Loan Modification Dictionary

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Loan Modification Dictionary

Adjustable-Rate Mortgage (ARM) — a mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the loan. These types of loans usually start off with a lower interest rate but can subject the borrower to payment uncertainty.

Amortization — the process of paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero.

Balloon Mortgage — a mortgage loan that requires a large payment due upon maturity (for example , at the end of ten years).

Collections — the efforts a lender takes to collect past due payments.

Convertible ARM — is an Adjustable Rate Mortgage loan that can be converted into a fixed-rate mortgage during a certain time period.

Deed — a legal document under which ownership of a property is conveyed.

Deferred Payments —loan payments that are authorized to be postponed as part of a workout process to avoid foreclosure.

Delinquency — failure to make a payment when it is due. A loan is generally considered delinquent when it is 30 or more days past due.

Equity — ownership interest in a property after liabilities are deducted.

Escrow Account — an account where a homeowner’s regular installments to cover taxes and home insurance are held in trust until due.

Escrow Analysis — a periodic review of escrow accounts to make sure that there are sufficient funds to pay the taxes and insurance on a home when they are due.

Fixed-Rate Mortgage — a mortgage loan with a fixed interest rate that remains the same for the life of the loan.

Forbearance — the lender’s postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.

Foreclosure — the legal process by which a property may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.

Foreclosure Prevention — steps by which the servicer works with the borrower to find a permanent solution to resolve an existing or impending loan delinquency.

Hazard Insurance — insurance that is generally required under mortgage contracts to pay for loss or damage to a person’s home or property.

Home Equity Line of Credit — a way of borrowing money against the equity in one’s home to pay for things such as home repairs, college education, or other personal uses.

Interest-Only Mortgage — a mortgage where the borrower pays only the interest and none of the outstanding principal balance on a loan for a specified amount of time.

Investment Property — a property not considered to be a primary residence that is purchased in order to generate income, profit from appreciation, or take advantage of certain tax benefits.

Lender Placed Insurance — insurance placed on a home or property by a lender to protect their interest in the collateral which secures the loan.

Mortgage Insurance — insurance that protects lenders against losses caused by a borrower’s default on a mortgage loan. Mortgage insurance (or MI) typically is required if the borrower’s down payment is less than 20% of the purchase price.

Mortgage — a legal document that pledges property to a lender as security for the repayment of the loan. The term is also used to refer to the loan itself.

Refinance — the process of replacing an existing mortgage with a new one by paying off the existing debt with a new, loan under different terms.

Repayment Plan — a borrower promises to pay down past due amounts on a mortgage while continuing to make regular monthly payments on a home.

Servicer — a firm that works on behalf of the lender in support of a mortgage, including collecting mortgage payments, ensuring payment of taxes and insurance, managing escrow accounts, managing communications with the borrower, and loss mitigation or foreclosure when necessary.

Title — the documented evidence that a person or organization has ownership of real property.

Work Out — a way to resolve or restructure a loan to prevent someone from going into foreclosure through a loan modification, forbearance or short sale.