THE MORTGAGE. SECOND 4fT\V> EDITION THE AUTHORITATIVE GUIDE TO MORTGAGE PROGRAMS, PRACTICES, PRICES, AND PITFALLS JACKGUTTENTAG

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1 THE MORTGAGE ENCYCLOPEDIA SECOND 4fT\V> EDITION THE AUTHORITATIVE GUIDE TO MORTGAGE PROGRAMS, PRACTICES, PRICES, AND PITFALLS JACKGUTTENTAG "THE MORTGAGE PROFESSOR" B Me Graw Hill New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto

MORTGAGE PROFESSOR" B 373048 Me Graw Hill New York Chicago San Francisco

2 A A-Credit, 1 A-Minus, 1 - Acceleration Clause, 1 Accrued Interest, 1 Adjustable-Rate Mortgage (ARM), 1 Adjustment Interval, 11 Affordability, 11 Agreement of Sale, 14 Alt-A, 14 Alternative Documentation, 15 Amortization, 15 Amount Financed, 18 Annual Percentage Rate (APR), 18 Application, 22 Application Fee, 22 Appraisal, 22 Appraisal Fee, 22 Appraisal Management Company (AMC), 22 Appraiser, 23 Approval, 23 APR, 23 ARM, 23 Assignment, 23 Assumable Mortgage, 23 Assumption, 27 Auction Sites, 27 Authorized User, 27 Automated Underwriting, 27 Automated Underwriting System, 27 B "Bad Faith" Estimate, 28 Bailout, 28 Balance, 29 Balloon, 29 Balloon Mortgage, 29 Bimonthly Mortgage, 30 Biweekly Mortgage, 30 Blemished Borrowers, 32 Bridge Financing, 32 Builder-Financed Construction, 34 Buy-Down, 34 Buy-Up, 34 Cash-Out Refinance, 34 Closing, 36 Closing Costs, 36 Closing Date, 36 Coborrowers, 37 COFI, 40 Collateralized Debt Obligation (CDO), 40 Conforming Mortgage, 40 Construction Financing, 41 Contract Chicanery, 43 Conventional Mortgage, 43 Conversion Option, 43 Correspondent Lender, 43 Cosigning, 44 Cost of Savings Index (COSI), 46 Credit Report, 47 iii

Appraiser, 23 Approval, 23 APR, 23 ARM, 23 Assignment, 23 Assumable Mortgage, 23 Assumption, 27 Auction Sites, 27 Authorized User, 27 Automated Underwriting, 27 Automated Underwriting System, 27 B

3 Topics Credit Score, 47 Cumulative Interest, 51 Current Index Value, 51 Danish Mortgage System, 51 Deadbeat, 54 Debtaholic, 54 Debt Consolidation, 55 Debt Elimination, 56 Deed in Lieu of Foreclosure, 57 Default, 57 Deferred Interest, 57 Delinquency, 57 Demand Clause, 57 Desecuritization, 58 Direct Lender, 59 Disaster Myopia, 59 Discount Mortgage Broker, 59 Discount Points, 60 Discretionary ARM, 60 Discriminatory Mortgage Pricing, 60 Documentation Requirements, 62 Doubling Down on Mortgage Payments, 65 Down Payment, 66 "Dual Apper," 72 Dual Index Mortgage, 72 Due-on-Sale Clause, 72 Effective Rate, 73 80/10/10,80/15/5,and 80/20/0 Loan Plans, 73 ', Equity, 73 Equity Grabbing, 73 Escrow, 73 Escrow Abuse, 73 Escrow Account, 74 Fallout, 76 Fannie Mae, 76 Fee Escalation, 76 FHA Mortgage, 76 FICO Score, 80 Financing Points, 80 First Mortgage, 80 Fixed-Rate Mortgage (FRM), 80 Flexible-Payment ARM, 82 Float, 82 Float-Down, 82 Forbearance Agreement, 82 Foreclosure, Year Mortgage, 83 Freddie Mac, 83 Fully Amortizing Payment, 83 Fully Indexed Rate, 83 Generic Prices, 83 Gift of Equity, 84 Good Fairy Syndrome, 84 Good Faith Estimate (GFE), 86 Government National Mortgage Association (GNMA), 86 Grace Period, 86 Graduated Payment Mortgage (GPM), 86 Graduation Period, 88 Graduation Rate, 88 H Hazard Insurance, 88 Historical Scenario, 88 Home-Account, 88 Homebuyer Protection Plan, 89 Home Equity Conversion Mortgage (HECM), 90 Home Equity Line, 90 Home Equity Line of Credit (HELOC), 90 Home Equity Loan, 93 Home Keeper, 93 Homeowner's Equity, 93 Homeowners Insurance, 93 Home Owners Loan Corporation (HOLC), 95 Homeownership Accelerator (HO A), 95 IV

