Ability to repay
A borrower's ability to make timely loan payments as required, both short-term and long-term. Projected ability to repay is based on factors such as income, existing debt, and the length of the loan period. Legitimate lenders assess the ability of borrowers to repay their loans; predatory lenders often do not. In fact, payday lenders cultivate a base of borrowers who will have difficulty repaying, as these borrowers are easily flipped into new loans.
Adjustable rate mortgage (ARM)
A mortgage with an interest rate that can change periodically based on a specified index, such as interest rates published by the U.S. Treasury Department or the Federal Home Loan Bank. ARMs (also called variable rate mortgages) make consumers vulnerable to payment shock as their rate increases, and as a result ARMs generally have a higher rate of delinquency and foreclosure than fixed-rate mortgages. See also: index, payment shock, foreclosure
Amortization
The gradual repayment of a mortgage loan by making regular payments over time. To be "fully amortizing," payments must cover both the principal amount and interest due on the loan for the given period. An amortization schedule is an established timetable for making payments. See also: negative amortization
Annual percentage rate (APR)
The cost of the credit expressed as a percentage over the term of the loan. APR includes both interest costs and finance charge fees charged on a loan. When lenders disclose the APR of loans, borrowers can better understand the cost of the credit and can compare the cost of different products or features apples-to-apples. See also: principal, finance charge, interest
Arbitration
A method of settling legal disputes outside of court by appointing a third party to act as a judge. Arbitration is often used as an alternative to court hearings or trials. See also: mandatory arbitration
Assignee
When a mortgage is transferred from one party to another (usually because the loan is purchased for investment purposes), the party that assumes ownership of the mortgage, as well as the rights and responsibilities attached to that mortgage, is known as the "assignee." An assignee may receive all or part of a security interest. See also: assignee liability, security
Assignee liability
A legal term that means that the purchaser of a home loan may be held liable for legal claims against the original lender. Typically, mortgage originators sell mortgage loans in the secondary market after the loan closes. If a predatory lending claim arises, assignee liability ensures that the borrower can pursue legal action. Assignee liability also encourages loan purchasers to conduct thorough due diligence. See also: assignee, due diligence, secondary market
Balloon mortgage
A loan in which the total of monthly installments does not cover the entire loan balance. As a result, the homeowner must refinance the loan or make a large lump-sum payment at the end of the designated period. Mortgages with balloon payments are associated with high rates of foreclosure. See also: refinance, foreclosure
Buy Down
To buy down an interest rate is to prepay discount points at closing. Essentially prepaying a portion of the interest in order to have a lower interest rate for the term of the loan.
Cap
A term used in Adjustable Rate Mortgages (ARM) that is the maximum periodic interest rate adjustment. See: Adjustable Rate Mortgage
Car title loan
A short term loan secured by a borrower's car title. A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is made for much less than the value of the car. Many borrowers who cannot afford to pay off their loans repeatedly extend them for additional fees. In some states, lenders are allowed to keep the surplus from the sale of the car if the borrower defaults on payment. See also: collateral, short-term credit, triple-digit interest
Check cashing
Service offered by alternative financial institutions to people who do not have access to mainstream banking services. Although the fees can be high (typically 3% of the check value), unlike predatory payday lending, the practice generally does not encourage a cycle of debt. See also: payday loan
Circumvention
Means used by payday lenders to evade consumer protection laws. Their strategies include disguising a payday loan as another product and, most successfully, renting the charter of out-of-state banks to avoid restrictions on payday lending in the states where they operate. See also: rent-a-charter
Collateral
An item of value that a lender can take as compensation if a borrower fails to repay a loan. Borrowers generally are required to secure a loan with personal property as collateral. On mortgage loans, the dwelling serves as collateral. Payday loans are "secured" by a borrower's personal check, which puts considerable pressure on the borrower to avoid default by renewing the loan and paying another high fee.
Consumer Financial Protection Bureau
Congress established the Bureau of Consumer Financial Protection (CFPB) through the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)for the express purpose of regulating consumer protection in the United States.
