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Mortgage Terms L-P

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Legal Description – A property description, recognized by law, which is sufficient to locate and identify the property without oral testimony.

Lien – A legal hold or claim of a creditor on the property of another as security for a debt. Liens are always against property, usually real property.

Loan Administration – A mortgage banking function, which includes the receipt of payments, customer service, escrow administration, investor accounting, collections and foreclosures. Also called servicing.

Maturity – The date on which an agreement expires; termination of a mortgage note.

Mechanic’s Lien – A claim created by law to secure priority of payment for work performed and materials provided by a vendor. Land may be attached as well as buildings, equipment, or other property.

Mortgage – A formal document executed by an owner of property, pledging that property as security for payment of a debt or performance of some other obligation. Also, the security instrument itself.

Mortgage-Backed Security (MBS) – An investment instrument backed by mortgage loans as security. Ownership is evidenced by an undivided interest in pool of mortgages or trust deeds. Income from the underlying mortgages is used to pay off the securities, and provides a return on investment.

Mortgage Banker – A firm that conducts mortgage lending activities from its own funds. Newly formed mortgages are sold to investors in the secondary market, providing funds for subsequent lending. The mortgage banker generally continues to service the loans.

Mortgage Insurance (MI) – Insurance that protects mortgage lenders against loss in the event of default by the borrower. This allows lenders to make loans with lower down payments. The federal government offers MI through HUD/FHA; private entities offer MI for conventional loans.

Mortgage Life Insurance – Term life insurance paid by the borrower in which the amount of coverage decreases as the mortgage balance declines. In the event the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Mortgage Insurance Certificate (MIC) – Certificate issued by HUD/FHA as evidence that a mortgage has been insured, and that a contract of mortgage insurance exists between HUD/FHA and the lender incorporating the HUD/FHA regulations identified in the certificate.

Mortgage Insurance Premium (MIP) – The amount paid by a mortgagor for mortgage insurance either to FHA or a private mortgage insurance company.

Mortgage Note – A written promise to pay a sum of money at a stated interest rate during a specified term. A mortgage note is secured by a mortgage.

Mortgage Portfolio – The aggregate of mortgage loans held by an investor or serviced by a mortgage banker.

Mortgagee – The lender in a mortgage transaction.

Mortgagee Clause – A clause that may be attached to an insurance policy stipulating that the lender will receive a portion of insurance proceeds sufficient to satisfy the unpaid amount of a loan in the event of a loss.

Mortgagor – The borrower in a mortgage transaction who pledges property as a security for a debt.

Negative Amortization – The unpaid interest which is added to the mortgage principal in a loan where the principal balance increases rather than decreases because the mortgage payments do not cover the full amount of interest due.

Nonassumption Clause – A mortgage clause that prohibits the assumption of a mortgage by a third party without the prior approval of the lender.

Note – A general term for any kind of paper or document signed by a borrower that is an acknowledgement of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgagee is named as the payee.

Notice of Default – Notice recorded after default under a deed of trust or mortgage. Also, the notice sent to defaulting borrowers, required by insurers or guarantors such as FHA, VA, or MIC.

Origination – The process of creating both commercial and residential mortgages.

Partial Payment – In loan collections, receipt of less than the full payment due.

PITI – An acronym for the items included in a monthly payment: principal, interest, taxes, and insurance.

Points – A point is the term used for pre-paid interest on a loan and often results in a discount on the interest rate over the life of the loan. 1 point = 1% of the total loan amount. Keep in mind discount points paid for on a purchase transaction for a primary residence are tax deductible in the year that they are paid.

Portfolio – The collection of loans held for servicing or investment.

Premium – In insurance terms, a payment for coverage.

Prepayment – The payment of all or part of a mortgage debt before it is due.

Prepayment Penalty – A charge the mortgagor pays the mortgagee for the privilege to prepay the loan.

Principal – The original balance of money lent, excluding interest. Also, the remaining balance of the loan, excluding interest.

Private Mortgage Insurance (PMI) – Insurance written by a private company protecting the mortgage lender against financial loss occasioned by a borrower defaulting on the mortgage.