Glossary of Terms

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Glossary of Terms

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Account history
The payment history of an account over a specific period of time, including the number of times the account was past due or over limit.
Accrued interest
Interest that has been earned but not yet paid.
Adjustable-rate mortgages (ARMS)
Also known as variable-rate mortgages. The initial interest rate is usually below that of conventional fixed-rate loans. The interest rate may change over the life of the loan as market conditions change.

There is typically a maximum (or ceiling) and a minimum (or floor) defined in the loan agreement. If interest rates rise, so does the loan payment. If interest rates fall, the loan payment may as well.
Adverse action
Under the Equal Credit Opportunity Act, a creditor's refusal to grant credit on the terms requested, termination of an existing account, or an unfavorable change in an existing account.
Alteration
Any change involving an erasure or rewriting in the date, amount, or payee of a check or other negotiable instrument.
Amortization
The process of reducing debt through regular installment payments of principal and interest that will result in the payoff of a loan at its maturity.
Analysts
Individuals working for a research or brokerage firm who make forecasts about companies’ future earnings, revenues, growth rates, and stock price (price target). They also make recommendations regarding buying, selling, or holding a particular stock.
Annual percentage rate (APR)
The cost of credit on a yearly basis, expressed as a percentage.
Annual percentage yield (APY)
A percentage rate reflecting the total amount of interest paid on a deposit account based on the interest rate and the frequency of compounding for a 365-day year.
Annuity
A life insurance contract sold by insurance companies, brokers, and other financial institutions. It is usually sold as a retirement investment. An annuity is a long-term investment and can have steep surrender charges and penalties for withdrawal before the annuity's maturity date. (Annuities are not FDIC insured.)
Application Fee
A sum of money paid toward estimated mortgage processing expenses, such as the appraisal and credit report.
Appraisal
The act of evaluating and setting the value of a specific piece of personal or real property.
Appreciation
An increase in value of real estate.
Assessed Valuation
The value a taxing authority places on real or personal property for the purpose of taxation.
Assessment
A charge against property for taxation. This may be a levy for a special purpose, or a tax in which the property owner pays a share of the cost of community improvements.
Authorization
The issuance of approval, by a credit card issuer, merchant, or other affiliate, to complete a credit card transaction.
Automated Clearing House (ACH)
A computerized facility used by member depository institutions to electronically combine, sort, and distribute inter-bank credits and debits. ACHs process electronic transfers of government securities and provided customer services, such as direct deposit of customers' salaries and government benefit payments (i.e., social security, welfare, and veterans’ entitlements), and preauthorized transfers.
Automatic bill payment
A checkless system for paying recurring bills with one authorization statement to a financial institution. For example, the customer would only have to provide one authorization form/letter/document to pay the cable bill each month. The necessary debits and credits are made through an Automated Clearing House (ACH).
Availability date
The date on which checks payable at local or non-local banks are considered to be collected and available for customers' withdrawal.
Availability policy
Bank's policy as to when funds deposited into an account will be available for withdrawal.
Available balance
The balance of an account less any hold, uncollected funds, and restrictions against the account.
Available credit
The difference between the credit limit assigned to a cardholder account and the present balance of the account.

Balance Sheet
A statement of assets, liabilities, and net worth.
Balance transfer
The process of moving an outstanding balance from one credit card to another. This is usually done to obtain a lower interest rate on the outstanding balance. Transfers are sometimes subjected to a Balance Transfer Fee.
Balloon Mortgage
A mortgage with monthly payments due for a specified period of time, at the end of which the remaining balance is due.
Bank examination
Examination of a bank's assets, income, and expenses-as well as operations by representatives of Federal and State bank supervisory authority-to ensure that the bank is solvent and is operating in conformity with banking laws and sound banking principles.
Bank statement
Periodically the bank provides a statement of a customer's deposit account. It shows all deposits made, all checks paid, and other debits posted during the period (usually one month), as well as the current balance.
Banking day
A business day during which an office of a bank is open to the public for all of its banking functions.
Bankrupt
When a person, firm, or corporation has insufficient assets to cover their debts. The debtor seeks relief through a court proceeding to work out a payment schedule or erase debts. In some cases, the debtor must surrender control of all assets to a court-appointed trustee.
Bankruptcy
The legal proceedings by which the affairs of a bankrupt person are turned over to a trustee or receiver for administration under the bankruptcy laws. There are two types of bankruptcy:

• Involuntary bankruptcy-one or more creditors of an insolvent debtor file a petition having the debtor declared bankrupt.