Cooling-off period
A cooling-off period is purported to give payday borrowers a chance to break their dependence on payday loans by enforcing a period of time during which they cannot take out or renew a loan. But cooling-off periods instituted by payday lenders have been too short to be effective, and when imposed, have forced borrowers to respond to the cash shortfall by taking out a payday loan from another lender. See also: debt trap
Credit history
A borrower's record of various debts (including credit cards and other consumer debt) and payment history. Mortgage lenders examine borrowers' credit histories to help determine their repayment risk, loan qualifications and the terms of the loan. See also: credit score
Credit insurance
Insurance designed to pay off a borrower's mortgage debt if the borrower dies or is disabled. When sold in a "single premium" or "lump sum," all premiums are charged in advance and typically added to the loan balance, increasing the overall cost by requiring the borrower to pay interest on the premiums over the life of the loan. Since single-premium credit insurance has fallen into disfavor, lenders have introduced analogous products such as "debt cancellation" contracts. Other credit products premiums are charged monthly with the loan payment.
Credit score
A credit score (sometimes called a FICO score) is a number that predicts repayment risk. A FICO score is actually a propriatory scoring model of TransUnion (a credit reporting agency.) The score is based on a number of factors, including how well debts have been paid off, current levels of debt, types of credit, and length of credit history. Lenders use credit scores to decide who qualifies for a loan and how much the loan should cost. Scores generally range from 350 to 900; most lenders consider a score over 720 to be excellent. See also: credit history
Debit authorization
Permission given to an institution to debit an account-holder's checking account for payment. In the context of payday lending, this collection method, which is standard for Internet lending, has allowed lenders to collect repeat fees efficiently, often without the borrower's full awareness.
Debt ratio
Calculations that measure how much debt borrowers carry compared to their income, typically calculated on both a borrower's housing debt and total debt. Lenders calculate these ratios during the loan underwriting process and use the results as one major factor in determining whether a borrower qualifies for a loan. Higher ratios generally indicate a greater risk of default.
Debt trap
Payday loans may trap borrowers in debt by holding the borrower's signed personal check as collateral, and requiring either full payment in a very short time period or a high fee for renewing the loan. Payday borrowers are routinely unable to pay off the loan and so compelled to renew it repeatedly; payday lenders make most of their profits from repeat borrowing. Although payday loans are marketed as short-term emergency relief, only one percent of payday loans go to one-time borrowers. Ninety-one percent of all payday loans are made to borrowers with five or more payday loans per year. See also: rollover
Default
A loan is in "default" when a payment is received after the due date or payment is not made in full in agreement with the repayment terms of the mortgage.
Disclosure
The Truth-in-Lending Act (TILA) requires accurate, uniform disclosure of annual percentage rates, loan payment amounts and timing as well as the loan term. See also: Truth in Lending Act (TILA)
Disclosure Statement
This term is commonly used to refer to the document(s) that explain loan terms according to the Truth in Lending Act
Due diligence
The process of assessing financial risks involved in an investment before purchasing or funding that investment. Responsible loan purchasers conduct thorough due diligence to avoid funding mortgages or mortgage investments that include predatory mortgages. See also: assignee liability
Equity
In mortgage lending, the market value of a home minus the amount owed on the mortgage. In other words, equity is the portion of a home's value that the homeowner owns free of debt. As a simple example, if a homeowner owes $75,000 on a house that could be sold for $100,000, the homeowner has equity of $25,000. Particularly for lower-wealth families, equity is an frequent method of savings and credit.
Equity stripping
Loan terms on mortgages (usually refinances) designed to maximize the lender's revenues by increasing the borrower's loan balance; this practice reduces the borrower's equity in the home. Equity stripping may occur in various ways, but the most common is charging excessive fees that are financed as part of the new loan. See also: points and fees, flipping
Escrow
Funds held by a third party to pay for specific expenses as they come due. For example, lenders often require escrow funds to cover property taxes and property insurance. The funds are paid by the borrower into an escrow account as part of their periodic mortgage payment.
