer, the operation of the association, and sales of units in the project. The documents include, but are not limited to, the declaration of condominium or master deed; by-laws, rules, and regulations; articles of incorporation; governing documents; covenants, conditions, and restrictions (CC&Rs); offering circulars; and agreements as applicable to the project as well as any documents related to a master association or the overall project.
project legal phase: A development phase that is defined in the project documents. A project legal phase is not the same as a construction or marketing phase.
property insurance: Insurance coverage that compensates for physical damage—by fire, wind, or other natural disasters—to the property. (This type of coverage was previously referred to as hazard insurance.)
proprietary lease: A lease that a co-op corporation gives to a tenant-stockholder to cover the unit that he or she will occupy. The lease is called proprietary because the tenant-stockholder is both a shareholder in the landlord co-op corporation and a tenant under the lease.
purchase date: The date on which Fannie Mae disburses the purchase proceeds for a whole loan delivery; the date on which Fannie Mae purchases a pool or mortgage loan in an early funding transaction.
purchase money transaction: The acquisition of property through the payment of money or its equivalent.

Q

No Applicable Terms

R

rapid payment method (RPM): A payment cycle used for scheduled/scheduled remittance types for MBS pools that has an early remittance date (usually the tenth of the month, although earlier or later dates can be negotiated) for both scheduled and unscheduled payments.
Real Estate Mortgage Investment Conduit (REMIC): A type of multi-class mortgage-related security in which interest and principal payments from mortgages or mortgage-related securities are structured into separately traded securities.
real estate owned (REO): Other real estate owned by the borrower (such as an investment property).
reciprocal easement: The right of unit owners in different phases of an overall condo development to use the roads, parking areas, etc., in other phases of the development, through the creation of cross-easements.
recognition agreement: An agreement on the part of a co-op corporation to recognize specific rights of lenders who finance share loans in the project (or those of the lenders’ successors and assigns).
recourse: The obligation of the lender to cover losses the buyer incurs as a result of a default on the note. Under a whole loan transaction, a lender that sells a mortgage to Fannie Mae under the “with recourse” servicing option assumes the entire risk of borrower default, while a lender that sells a mortgage under the “without recourse” servicing option transfers the risk of borrower default to Fannie Mae. (See regular servicing option and special servicing option for equivalent terms for MBS transactions.)
refinance transaction: The repayment of a debt from the proceeds of a new loan using the same property as security. Fannie Mae also considers the current owner’s placement of financing on a property that is not financed as a refinance transaction.
regular servicing option: A guaranty fee option for an MBS pool under which the lender assumes the entire risk of loss from a borrower default; a servicing option for RD-guaranteed mortgages under which the servicer is fully responsible for any losses not recovered from RD. (See recourse for the equivalent term for a whole loan delivery.)
regularly amortizing mortgage: A collective term that Fannie Mae uses to differentiate “forward” mortgages from reverse mortgages. Mortgages that fall into this category include fully amortizing mortgages and partially amortizing mortgages (such as balloon mortgages).
rehabilitation mortgage: A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.
relocation loan: A mortgage originated under a relocation lending agreement between the lender and the employer (or its agent). Fannie Mae restricts the percentage of a TBA-eligible MBS pool that can be comprised of relocation loans. A loan that involves an employee relocation that is not subject to a relocation lending agreement between the lender and the employer (or its agent) is not considered a relocation loan for TBA pooling purposes, and as such, is not subject to pooling limitations (or delivery of a special feature code).
relative: The borrower’s spouse, child, or other dependent or any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship.
remaining term: Original term less the number of payments that have been applied.
remittance cycle: A schedule for determining when funds must be remitted to Fannie Mae each month. Portfolio mortgages generally have only a single remittance cycle (regardless of the remittance type), but MBS mortgages have three different remittance cycles (standard, RPM, or MBS Express).
remittance type: A way of determining the composition of the servicer’s required remittance to Fannie Mae. For portfolio mortgages, there are three types—Actual/Actual, Scheduled/Actual, and Scheduled/Scheduled.
replacement reserve fund: A dedicated fund set aside for the repair and replacement of common property in a condo, co-op, or PUD project.
repurchase date: The date through which interest must be calculated when a lender is required to repurchase a mortgage or an acquired property from Fannie Mae; the date on which the lender redelivers mortgages funded in certain early funding transactions to Fannie Mae for whole loan purchase or for securitization under an As Soon As Pooled Sale transaction.
required yield: Fannie Mae’s posted commitment yield plus all applicable adjustments. This yield does not include a servicing fee.
residential mortgage credit report: A detailed account of the credit, employment, and residence history (as well as public records information) of an individual.
responsible party: A seller, servicer, or other entity that is responsible for the selling representations and warranties and/or for the servicing responsibilities or liabilities on a mortgage loan.
retail origination: A mortgage loan for which the mortgage loan seller takes the mortgage loan application and then processes, underwrites, funds, and delivers the mortgage loan to Fannie Mae. The loan is closed in the name of the mortgage loan seller, which may or may not service the loan. This definition may include joint ventures between the mortgage loan seller and another entity, provided that the mortgage loan seller retains control of the joint venture (either through majority ownership or voting rights).
revolving debt: An arrangement for credit in which the customer receives purchases or services on an ongoing basis prior to payment. Repayment is usually at regular intervals but not for a specified amount or term. Example: charge cards.
right of first refusal: A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
right of ingress or egress: The right to enter upon or leave from designated premises.
Rural Development (RD): A government agency within the U.S. Department of Agriculture (USDA) that makes direct loans and guarantees mortgages secured by residential properties located in rural areas, concentrating on borrowers who meet income eligibility requirements. Formerly the Rural Housing Service (RHS).