• Voluntary bankruptcy-the debtor files a petition claiming inability to meet financial obligations and willingness to be declared bankrupt.
Beneficiary
A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, annuity, or other contract.
Billing cycle
The time interval between the dates on which regular periodic statements are issued.
Billing date
The month, date, and year when a periodic or monthly statement is generated. Calculations have been performed for appropriate finance charges, minimum payment due, and new balance.
Billing error
A charge that appears on a periodic statement associated with an extension of credit (e.g., a credit card) NOT authorized by the cardholder or the cardholders’ designee, not properly identified or not accepted by the cardholder or the cardholder's designee.

A billing error can also be caused by a creditor's failure to credit a payment or other credit to an account as well as accounting and clerical errors.
Bond, U.S. Savings
Savings bonds are issued in face value denominations by the U.S. Government in denominations ranging from $50 to $10,000 and are typically long-term, low-risk investment tools.
Buydown
Money advanced by an individual (such as the builder or seller) to reduce the monthly payments for a home mortgage for all or part of the term of the loan.

Canceled check
A check that a bank has paid, charged to the account holder's account, and then endorsed. Once canceled, a check is no longer negotiable.
Cap
A limitation on the interest rate increase for a specified period and over the life of the loan.
Capital Expenditures
Cash spending on fixed assets, such as buildings or equipment.
Cash Equivalents
A form of payment that is just like cash, such as a traveler's check or cashier's check.
Cash Provided by Operations
Measurement of cash provided for investment (capital spending, acquisitions and other investments) and financing activities. This is also referred to as "Operating Cash Flow."
Cash to Close
Liquid assets that are readily available to be used to pay the closing costs involved in a closing of a mortgage loan.
Cashier’s check
A check drawn on the funds of the bank, not against the funds in a depositor's account. However, the depositor paid for the cashier's check with funds from their account. The primary benefit of a cashier's check is that the recipient of the check is assured that the funds are available.
Certificate of deposit
A negotiable instrument issued by a bank in exchange for funds, usually bearing interest deposited with the bank.
Certificate of release
A certificate signed by a lender indicating that a mortgage has been fully paid and all debts satisfied.
Certified check
Personal check drawn by an individual that is certified (guaranteed) to be good. The face of the check bears the words “certified” or “accepted,” and is signed by an official of the bank or thrift institution issuing the check. The signature signifies that the signature of the drawer is genuine, and sufficient funds are on deposit and earmarked for payment of the check.
Charge-off
The balance on a credit obligation that a lender no longer expects to be repaid and writes off as a bad debt.
Check truncation
The conversion of data on a check into an electronic image after a check enters the processing system. Check truncation eliminates the need to return canceled checks to customers.
Closed-end credit
Generally, any credit sale agreement in which the amount advanced, plus any finance charges, is expected to be repaid in full by a specified date. Most real estate and automobile loans are closed-end agreements.
Closed-end loan
Generally, any loan in which the amount advanced, plus any finance charges, is expected to be repaid in full by a specified date. Most real estate and automobile loans are closed-end agreements.
Closing
The consummation of a real estate transaction. The closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to complete the sale and loan transaction.
Closing a mortgage loan
The consummation of a contractual real estate transaction in which appropriate documents are signed and the proceeds of the mortgage loan are then disbursed by the lender.
Closing costs
The cost associated with the sale of real estate. The expenses incurred by sellers and buyers in transferring ownership in real property. The costs of closing may include the origination fee, discount points, attorneys' fees, loan fees, title search and insurance, survey charge, recordation fees, and the credit report charge.
Co-signer
A person who signs a note to guarantee a loan made to another person and is jointly liable with the maker for repayment of the loan. (Also known as a Co-maker.)
Collateral
Assets that are offered to secure a loan or other credit. For example, if you get a real estate mortgage, the bank's collateral is typically your house. Collateral becomes subject to seizure on default.
Collected funds
Cash deposits or checks that have been presented for payment and for which payment has been received.
Collection agency
A company hired by a creditor to collect a debt that is owed. Creditors typically hire a collection agency only after they have made efforts to collect the debt themselves, usually through letters and telephone calls.
Collection items
Items-such as drafts, notes, and acceptances-received for collection and credited to a depositor's account after payment has been received. Collection items are usually subject to special instructions and may involve additional fees. Most banks impose a special fee, called a collection charge, for handling collection items.
Commercial Loan
Short-term renewable loan to finance the seasonal working capital needs of a business, such as the purchase of inventory or production and distribution of goods.
Commitment Fee
A fee paid by a potential borrower to a lender for the lender's promise to lend money.
Commitment Letter
A formal offer by a lender stating the terms under which it agrees to loan money to a prospective borrower.
Common Stock
Shares held in a public company that give holders of those shares voting rights and the right to receive dividends when they are declared by the board of directors. In general, there are two types of shares: common and preferred stock. Common stock holders share in the success when a company profits; however, they are also at risk if the company falters. In the event of liquidation of the corporation, common stock has lower priority than preferred stock and bonds (debt).
Community Reinvestment Act
The Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods. It was enacted by the Congress in 1977.
Consumer Credit Counseling Service
A service that specializes in working with consumers who are overextended with debts and need to make arrangements with creditors.
Conventional fixed-rate mortgage
A fixed-rate mortgage offers you a set interest rate and payments that do not change throughout the life, or "term," of the loan.