Exploding ARM (adjustable rate mortgage)
A common type of "hybrid" ARM in the subprime market that includes both a fixed- and adjustable-interest rate component. A "2/28" hybrid ARM comes with an initial fixed interest rate for two years, followed by rate adjustments, generally in annual increments for the remainder of the loan's term. Typically the introductory rate is a teaser or introductory rate below the floor rate, giving homeowners a dramatic increase in housing costs after the introductory period expires. See also: floor
Extension
An offer to skip a payment and add the payment to the end of the loan. Because the principle is deferred, total interest over the life of the loan increases and can result in a balloon payment being due upon the maturity date. See: maturity date
Fannie Mae
A private company that supports home lending by purchasing loans from participating mortgage lenders and issuing mortgage-backed securities. Based in Washington, D.C., Fannie Mae is the nation's largest mortgage investor. Fannie Mae was originally created by the government in 1938 to purchase government-insured mortgages, and still retains its federal charter as a "government sponsored enterprise" (GSE).
Federal Deposit Insurance Corporation (FDIC)
An independent agency created by Congress in 1933 to maintain financial stability and public confidence in the nation’s banking system. The agency also directly examines and supervises about 5,300 banks and savings banks, more than half of the institutions in the U.S. banking system.
Federal National Mortgage Association (Fannie Mae) and Federal Home Mortgage Corporation (Freddie Mac).
A high percentage of mortgages are now held by investors. The two largest investors that purchase mortgages on the secondary market are Fannie Mae and Freddie Mac. These “government sponsored enterprises” were created by Congress to provide liquidity or capital in the housing market by purchasing mortgages. This helps put money back into the hands of the originating lender so that new loans can be made. The originating lender must follow extensive guidelines specified by Freddie Mac and Fannie Mae when qualifying the borrower for a loan, commonly called underwriting guidelines.
Federal Reserve Board (Fed)
The central bank of the United States. It was created by Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. Its central agency conducts US monetary policy, and its 12 regional banks support and regulate commercial banks and thrifts.
FICO Score
A proprietary scoring model of TransUnion, a credit reporting agency. See: credit score
Finance charge
A finance charge is the cost of credit, usually in the form of interest. Certain fees are considered finance charge fees and are included in the calculation of the Annual Percentage Rate (APR). See also: interest, Annual Percentage Rate
Finance company
A company engaged in making loans to individuals or businesses. Unlike a bank, it does not receive deposits from the public and is regulated by the Consumer Financial Protection Bureau (CFPB.) See: Consumer Financial Protection Bureau
Flipping
The practice of refinancing a loan without providing a net benefit to the homeowner. Although some borrowers may receive cash as a result of flipped loans, the benefit of this compensation may be outweighed by the costs of losing equity or taking on unaffordable debt. See also: equity stripping, refinance, rollover
Floor
THe lowest interest rate possible on an adjustable rate mortgage (ARM) after expiration of the initial fixed rate period.
Forbearance
Plan to cure default that may involve temporary suspension of payments or repayment plan based on modified payment amount, extending typically for 3 to 12 months. See: Workout Plan
Foreclosure
A legal action that seizes collateral (property) from a homeowner, usually because of failure to make payments or if borrower does not pay as agreed. In the context of predatory lending, foreclosure may result when borrowers loan includes abusive loan terms or when lenders make loans without considering a borrower's ability to repay the loan.
Foreclosure Rescue Scam
This scam targets those who at risk of default or foreclosure.. A individual or entity purporting to be offering mortgage assistance relief services (MARS) promises to help consumers save their home but is actually intent on charging high upfront fees without delivering any services, stealing the home or most of its accumulated equity.
Freddie Mac
Created by Congress in 1970, Freddie Mac is a private company based in Washington, D.C. that facilitates home lending by providing funds to participating mortgage lenders through loan purchase and securitization programs. Although Fannie Mae and Freddie Mac have distinct histories and were formed for slightly different purposes, these government-sponsored enterprises (GSEs) function in a similar manner and both support the same types of lenders in the mortgage market.
Good Faith Estimate (GFE)
An itemization of the estimated closing costs. Lenders or brokers must provide this list to the loan applicant for a mortgage loan within 3 business days after receipt of a complete loan application. The GFE is intended to be a shopping tool, to allow consumers to compare product features and costs across financial institutions. This disclosure is required by the Real Estate Settlement Procedures Act.
