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	Tim Petrocelli

	Middletown, PA

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Welcome to the mortgage and economic terms glossary. Some definitions contain additional information, examples and answers to common questions. When available, click on the mortgage term to learn more. Adjustable-rate Mortgage (ARM): A mortgage loan with an interest rate subject to change over the term of the loan. The interest rate is tied to the performance of a specified market rate, such as the cost of funds index calculated by the 11th District of the Federal Home Loan Bank Board, or the yields on one-year or six-month U.S. Treasury securities. Amortization: The paying down of principal over time. In a typical mortgage loan, the principal is scheduled to be paid off, or fully amortized, over the term of the loan. Average Hourly Earnings: A monthly reading by the Bureau of Labor Statistics of the earnings of hourly plant and nonsupervisory workers in the private sector. While the AHE excludes salaried workers (unlike the employment cost index), it is available each month with only a brief lag. Released by BLS as part of the Employment Situation release, the report is generally issued on the first Friday of the month for the prior month. Basis Point: One one-hundredth of a percentage point. For example, if mortgage rates fall from 7.50% to 7.47%, then they've declined 3 basis points. A full percentage point is 100 basis points. Cash-out Refi: A refinancing of a mortgage in which the new principal (the borrowed amount) exceeds the outstanding principal of the original loan by at least 5%. In other words, the homeowner is taking equity out of the home. Of the mortgages it owned that were refinanced during the first three quarters of 2000, Freddie Mac estimates that more than 4 out every 5 were cash-out refis. Conforming Mortgage Loan: Any mortgage loan that's at or below the amount that Fannie Mae and Freddie Mac can purchase and/or securitize in the secondary mortgage market. The current loan limit is up to and including $417,000 in the continental United States (Alaska and Hawaii limits are higher). Construction Loan: A temporary loan that is used to pay for the building of a house. Consumer Confidence Index: A measure of confidence that households have in the economy. Released by the Conference Board late in the month. Consumer Price Index (CPI): A measurement of the average change in prices paid by consumers of a fixed market basket of a wide variety of goods and services. The broadest, and most quoted, CPI figure reflects the average change in the prices paid by urban consumers (about 80% of the U.S. population). The so-called "core CPI" excludes the volatile food and energy sectors in an attempt to determine the underlying rate of inflation. Strictly speaking, the CPI is not a "cost of living" index because its fixed market basket does not allow for the substitution of goods and services due to price changes. The CPI is released by the Bureau of Labor Statistics in mid-month for the previous month Conventional Mortgage Loan: Any mortgage loan not guaranteed or insured by the government (typically through FHA or VA programs). Credit Report: A report of borrowing and repayment history for an individual or entity. Credit Score: A number based on an individual's credit report that indicates overall credit risk. Employment (Payroll): The number of nonfarm employees on the payrolls of more than 500 private and public industries. Generally issued on the first Friday of the month for the previous month by the Bureau of Labor Statistics, and one of the most watched economic indicators in the financial markets. Employment Cost Index: A quarterly index used to gauge the change in the cost of civilian labor. Unlike the average hourly earning measure, the ECI includes salaried workers. Another advantage of the ECI is that changes in the index are independent of shifts in the composition of the workforce (that is, the index is not affected by, say, a surge in the number of lower-paying jobs relative to high-paying jobs because it uses fixed employment weights. Instead, the ECI reflects the change in the employment costs of the same set of jobs). The index has two major components: the wage and salary series and the benefits series. The survey is conducted during pay period including the 12th day of March, June, September and December. The Bureau of Labor Statistics releases the results about six to seven weeks after the survey period. The less comprehensive average hourly earnings figure is a more timely indicator, as it's released monthly, usually within a week after month's end. Existing Home Sales: Based on the number of closings during a particular month. Because of the one-to-two month period between a signed purchase contract and a closing, existing home sales are more influenced by mortgage rates a month or two earlier than the prevailing mortgage rate during the month of closing. New homes sold, on the other hand, are counted when the purchase contract is signed. The reported figure is generally a seasonally adjusted, annual rate. Data are released by the National Association of REALTORS® on the 25th of each month (or the following business day) for the previous month. Fannie Mae and Freddie Mac: The nation's two federally chartered and stockholder-owned mortgage finance companies. Forbidden by their charters from originating loans (that is, from providing mortgage loans on a retail basis), these two Government-Sponsored Enterprises (GSEs) purchase and/or securitize mortgage loans made by others. Due to their directive to serve low-, moderate-, and middle-income families, the GSEs have loan limits on the purchase or securitization of mortgages (in 2001, the conforming loan limit is $275,000). The difference between these two entities often comes down to size (Fannie's larger), business strategy and execution. Federal Funds Rate: Also known as the fed funds rate, this is the rate that banks charge each other on overnight loans made between them. These loans are generally made so that bank can cover their daily cash flow and reserve requirements. As the rate rises, banks have an increased incentive to keep more of their own cash on hand - making less money available to lend out to households and businesses. The Fed doesn't actually set the fed funds rate, which is determined by supply and demand of the funds; instead, it sets a target rate and, through its own purchases or sales of securities, affects the supply of funds. Federal Open Market Committee (FOMC): The arm of the Federal Reserve that sets monetary policy, the FOMC is scheduled to meet eight times a year. The 12 members of the FOMC include the seven governors of the Federal Reserve System, the president of the New York Federal Reserve BankK