A conventional fixed-rate loan is fully paid off over a given number of years-usually 15, 20, or 30. A portion of each monthly payment goes towards paying back the money borrowed, the "principal"; the rest is "interest."
Corporate Governance
The practices, principles, and values that guide a company and its business every day at all levels of the organization.
Credit Bureau
An agency that collects individual credit information and sells it for a fee to creditors so they can make a decision on granting loans. Typical clients include banks, mortgage lenders, credit card companies, and other financing companies. (Also commonly referred to as consumer-reporting agency or credit-reporting agency.)
Credit Disability Insurance
A type of insurance, also known as accident and health insurance, that makes payments on the loan if you become ill or injured and cannot work.
Credit Disability Insurance
A type of insurance, also known as accident and health insurance, that makes payments on the loan if you become ill or injured and cannot work.
Credit Life Insurance
A type of life insurance that helps repay a loan if you should die before the loan is fully repaid. This is optional coverage.
Credit Score
A number, roughly between 300 and 800, which measures an individual’s credit worthiness. The most well-known type of credit score is the FICO® score. This score represents the answer from a mathematical formula that assigns numerical values to various pieces of information in your credit report.
Credit limit
The maximum amount of credit that is available on a credit card or other line of credit account.
Credit report
A detailed report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
Current Assets
Resources that are reasonably expected to be realized in cash, sold or consumed within the next 12 months.
Current Liabilities
Obligations whose liquidation is reasonably expected to require the use of current assets or the creation of other liabilities within the next 12 months.
Curtesy
The common law interest a husband has in real estate at the time of his wife's death (governed by state law).