Hazard insurance
Insurance that covers property loss or damage, usually paid for by borrowers and required when obtaining a mortgage. Hazard insurance is frequently required to be paid monthly as part of the mortgage payment and held in escrow until due. See: escrow
High-cost loans
Mortgage loans with interest rates and/or points and fees that are significantly above competitively priced loans, as defined by law. Federal and state predatory lending laws do not ban high-cost loans, but instead prohibit certain products or practices when these loans are made. See also: points and fees
Home Owners Equity Protection Act (HOEPA)
A 1994 federal law designed to protect consumers by placing certain restrictions on high-cost home equity loans, as defined in the law. HOEPA loans are also known as Section 32 loans and require special disclosure prior to loan closing. Certain undesirable loan features are prohibited on HOEPA loans such as prepayment penalties.
HUD 1
A settlement statement with information on buyer and sellers fees in regard to the mortgage. See: settlement statement
HUD 1A
A short form settlement statement for use in refinance loan transaction. The HUD 1A only contains borrower and payoff information.
Index
A published rate often used to establish the interest rate charged on mortgages or to compare investment returns. Examples of commonly used indexes include Treasury bill rates, the prime rate, LIBOR (the London Interbank Offered Rate), and the 11th District cost-of-funds-index (issued by the San Francisco Federal Home Loan Bank). In adjustable rate mortgages, a fixed rate of interest is added to the index to make up the interest rate. As the index fluctuates,the total loan interest rate changes periodically according to the terms of the loan (often there is an annual rate change.)
Interest
The amount charged by lenders for extending credit, expressed as a percentage. Even a small difference in an interest rate can make a big difference in the total interst paid over time. Responsible lenders adjust interest rates according to the level of risk in a loan (of each borrower.)
Interest-Only Mortgage
For a specified number of years (often three or five years), the borrower is allowed to pay only interest due on the loan while deferring any payment of the principal loan amount. After the interest-only period, payments include both principal and interest-possibly resulting in payment shock, and leaving the borrower with no home equity after several years of payments. The interest rate may be fixed or adjustable during both periods.
Loan limit
The maximum amount of money that may be extended to a consumer by a specific lender based on existing debts. The amount of a loan is generally set according to a borrower's ability to repay. Loan limits are meaningless when a loan can be flipped repeatedly and borrowers can obtain loans from multiple lenders. See also: ability to repay, rollover
Loan term
The loan term is the length of time before the loan is due to be repaid in full at the maturity date. Most mortgage loans have 30 year terms. Many predatory consumer loans (payday loans, car title loans, refund anticipation loans) have very short loan terms, which increase the APR earned by the lender and/or pressure consumers into extending their loans at additional fees. See also: short-term credit, maturity date
Loan-to-value ratio
The loan amount divided by the appraised value or sales price of a property, expressed as a percentage. When homebuyers borrow a high percentage of a property's value, they initially have little or no equity. The initial LTV is based upon sales price or stated value. The final LTV is based upon appraised value or sales price, whichever is lower.
Mandatory arbitration
A clause in a loan contract that requires the borrower to use arbitration to resolve any legal disputes that arise from the loan. Mandatory arbitration typically means borrowers lose their right to pursue legal actions, including any appeals, in a court of law. Evidence indicates that arbitration is often costly for borrowers and may reduce their chances of receiving a fair outcome. Borrowers often are unaware that a mandatory arbitration agreement has been included in their home documents.
Maturity Date
The date that the entire remaining loan balance is due and payable. It includes principle, interest and unpaid fees.
Monoline lender
A monoline lender offers only one type of loan product. Most of the largest payday lending companies limit their services to this one highly profitable loan type.
Mortgage broker
A person or company in the business of finding mortgage loans for consumers that are purchasing a home or refinancing an existing home. Brokers often receive compensation from borrowers, frequently as a percentage of the total loan amount plus other fees. Mortgage brokers do not have a legal obligation to find and/or offer the best loan available. Brokers also may be paid by the lender/investor based on the profitability of the mortgage loan.