S

sales comparison approach to value (or market data approach): A method of measuring the value of a property based on an analysis of comparable sales, contract offerings, and listings of properties that are the most comparable to the property that is being appraised.
sales contract: A contract for the purchase/sale, exchange, or other conveyance of real estate between parties. The contract must be in writing, contain the full names of the buyer(s) and seller(s), identify the property address or legal description, identify the sales price, and include signatures by the parties. Sales contracts are also known as agreements of sale, purchase agreements, or contracts for sale.
same month pooling: An option for creating MBS pools that allows a lender to include in a pool mortgages that close in the same month that the related MBS is issued (which means that they will have their first payment due two months after the MBS issue date).
scheduled/actual remittance type: A method of sending mortgage payments to Fannie Mae requiring lenders to remit the scheduled interest due (whether or not it is collected from borrowers) and the actual principal payments collected from borrowers.
scheduled/scheduled remittance type: A method of sending mortgage payments to Fannie Mae requiring lenders to remit the scheduled interest due and the scheduled principal due (whether or not payments are collected from borrowers).
second mortgage (or subordinate lien mortgage loan): A mortgage loan that has a lien position subordinate to the first mortgage. Also called subordinate lien mortgage loan.
secondary mortgage market: The financial market in which residential mortgages and mortgage-related securities are bought and sold.
security balance: The balance for an MBS mortgage (or a participation interest in an MBS mortgage) that is determined by reducing Fannie Mae’s share of the issue date principal balance of the mortgage by its share of any principal distribution amounts included in subsequent monthly remittances; the balance for an MBS pool that represents the aggregate security balance of all the mortgages (or participation interests) in the pool as of any date, which is equal to the aggregate issue date principal balances of the mortgages (or participation interests) less any subsequent principal distribution amounts.
servicer: A Fannie Mae approved servicer that is contractually obligated to service one or more mortgage loans for Fannie Mae. Also refers to a subservicer if there is a subservicing arrangement.
servicing compensation: The income that a servicer receives for the collection of payments and management of operational procedures related to a mortgage. It includes a base servicing fee, plus late charges, fees charged for special services, yield differential adjustments or excess yield, and, sometimes, prepayment premiums.
Servicing Execution Tool (SET): SET is a web-based solution for facilitating the concurrent transfer of servicing rights from the lenders that commit and sell mortgage loans to Fannie Mae using Fannie Mae’s whole loan committing application to approved Fannie Mae servicers, while providing a servicing-released premium best execution price.
servicing fee: The monthly fee, generally expressed in basis points, that a lender retains from borrowers’ interest payments as compensation for servicing loans on an investor’s behalf.
servicing spread: The fixed percentage amount for each mortgage or participation interest in a weighted-average ARM MBS pool that consists of the guaranty fee and the servicing fee. It cannot be less than the sum of the minimum allowable servicing fee and the guaranty fee applicable to the pool, nor greater than the sum of the maximum allowable servicing fee and the guaranty fee.
settlement date: The date that the sale of an MBS is settled and funds are paid or transferred. It may be the same day that the securities are issued to the designated book-entry account.
settlement statement: A form required by federal law that provides disclosures to borrower(s) of the final loan terms and costs of the mortgage loan transaction. References to “settlement statement” include the HUD-1 Settlement Statement and Closing Disclosure forms, as applicable, based on the application date of the mortgage loan.
significant defect: One or more defects that either necessitate a change to the price on which the loan was acquired or result in the loan being unacceptable for purchase had the true and accurate information about the loan been known at time of purchase. In determining whether there is a significant defect, Fannie Mae must give due consideration to the severity of the defect. The defect must also meet certain criteria established in this Guide.