Late Charge – An additional charge that a borrower is required to pay as a penalty for failure to pay a regular installment when due.

Legal Fees and Disbursement – Costs for work done by attorney(s) associated with the sale or purchase of a property.

Lender – The bank, mortgage company, or mortgage broker offering the loan.

Lender Processing Fee – The cost of handling your loan application and compiling and packaging the necessary documentation to close your loan.

Lien – A formally recorded claim by a party placed on the property of another for security against a debt. If someone files a lien against your property, it means that if you do not pay the debt they are owed, they can collect the funds from the proceeds when your property is sold.

Liquidation – Conversion of a debt or asset to cash through negotiated settlement or legal proceedings, as the liquidation of a mortgage debt through foreclosure and sale of the foreclosed property.

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

Loan Documents – The legal documents evidencing or supporting the debt and legal status of the mortgage (i.e., note, mortgage or trust deed, assignment(s) of mortgage, and mortgage title policy).

Loan Fraud – Providing false information to qualify for a loan.

Loan Origination Fee – Fee charged by a lender to cover administrative costs of processing a loan. This usually includes the evaluation, preparation, and submittal of the loan.

Loan-to-Value Ratio (LTV) – The percent of the appraised value of the property that the lender is willing to lend. For example, if a home is appraised at $45,000 and the lender has an 80% loan-to-value ratio, the most you could borrow would be $36,000 (45,000 x .80).

Lock or Lock-in – A lender's guarantee of an interest rate for a set period of time – usually between loan application approval and loan closing. The lock-in protects you against rate increases during that time.

Loss Draft – A bank draft from an insurer in settlement of a loss covered by hazard insurance.

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Manufactured Home – A factory-assembled home built in units or sections that are transported to a permanent site and built onto a foundation. Manufactured homes are subject to federal building codes administered by HUD.

Margin (spread) – The amount added to an index to determine the interest rate on an ARM.

Market Value – The approximate price at which a home or property is likely to sell in a particular location at a particular time, depending on market conditions.

Maturity – The date when the principal loan balance is paid off, or the last payment to be made on a loan that has “reached maturity.”

Maximum Cash Out – The maximum amount of money you are eligible to receive from your refinancing transaction based on the loan information provided and the amount of equity you have in your home.

Modification – The act of changing the terms of a note, such as by reducing payments.

Mortgage Payment – Typically a monthly payment that may contain up to four parts: principal, interest, taxes, and insurance. If you pay your taxes and insurance on your own (not included in an escrow account with your mortgage), you pay only principal and interest to your lender.