Mortgage insurance
Insurance that protects lenders against financial losses resulting from a default on a mortgage loan. Generally, borrowers are required to pay for mortgage insurance unless the LTV on their loan is 80% or less. See: Loan to value ratio
Mortgage-backed security
A type of investment backed by pools of mortgage loans, with payments on the underlying mortgages generating the return to investors. By selling mortgages in the secondary mortgage market, where they are collected and packaged as investments, lenders are able to generate more funds for future lending. See also: security
Negative amortization
When mortgage payments do not cover the full amount of interest due, and the unpaid interest is added to the principal balance of the loan. Under standard amortization, the principal balance decreases with each payment. Negative amortization means that the principal balance of a loan increases, thereby eroding home equity or resulting in negative equity. These loans are known as Home Equity Conversion Mortgages (HECM) when insured by the Federal Housing Administration (FHA.) See also: amortization
Office of Thrift Supervision (OTS)
The successor thrift regulator to the Federal Home Loan Bank Board and a pision within the Treasury Department. The OTS was responsible for the examination and regulation of federally chartered and state chartered savings associations. THe OTS was eliminated in 2011. Financial institutions regulated by the OTS were moved to the Office of Comptroller of the Currency (OCC), their new regulator. Some financial institutions voluntarily changed to other regulators as an option with the dissolution of the OTS.
Originator
A lender; one who offers or "originates" mortgage loans. See also: mortgage broker
Payday loan
A payday loan is marketed as a cash advance on the borrower's next paycheck. The terms are typically as follows: a loan amount of about $300, a two-week term, and a fee of at least $15 per $100 borrowed, which amounts to an annual percentage rate of about 400%. The borrower's personal check or debit authorization is held as collateral. Most payday borrowers get caught in a debt trap, unable to pay off the loan in the two-week term, and so are compelled to avoid default by paying repeated high fees for no new money. See also: annual percentage rate, debit authorization, debt trap, rollover
Payment Option ARM (adjustable rate mortgage)
A mortgage that allows a number of different payment options each month, including very minimal payments. The minimum payment option can be less than the interest accruing on the loan, resulting in negative amortization.
Payment shock
Rapid or significant payment increases during the periodic adjustment feature in adjustable rate mortgages in which consumers are not prepared for. Payment shock is often cited as a frequent cause for delinquency in adjustable rate mortgages.
See also: adjustable rate mortgage
Points and fees
Points and fees are costs to borrowers. "Points" or "discount points" are fees calculated as a percentage of the loan principal; one point equals one percent of the principal. Payment of discount points is used to buy down the offered interest rate to a lower interest rate by prepaying a portion of the interest. Fees may include compensation to a broker, charges by the lender, and third-party charges for appraisals, title insurance, etc. High points and fees are frequently the hallmark of a predatory loan.
Predatory lending
A term for a variety of lending practices that strip wealth or income from borrowers. Predatory loans typically are much more expensive than justified by the risk associated with the loan. Characteristics of predatory loans may include, but are not limited to, excessive or hidden fees, charges for unnecessary products, high interest rates, terms designed to trap borrowers in debt, and refinances that do not provide any net benefit to the borrower.
Preemption
A term used when one law or rule directly overrides an existing law or rule. Preemption provisions in a federal law generally displace state laws governing the same topic. In the area of predatory lending, federal preemption would nullify many state protections for homeowners and prevent states from addressing local predatory lending issues as they arise.
Prepayment penalty
A penalty fee charged by a lender when a borrower pays off a mortgage before all payments are due. Prepayment penalties vary in size and how long they remain in effect. While prepayment penalties are rare in the prime market, up to 80% of subprime mortgages include prepayment penalties.
Principal
The original balance of money lent, excluding interest. Also, the remaining balance of a loan, excluding interest and unpaid fees.
Real Estate Settlement Procedures Act (RESPA)
The purpose of this federal law is to ensure accurate disclosure of costs and loan features. It protects consumers from certain abusive practices. The law requires disclosures before
and at the closing, as well as periodically throughout the term of the mortgage loan. The
disclosures address settlement costs, servicing transfers, and escrows.
Redlining
An illegal practice of arbitrary denial of real estate loan applications in certain geographical areas, without considering an individual applicant's qualifications.
Refinance
The payoff of an existing loan with a new loan using the same property as security. Homeowners often request refinances to get cash drawn from existing home equity or to obtain a new mortgage with a better interest rate and/or payment terms. Most predatory mortgage lending occurs among refinances in the subprime market.