significant interest rate buydown: A temporary reduction in the initial interest rate of a mortgage loan that provides for either more than a 2% difference between the actual interest rate as stated in the note and the “bought-down” interest rate, or a buydown period greater than two years. Fannie Mae restricts the percentage of an MBS pool that can be comprised of mortgages with this type of buydown. Requires SFC 014 at delivery.
single entity owner: The same individual, investor group (e.g., developer, sponsor, builder), partnership, or corporation that owns multiple units in a condo or co-op project. In its examination for project eligibility, the lender must determine compliance with Fannie Mae’s single entity ownership requirements.
single pool: An MBS pool that consists of mortgages or participation interests delivered by a single lender.
single-family mortgage loan: A mortgage loan secured by a property that contains one to four residential dwelling units.
special assessment districts (or municipal utility districts): Jurisdictions that have been granted the authority to assess owners of properties within their boundaries for funds that will be used to cover the operating costs and debt service they incur for providing water or other utilities for the area (since it is not served by existing city or municipal utility services).
special deposit account: An account that is established for renovation mortgages to hold the funds needed for the renovation work so they can be disbursed from time to time as particular portions of the work are completed.
special feature codes (SFC): Codes that Fannie Mae uses to identify certain characteristics related to individual mortgage loans, mortgage products, or negotiated transactions. A lender must specify these codes when they apply to mortgages delivered to Fannie Mae.
Special Flood Hazard Area (SFHA): The land in the flood plain within a community having at least a 1% chance of flooding in any given year, as designated by FEMA.
special lender obligations: Special requirements or undertakings that a lender agrees to honor in connection with the purchase or securitization of mortgages—such as credit support obligations; repurchase obligations; and recourse, loss-sharing, or indemnity obligations.
special servicing option: A guaranty fee option for an MBS pool under which Fannie Mae assumes the entire risk of loss from a borrower default; a servicing option for RD-guaranteed mortgages under which Fannie Mae will bear all losses not recovered from the RD. (See recourse for the equivalent term for a whole loan delivery.)
Standard and Poor’s Ratings Services: A credit rating agency that, among other things, assigns credit ratings to debt issuers and the debt instruments themselves, as well as to title insurance companies and custodial depositories, by evaluating their assets and liabilities.
standard pricing option: A pricing method under which all mortgages delivered under a single commitment will be priced based on the relationship of their specific pass-through rate to the commitment’s single required yield. Standard pricing can result in either a par price or a discount price, but not a premium price.
standard remittance cycle: A payment cycle used for scheduled/scheduled remittance types for MBS pools that requires the scheduled and unscheduled payments to be remitted to Fannie Mae on the 18th calendar day of each month (or on the preceding business day if the 18th is not a business day).
stated-structure pooling: A method of creating an ARM MBS pool that results in interest accruals to the security holder at the stated pool accrual rate.
structured transactions: Multi-class or multi-tranche Fannie Mae securities and/or single-class Fannie Mae MBS that are resecuritizations of other single-class Fannie Mae MBS.
subdivision: A housing development that is created by dividing a tract of land into individual lots for sale or lease.
subordinate financing: Any mortgage or other lien that has priority lower than that of the first mortgage.
subordinate lien mortgage loan: See second mortgage.
subservicer: A Fannie Mae approved servicer that is contractually obligated to a master servicer to perform substantially all of the ongoing servicing activities for one or more mortgage loans for the master servicer.
subservicing arrangement: An arrangement wherein the master servicer of one or more Fannie Mae mortgage loans hires a subservicer to subservice substantially all of its subservicing functions.
swing loan: See bridge loan.