60 Discriminatory Mortgage Pricing, 60 Documentation Requirements, 62 Doubling Down on Mortgage Payments, 65 Down Payment, 66 "Dual Apper," 72 Dual Index Mortgage, 72 Due-on-Sale Clause, 72 Effective

4 Topics Home Valuation Code of Conduct (HVCC), 97 Housing Bank, 98 Housing Bubble, 100 Housing Expense, 102 Housing Expense Ratio, 102 Housing Investment, 102 HUD-1 Form, 104 Hybrid ARM, 105 I Indexed ARMs, 105 Initial Interest Rate, 105 Initial Rate Period, 105 Interest Accrual Period, 105 Interest Cost (IC), 106 Interest Due, 107 Interest-Only Mortgage (Option), 107 Interest Payment, 111 Interest Rate, 111 Interest Rate Adjustment Period, 112 Interest Rate Ceiling, 112 Interest Rate Decrease Cap, 113 Interest Rate Floor, 113 Interest Rate Increase Cap, 113 Interest Rate Index, 113 Internet Mortgages, 113 Investment Property, 113 Investor, 113 J, Jumbo Mortgage, 114 * Junk Fees, 114 Late Fees, 114 Late Payment, 114 Lead-Generation Site, 114 Leads, 117 Lease-to-Own, 117 Lender, 119 Lender-Pay Mortgage Insurance (LPMI), 119 LIBOR, 120 LIBORARM, 120 Lien, 120 Loan Amount, 120 Loan Discount Fee, 121 Loan Flipping, 121 Loan Officers, 121 Loan Provider, 121 Loan-to-Value Ratio (LTV), 121 Locking, 122 " Lock Commitment Letter, 129 Lock Expiration, 129 Lock Failure, 130 Lock Jumper, 131 Lock Period, 131 Lowballing, 132 M Mandatory Disclosure, 132 Manufactured Home, 133 Margin, 136 Market Niche, 136 Maturity, 136 Maximum Combined Loan-to- Value Ratio (CLTV), 136 Maximum Loan Amount, 137 Maximum Loan-to-Value Ratio, 137 Maximum Lock Period, 137 Minimum Down Payment, 137 Monthly Debt Service, 138 Monthly Housing Expense, 138 Monthly Total Expense, 138 Mortgage, 138 Mortgage Auction Site, 138 Mortgage-Backed Security (MBS), 138 Mortgage Bank, 139 Mortgage Bond, 139 Mortgage Broker, 139 Mortgage Company, 144 Mortgage Equations, 145 Mortgage Grader, 146 Mortgage Insurance, 146 Mortgage Insurance Premium, 146 Mortgage Leads, 147

Interest Rate, 111 Interest Rate Adjustment Period, 112 Interest Rate Ceiling, 112 Interest Rate Decrease Cap, 113 Interest Rate Floor, 113 Interest Rate Increase Cap, 113 Interest Rate Index, 113