Refund anticipation loan (RAL)
A short-term loan secured by the taxpayer's expected tax refund, offered at interest rates of up to 700%. A significant percentage of taxpayers using RALS are low-income consumers See also: short-term credit
Renewal
In some states, regulations limit the number of times a single payday loan can be extended or "rolled over." Payday lenders accomplish the same effect with loan renewals, also known as "back-to-back transactions." In a renewal transaction, the borrower pays off an existing payday loan in order to open another one (either immediately or after a cooling-off period). The borrower gets no new money, but pays another fee for the new loan. See also: cooling-off period, rollover
Rent-a-charter
Under rent-a-charter agreements, payday lending companies partner with out-of-state banks to evade legal restrictions on payday lending in the states where they operate. This practice is also known as "brokering." To fight predatory payday lending, state legislative bodies have had to enact specific anti-brokering legislation to prevent the "rent-a-charter" circumvention of state laws.
Rent-to-own
Rent-to-own companies "rent" merchandise to a consumer for a stated period, after which the consumer owns the merchandise. A consumer would pay over four times the value of the merchandise under a typical contract. The company is not required to disclose interest rates, although the transaction is much like a loan in that the company may levy unlimited finance charges for late payments, and may repossess the merchandise. See also: disclosure
Rescission
This is a right under some laws to cancel a contract or loan. You have the right to rescind all or a portion of home equity refinance loans within the first three business days after the loan is signed. In some cases, if the creditor has violated the law, your right to rescind may continue for three years.
Reverse Mortgage
A loan option usually available only to those who have built up substantial equity in their property. In a reverse mortgage, money is drawn from the equity based on the value of the property without an immediate repayment obligation. Repayment is made at the time of sale of the property.
Rollover
Rollovers are common practice in payday lending. Payday loan terms are typically two weeks, but borrowers are flipped into rollovers: they pay another fee to keep the loan outstanding in an extension. Many borrowers pay a high fee every payday without ever paying down the principal or receiving new money, and end up paying many times the original loan amount in fees. See also: renewal
Sale/leaseback
An early form of payday lending circumvention, in which a payday lender avoids legal restrictions by claiming the loan they make is payment for an item the borrower owns, but pretends to "sell" to the lender, who then "leases" it back to the borrower for a fee. The "sale" proceeds are the loan, and the fee is the interest. Commonly used in car title lending. See also: circumvention, car title loan
Second mortgage
A mortgage that has rights subordinate to a first mortgage. Second mortgages are often called 'home equity loans'. Their interest rates are frequently higher than first mortgages because in default, the first mortgager has rights to foreclose.
Secondary market
The market where lenders and investors buy and sell existing mortgages or mortgage-backed securities, thereby providing additional funds for mortgage lending. See also: security, assignee
Security
A generic term for a wide variety of investment instruments. Securities may represent ownership of equity (such as common stocks); indebtedness (such as debt securities); a financial interest in a group of mortgages (such as mortgage-backed securities); or potential ownership (such as an option).
Service charge
A charge for specific services in addition to those included for free. An example would be a fee for a written payoff quotation. This is a service fee charged only for the specific service when used. See: finance charge
Settlement
The signing of a mortgage loan by a borrower. Also known as a loan closing or loan consummation. Also, the delivery of a loan or security to a buyer. See also: security
Settlement statement
A financial disclosure form that provides an account of all funds charged and received at closing, including escrow deposits for taxes, hazard insurance and mortgage insurance. Most types of mortgages use a uniform settlement statement called the "HUD 1 or HUD 1-A." Borrowers have the right to request and review a copy of the settlement statement 24 hours prior to settlement. See also: disclosure, escrow
Short Sale
A type of sale in which the creditor agrees to let you sell property (usually real estate) for less than the full amount owed and to accept the proceeds of the sale as full satisfaction of the debt.
Short-term credit
Payday loans, car title loans and refund anticipation loans offer extremely short-term credit, typically a few days to one month, and may charge interest rates in the triple digits. The excessive charges usually far outweigh the risks associated with these loans. See also: loan term
Steering
The practice of encouraging borrowers to accept higher-cost subprime loans even when they qualify for a more affordable prime loan. Vulnerable borrowers may be subjected to aggressive sales tactics and sometimes outright fraud. Fannie Mae has estimated that up to half of borrowers with subprime mortgages could have qualified for loans with better terms. See also: predatory lending
Step-Rate Loan
A loan type in which the interest rate increases over time at fixed amounts at set intervals. A typical step-rate loan would have the lowest interest rate and payment for the first period, step up to a higher set interest rate and payment for the second period, and then step up to the final set interest rate and payment. The consumer knows the fixed interest rates and payment amounts for each period in a step rate loan.