T

take-out option: A post-conversion disposition option that requires the lender to redeliver as a whole loan a repurchased convertible adjustable-rate mortgage that was in an MBS pool following its conversion to a fixed-rate mortgage and to continue any recourse or credit enhancement that initially applied to the mortgage (unless Fannie Mae agrees it is no longer needed).
temporary interest-rate buydown: A temporary reduction in the effective interest rate that a borrower pays during the early years of a mortgage term, which is made possible by the property seller or another acceptable party depositing a lump sum of money into a buydown account so that it can be released each month to reduce the borrower’s payments.
tenant-stockholder: The obligee for a co-op share loan, who is both a stockholder in the co-op corporation and a tenant of the unit under a proprietary lease or occupancy agreement.
Texas Section 50(a)(6) loan: A loan originated in accordance with and secured by a lien permitted under the provisions of Article XVI, Section 50(a)(6), of the Texas Constitution, which allows a borrower to take equity out of a homestead property under certain conditions.
timeshare project: A real estate development in which a purchaser can buy the exclusive right to occupy a unit for a specified period of time each year.
title insurance: Insurance against loss resulting from defects in the title to real property.
trade equity: Equity that results from a property purchaser giving his or her existing real property as trade as all or part of the down payment for the property that is being purchased.
transfer of ownership: Any means by which the ownership of property changes hands. Fannie Mae considers the transfer of all or any part of the property or any interest in the property to be a transfer of ownership, including: the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract, grant deed, or any other land trust device. In cases in which an inter vivos revocable trust is the borrower, Fannie Mae also considers any transfer of a beneficial interest in the trust to be a transfer of ownership.
Treasury index: An index that is used to determine interest rate changes for certain ARM plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields and actively traded Treasury securities in the over-the-counter market.
two- to four-unit condo project: A project comprised of two to four residential units in which each unit is separately owned. A two- to four-unit project may be either a new or established project and may be comprised of attached and/or detached units.
two- to four-unit property: A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.

U

underwriting documents: All of the documentation used to support the lending decision for a mortgage—such as the loan application and other documents used to verify a borrower’s employment, income, deposits, and credit history.
Uniform Commercial Code (UCC): A comprehensive codification and modernization of commercial law (but excluding law dealing with real property).
Uniform Electronic Transactions Act (UETA): Any of several state adoptions of an Act that has provisions for the use of electronic signatures and records in interstate commerce that are virtually identical in all material respects to similar provisions of ESIGN.
unit mortgage: A mortgage (or share loan) on an individual residential unit in a planned unit development, condo, or co-op project.
unpaid principal balance (UPB): The actual balance of the mortgage as of the last paid installment date (also referred to as the “outstanding principal balance”).

V

VA-guaranteed mortgage: A mortgage that is guaranteed by the U.S. Department of Veterans Affairs; may be referred to as a “government” mortgage.
voluntary conveyance: See deed in lieu of foreclosure.

W

weighted-average pool accrual rate: The weighted average of the net mortgage interest rates of the mortgages in a weighted-average ARM MBS pool, which is the rate at which interest will accrue on the MBS.
weighted-average structure pooling: A method of creating an ARM MBS pool that results in interest accruals to the security holder at the weighted average of the accrual rates of the mortgages in the pool.
whole loan delivery: The submission of a whole mortgage or a participation pool mortgage to Fannie Mae for purchase as a portfolio mortgage. Fannie Mae pays the mortgage seller cash for its mortgage delivery, rather than swapping the mortgage for a mortgage-backed security.

X

No Applicable Terms

Y

yield: Return on an investment.
yield difference (or interest rate differential): The difference between Fannie Mae’s required yield and the net note rate of an ARM. Fannie Mae limits the amount of this difference.
yield differential adjustment: An amount paid to the servicer of a whole first mortgage when the initial interest rate of a mortgage exceeds Fannie Mae’s required yield for the commitment under which the mortgage was purchased.

Z

No Applicable Terms

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