DeMinimus PUD
A PUD in which the common property has less than a 2% influence upon the value of the premises. The 2% rule of thumb is calculated by dividing the dollar amount of the amenities by the total number of units.
Debit
A debit may be an account entry representing money you owe a lender or money that has been taken from your deposit account.
Debit card
A debit card allows the account owner to access their funds electronically. Debit cards may be used to obtain cash from automated teller machines or purchase goods or services using point-of-sale systems. The use of a debit card involves immediate debiting and crediting of consumers' accounts.
Debt-to-income ratio (DTI)
The percentage of a consumer’s monthly gross income that goes toward paying debts. Generally, the higher the ratio, the higher the perceived risk. Loans with higher risk are priced at a higher interest rate.
Deed of Trust
In some states, it is the instrument used in place of a mortgage. Property is transferred to a trustee by the borrower (trustor) in favor of the lender (beneficiary), and reconveyed upon payment in full.
Default
The failure to repay an obligation as agreed.
Deferred payment
A payment postponed until a future date.
Delinquency
Failure to make a scheduled loan payment. After 60 days, delinquency will be reported to the national credit bureaus and will negatively affect your credit rating.
Demand deposit
A deposit of funds that can be withdrawn without any advance notice.
Depreciation
A loss of value in real estate.
Direct deposit
A payment that is electronically deposited into an individual's account at a depository institution.
Disclosures
Certain information that Federal and State laws require creditors to give to borrowers relative to the terms of the credit extended.
Discount/Discount Points/Points
In a real estate transaction, it is the amount withheld from the loan proceeds by the lender. This amount is used to adjust the interest rate of the loan to the required yield.
Dividend
Distribution of earnings to shareholders in the form of cash or stock. The amount is decided by the board of directors and usually paid quarterly.
Dividend Payable Date
The date for the payment of a cash or stock dividend to those who held shares on the record date.
Dividend Record Date
The date by which a shareholder must officially own shares in order to be entitled to a dividend.
Dividend Yield
Annual common stock dividends per share divided by the current stock price.
Dower
The right of a widow to a life estate in her husband's property at the time of his death (governed by law).
Down Payment
Cash portion of the amount of the purchase of real estate.
Downgrades
When an analyst reduces a recommendation for a stock. Examples include changing a "buy" recommendation to a "hold" or a "hold" to a "sell."
Draft
A signed, written order by which one party (the drawer) instructs another party (the drawee) to pay a specified sum to a third party (the payee), at sight or at a specific date. Typical bank drafts are negotiable instruments and are similar in many ways to checks.
Drawee
The person (or bank) expected to pay a check or draft when it is presented for payment.
Drawer
The person who writes a check or draft instructing the drawee to pay someone else.

Earnest Money
Also known as down payment or down money, this is money deposited by a buyer under terms of a contract.
Electronic check conversion
Electronic check conversion is a process in which your check is used as a source of information-for the check number, your account number, and the number that identifies your financial institution. The information is then used to make a one-time electronic payment from your account-an electronic fund transfer. The check itself is not the method of payment.
Electronic funds transfer (EFT)
The transfer of money between accounts by consumer electronic systems-such as automated teller machines (ATMs) and electronic payment of bills-rather than by check or cash. (Wire transfers, checks, drafts, and paper instruments do not fall into this category.)
Encoding
The process used to imprint or inscribe MICR characters on checks, deposits, and other financial instruments. [Magnetic Ink Character Recognition (MICR) is a character-recognition technology adopted mainly by the banking industry to facilitate the processing of checks. Each check in encoded at the bottom with the dollar amount of the check. If that information is entered incorrectly, there is an encoding error.]
Equal Credit Opportunity Act (ECOA)
Prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, or because an applicant receives income from a public assistance program.
Equity
In real estate, it is the difference between the value of the property and the amount owed on the property.
Escheat
Reversion of real or personal property to the State when 1) a person dies without leaving a will and has no heirs, or 2) when the property (such as a bank account) has been inactive for a certain period of time.
Escrow
A financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions-or until obligations have been fulfilled. Securities, funds, and other assets can be held in escrow.
Escrow analysis
The periodic examination of escrow accounts by a mortgage company to verify that monthly deposits are sufficient to pay taxes, insurance, and other escrow-related items on when due.
Escrow funds
Funds held in reserve by a mortgage company to pay taxes, insurance, and other mortgage-related items when due.
Estate account
An account held in the name of a decedent that is administered by an executor or administrator of the estate.
Exception hold
A period of time that allows the banks to exceed the maximum hold periods defined in the Expedited Funds Availability Act.