Mortgage – The legal document by which your home or property is pledged as security for the repayment of a loan.

Mortgage Banker – A firm which 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 Broker – A third party that arranges financing for borrowers with a lender. The mortgage broker does not provide the funds for the loan, but they receive a payment from the lender for their services. PNC Mortgage is a direct lender, not a broker.

Mortgage Insurance – Insurance to protect the lender in the event that the loan defaults. Mortgage insurance is generally not required if you make a down payment of at least 20% of the home's appraised value. FHA and VA loans have different insurance guidelines and are designed to accommodate low or no down payment options.

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 Note – See “Promissory Note.”

Mortgage Title Policy – A policy issued by a title insurance company insuring the mortgagee against loss due to any existing defect in the title to the mortgaged property or to any claim against the property having legal priority over the mortgage existing prior to the issuance of the policy (see 'Owner's Title Insurance Policy').

Mortgagee – The lender in a mortgage transaction.

Mortgagee Clause – A clause within a hazard insurance policy naming the mortgagee as a beneficiary of the policy.

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

Negative Amortization – A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan.

Non-assumption Clause – A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.

Note – A general term for any kind of paper or document signed by a borrower which 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 – Written notice to a borrower that they have failed to meet some or all of the terms of their loan. The notice states that a default has occurred and that legal action may be taken if the default is not rectified within a certain period of time.

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

Origination Fee – The lender's fee charged to a borrower to prepare documents, make credit checks, inspect and sometimes appraise a property. Usually stated as a percentage of the face value of the loan.

Owner's Title Insurance Policy – A policy issued by a title insurance company insuring the owner against loss due to any defect in his title to real property existing prior to the issuance of the policy.

Partial Payment– In loan collection, less than the full payment due, usually not credited until the balance is received.

Payoff Figure– Information released to the borrower or to his/her representative giving the unpaid principal balance and interest amounts, to be used for payment in full of the mortgage.

Periodic Cap – A protective measure for you that limits the amount the interest rate on an adjustable rate mortgage (ARM) can change in an adjustment interval. It also places a limit on the amount by which payments can increase (or decrease) during any one adjustment period.

PITI – Abbreviation for principal, interest, taxes and insurance – the components of the typical monthly mortgage payment.

Points – An up-front fee; one point is equal to one percent of the loan amount. Many lenders allow customers the option of paying 'points' in exchange for a lower interest rate on the loan. See “Discount Points.”

Power of Attorney – A legal document that authorizes one person to act on behalf of another. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time. You may use a power of attorney if you have a closing scheduled but due to an extenuating circumstance, are unable to attend. It names the person who is authorized to act on your behalf. The legal document must be notarized and should be prepared by an attorney so that it meets the requirements needed to close the transaction

Pre-approval – The process of determining how much money you will be able to borrow for a new mortgage or refinance before you actually apply for a loan. A pre-approval includes a preliminary screening of a borrower's credit history. Information submitted during pre-approval is subject to verification at application.

Prepaid Expenses – Taxes, insurance and assessments paid in advance of their due dates. These expenses are often included at closing, to ensure that insurance and taxes are up to date when a new mortgage is taken out.

Prepaid Interest – Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date.

Pre-payment – Repayment of the principal before the maturity date of the loan.

Pre-payment Penalty – A fee that may be charged if you pay off your loan within a pre-determined period of time. Many loans do not charge a penalty for early payment. Check with your loan consultant for specific information about your loan.

Pre-qualification – See “Pre-approval.”

Principal – The base amount borrowed from the lender, excluding interest.

Principal Payment – A payment applied entirely to the principal balance of the loan; formerly called 'curtailment'.

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. See “Mortgage Insurance”

Property Taxes – The taxes assessed on the property by the local government (e.g. city, county, village or township) for the various services provided to the property owner.

Purchase Agreement – Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.