Subprime lending
A type of mortgage lending intended to serve borrowers who do not qualify for prime loans because of credit problems or a limited credit history. Virtually all predatory mortgage lending occurs in the subprime market.
Subprime Loan
A loan that is more expensive than a comparable prime loan. Subprime lending is generally defined as less than “A” (i.e. prime) lending. This type of lending is designed to provide credit to borrowers with low credit scores or a high risk of default. Most of the predatory mortgage lending occurs in the subprime market.
Targeting
A practice in which lenders specifically market high-cost or predatory loans to potential customers based on factors such as race, ethnicity, or age. Targeting is a form of discrimination?not because it excludes minorities and other vulnerable populations, but because it targets and exploits them by offering loans with abusive terms and conditions. Targeting may be used to illegally select a geographic area comprised of minorities for the purpose of offering predatory loan products. See also: predatory lending
Teaser Rate
Also known as 'introductory rate', a rate on an adjustable rate mortgage that is lower than the floor. Typically the teaser rate expires at the time of first adjustment, potentially causing a large interest rate increase and payment shock. See: floor, payment shock
Triple-digit interest
Payday and overdraft loans typically carry triple digit interest rates. The annual percentage rate (APR) for payday and other predatory consumer loans generally exceeds 400%. See also: annual percentage rate (APR)
Truth in Lending Act (TILA)
Congress enacted the Truth-in-Lending Act (TILA) to allow consumers to assess the true cost of credit, and encourage free competition between lenders. One of the key provisions of TILA is the requirement to disclose a loan's annual percent rate.
Underwriting
A lender's process for assessing the risk involved in making a mortgage loan to determine whether the risk is acceptable and the loan pricing including interest rate and fees. Underwriting involves an evaluation of the value of the property and the borrower's willingness and ability to repay the loan. See also: ability to repay
Usury
The practice of charging exorbitant, sometimes illegal interest rates for consumer credit. Payday and overdraft loans typically carry an annual percentage rate (APR) of over 400%, sometimes exceeding 1000%. See also: annual percentage rate (APR)
Variable-Rate Mortgage
This is a mortgage loan on which the interest rate can adjust up or down over time. The changes can affect the interest portion of your monthly payments, increasing or decreasing periodic payment amounts due.
Workout Plan
This term covers a variety of negotiated agreements you might arrange with creditors on a loan on which you are in default. Most commonly, the term is used with respect to agreements with a mortgage lender to restructure a loan to avoid foreclosure.
Yield spread premium
A payment a mortgage broker receives from a lender for delivering a loan with an interest rate higher than the minimum rate the lender would accept for that particular loan. Yield spread premiums provide incentives for mortgage brokers to steer borrowers into higher-cost loans. See also: interest
Fair Lending Discrimination in mortgage lending is prohibited by the federal Fair Housing Act, the federal Equal Credit Opportunity Act and Washington Law Against Discrimination. These laws make it unlawful to engage in discriminatory practices based on race, color, national origin, religion, sex, familial status, marital status, age, receipt of public assistance, creed, sexual orientation, Veteran/military status or disability.
Español Asistencia para propietarios de vivienda - información y videos para saber más sobre los servicios gratuitos del programa Making Home Affordable.gov, El Departamento de Vivienda y Desarrollo Urbano (HUD), NeighborWorks, y más...
Training & Seminars Fair Lending,Home Buyer & Financial Literacy trainings in Eastern & Central Washington
Tools for Homeowners Information and Video's from Making Homes Affordable Program, HUD, NeighborWorks, WA Dept of Financial Instutions, and more...
Mortgage Rescue Scams Information and videos on mortgage rescue scams and how to avoid them.
Making Home Affordable The Home Affordable Modification Program provides eligible homeowners the opportunity to modify their mortgages to make them more affordable. Over one million homeowners have already received help under the program.
How to Avoid Foreclosure This section contains video plus links to helpful worksheets and other support documents to help homeowners struggling with foreclosure.