Fair Credit Reporting Act (FCRA)
A Federal law, established in 1971 and revised in 1997, that gives consumers the right to see their credit records and correct any mistakes. The FCRA regulates consumer credit reporting and related industries to ensure that consumer information is reported in an accurate, timely, and complete manner. The Act was amended to address the sharing of consumer information with affiliates.
Fair Debt Collection Practices Act (FDCPA)
The Fair Debt Collection Practices Act is a set of United States statutes added as Title VIII of the Consumer Credit Protection Act. Its purpose is to ensure ethical practices in the collection of consumer debts and to provide consumers with an avenue for disputing and obtaining validation of debt information in order to ensure the information's accuracy. It is often used in conjunction with the Fair Credit Reporting Act.
Fair and Accurate Credit Transactions Act of 2003 (FACT Act or FACTA)
The purpose of this Act is to help consumers protect their credit identities and recover from identity theft.

One of the key provisions of this Act is that consumers can request and obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies (Equifax, Experian, and TransUnion). AnnualCreditReport.com provides consumers with the secure means to request their free credit report.
Fannie Mae (FNMA)
Federal National Mortgage Association is a taxpaying corporation created by Congress to support the secondary mortgage market. It purchases and sells both conventional and government home mortgages.
Federal Deposit Insurance Corporation (FDIC)
A government corporation that insures the deposits of all national and State banks that are members of the Federal Reserve System.
Fiduciary
Undertaking to act as executor, administrator, guardian, conservator, or trustee for a family trust, authorized trust, or testamentary trust, or receiver or trustee in bankruptcy.
Finance charge
The total cost of credit a customer must pay on a consumer loan, including interest. The Truth in Lending Act requires disclosure of the finance charge.
Financial regulatory agency
An organization authorized by statute for ensuring the safe and sound operation of financial institutions chartered to conduct business under that agency's jurisdiction.

The primary regulators are:

OCC (Office of the Comptroller of the Currency)
FDIC (Federal Deposit Insurance Corporation)
FRB (Federal Reserve Bank)
OTS (Office of Thrift Supervision)
NCUA (National Credit Union Administration)
State regulatory agencies
First mortgage
A real estate loan having priority over all other liens. In case of a foreclosure, the first mortgage will be repaid before any other mortgages.
Fixed Interest Rate
An interest rate that does not change during the loan term.
Fixed-rate loan
The interest rate and the payment remain the same over the life of the loan. The consumer makes equal monthly payments of principal and interest until the debt is paid in full.
Fixed-rate mortgage
A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
Foreclosure
A legal process in which property that is collateral or security for a loan is sold to pay the defaulting debt.
Foreign transaction fees
A fee assessed by your bank for making a transaction at another bank's ATM.
Fraud Alert
A key provision of the Fair and Accurate Credit Transactions Act of 2003 is the consumer's ability to place a fraud alert on their credit record. A consumer would use this option if they believe they were a victim of identity theft.

The alert requires any creditor that is asked to extend credit to contact the consumer by phone and verify that the credit application was not made by an identity thief.
Freddie Mac
The Federal Home Loan Mortgage Corporation is a quasi-governmental agency that purchases conventional mortgages in the secondary market from banks and HUD-approved mortgage bankers. It sells participation sales certificates secured by pools of conventional mortgage loans. The federal government through FHLMC guarantees the principal and interest on these loans. It also sells Government National Mortgage Association (GNMA) bonds to raise funds for the purchase of mortgages.
Freedom of Information Act (FOIA)
A Federal law that mandates that all the records created and kept by Federal agencies in the executive branch of government must be open for public inspection and copying. The only exceptions are those records that fall into one of nine exempted categories listed in the statute.
Frozen account
An account on which funds may not be withdrawn until a lien is satisfied and a court order or other legal process makes the account available for withdrawal (e.g., the account of a deceased person is frozen pending a court order distributing the funds to the new lawful owners).

An account may also be frozen when there is a dispute regarding the true ownership of an account. The bank will freeze the account to preserve the existing funds until legal action can determine the lawful owner.

Garnishment
Generally, garnishment is a court proceeding in which a creditor asks a court to order a third party who owes money to the debtor or otherwise holds assets belonging to the debtor to turn over to the creditor any of the debtor’s property (such as wages or bank accounts) held by the third party.
Guaranteed student loan
An extension of credit from a financial institution that is guaranteed by a Federal or State government entity to assist with tuition and other educational expenses. The government entity is responsible for paying the interest on the loan and paying the lender to manage it. The government entity also is responsible for the loan if the student defaults.
Guarantor
A party who agrees to be responsible for the payment of another party's debts should that party default.

Impound
Escrow or reserve payment for items such as taxes and insurance.
Interest Rate
The percentage of an amount of money that is paid for the use of that money over a period of time.
Interest Rate
The percentage of an amount of money that is paid for the use of that money over a period of time.
Investment Property
Real estate owned for income generation that is not owner occupied.

Judgment Lien
A judgment by the court, and placed as a lien against real estate.

Lender
The actual source providing the funds being borrowed. It could be a bank, credit union, financial institution, the federal government, or even the school—as in the case of a Federal Perkins Loan.
Lien
A legal claim against property as security for an obligation.
Loan Consolidation
A method of combining several loans into a single loan with an extended repayment term. This can be an effective way of lowering your monthly payments.
Loan Disbursement
The release of the student's loan funds to the school. Loan disbursements are usually made in multiple, equal installments.

Check Disbursement - The loan is disbursed by check to the school and must be endorsed by the borrower and the school.
EFT- Electronic Funds Transfer - The loan disbursement is sent to the school by wire transfer.
Loan to Value
The ratio between the amount of the mortgage loan and the lower of the sales price or appraised value.
Loss Payee Clause
The clause in an insurance policy indicating who is to be paid in the event of a claim.

Margin
The percentage a lender adds to the index rate to determine the new interest rate.
Maturity
The due date of a note.
Monthly Payment
The amount of principal, interest, taxes, and insurance (PITI) paid monthly on a mortgage loan.
Mortgage
A conditional transfer or pledge of real property as security for the payment of a debt.
Mortgage Banking
The packaging of mortgage loans to be sold to a permanent investor. The mortgage banker then retains the servicing of the loan.
Mortgage Insurance
Insures the lender against loss caused by the borrower's failure to make the payments.
Mortgage Note
A written promise to repay a stated amount of money at a stated interest rate over a stated period of time.
Mortgagee
The lender in a mortgage loan transaction.
Mortgagor
The borrower in a mortgage transaction.

Non-Conforming Loan
Conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC due to several factors, including but not limited to credit quality and loan amount.

Origination Fee
A fee charged by a Lender to cover the cost of the process of making a mortgage loan.

PITI
Principal, interest, taxes, and insurance included in your monthly mortgage payment.
Point (Percentage Point)
One percent (1%) of the mortgage loan amount.
Primary Residence
Property that the borrower intends to occupy as his/her principal residence.
Principal Balance
The remaining balance due on a debt, exclusive of interest.

Rate Lock Option
An agreement guaranteeing a specified interest rate on a loan provided that the loan is closed by a specified date.
Real Estate Settlement Procedures Act (RESPA)
A federal law requiring lenders to provide home mortgage borrowers with information on the known or estimated costs associated with a loan closing.
Refinancing
The repayment of a debt from proceeds of a new loan using the same property as security.

Satisfaction of Mortgage
The recordable instrument provided by a lender that verifies a mortgage has been paid in full.
Second Home (Vacation Home)
A residence other than the primary residence that will be occupied by the borrower for a portion of each year. A second home must be suitable for year-round occupancy.
Secondary Mortgage Market
The market where mortgages are bought and sold.
Security
The collateral given by the borrower to secure a debt.
Survey
The measurement and description of land as provided by a registered surveyor.

Term
The time limit within which a loan must be repaid.
Title
The legal evidence of ownership to real property.
Title Insurance Policy
A policy provided by a title insurance company in which the insured is protected against losses caused by defects of title on real estate. The mortgagee must be named as insured.
Truth-in-Lending Act
A federal law that requires full disclosure of credit terms using a standard format.

Underwriting
Analysis of the risk, and the determination of the appropriate rate and terms on a given loan.

Zero Point Loan
An option that allows the borrower to pay a slightly higher rate in lieu of paying loan origination points.