5 VI Topics Mortgage Lender, 150 Mortgage Marvel, 151 Mortgage Modification, 151 Mortgage Payment, 154 Mortgage Payment Insurance (MPI), 154 Mortgage Price, 154 Mortgage Price Quotes, 155 Mortgage Program, 157 Mortgage Referrals, 158 Mortgage Scams and Tricks, 159 Mortgage Shopping, 170 Mortgage Spam, 178 Mortgage Suitability, 179 N Negative Amortization, 182 Negative Amortization Cap, 183 Negative Equity, 183 Negative Points, 184 Net Branch, 184 Net Jumping, 184 Nichification, 185 No-Asset-Verification Loan, 188 No-Change Scenario, 188 No-Cost Mortgage, 188 NOHOs, 189 No-Income Loan, 191 Nominal Interest Rate, 191 Nonconforming Mortgage, 191 Nonpermanent Resident Alien, 191 No-Ratio Loan, 192 No-Surprise ARM, 192 Note, % Loan, % Loan, 193 Opportunity Cost, 193 Option ARM, 193 Option Fee, 196 Origination Fee, 196 Overage, 196 Par Price, 197 Par Rate, 197 Partial Prepayments (or Paying Off Early), 197 Pay-Down Magic, 204 Payment Adjustment Cap, 205 Payment Adjustment Interval, 205 Payment Period, 205 Payment Power, 205 Payment Problems, 206 Payment Rate, 209 Payment Shock, 209 Payoff Month, 210 Per Diem Interest, 210 Permanent Buy-Down, 210 Piggyback Mortgage, 210 Pipeline Risk, 211 PITI, 211 PMI, 211 Points, 211 Portable Mortgage, 215 Portfolio Lender, 216 Posted Prices, 216 Preapproval, 216 Predatory Lending, 217 Prepaid Finance Charges, 221 Prepayment, 221 Prepayment Penalty, 221 Prequalification, 224 Price Gouging, 224 Pricing Notch Point (PNP), 224 Primary Mortgage Market, 226 Primary Residence, 226 Principal, 226 Principal Limit, 226 Private Mortgage Insurance (PMI), 226 Processing, 232 Purchase Money Mortgage, 232 Qualification, 232 Qualification Rate, 238

Negative Equity, 183 Negative Points, 184 Net Branch, 184 Net Jumping, 184 Nichification, 185 No-Asset-Verification Loan, 188 No-Change Scenario, 188 No-Cost Mortgage, 188 NOHOs, 189 No-Income Loan,

6 VII Topics Qualification Ratios, 238 Qualification Requirements, 238 R Rate, 238 Rate-Point Breakeven, 238 Rate-Point Options, 238 Rate Protection, 239 Rate Sheets, 239 Rebate, 240 Recast Clause, 240 Referral Fees, 240 Referral Site, 243 Refinance, 244 Required Cash, 255 RESPA, 255 Retail Lender, 257 Reverse Mortgage, 257 Right of Rescission, 270 Scenario Analysis of ARMs, 273 Scheduled Mortgage Payment, 275 Second Mortgage, 276 Secondary Mortgage Markets, 281 Self-Employed Borrower, 287 Seller Contribution, 287 Seller Financing, 287 Servicing, 288 Servicing Agent, 293 Servicing Fee, 293 Servicing Release Premium, 293 Servicing Rights, 293 Servicing Transfer, 293 Settlement Costs, 294 Settlement Statement (HUD-1), 298 Shared Appreciation Mortgage (SAM), 298 Shopping Site, 298 Short Sale, 298 Silent Second, 298 Simple Interest, 299 Simple Interest Biweekly Mortgage, 299 Simple Interest Mortgage, 299 Single File Mortgage Insurance, 299 Single-Lender Web Site, 299 Stated Assets, 300 Stated Income, 300 Streamlined Refinancing, 300 Subordinate Financing, 301 Subordination Policy, 301 Subprime Borrower, 301 Subprime Lender, 303 Subprime Market, 304 Swing Loan, 309 Tangible Net Benefit Rule, 309 Tax Deductibility (of Interest and Points), 311 Teaser Rate, 312 Temporary Buy-Down, 313 Temporary Lender, 314 Term, 315 3/2 Down Payment, 318 Time Horizon Cost (THC), 318 Title Insurance, 319 Total Annual Loan Cost (TALC), 322 Total Expense, 323 Total Expense Ratio, 323 Total Interest Payments, 323 Truth in Lending (TIL), MTA, 327 U Underage, 327 Underwriting, 327 Underwriting Requirements, 327 Upfront Mortgage Broker (UMB), 327 Upfront Mortgage Lender (UML), 328 USDA Mortgage, 331 VA Mortgage, 331

Payment, 275 Second Mortgage, 276 Secondary Mortgage Markets, 281 Self-Employed Borrower, 287 Seller Contribution, 287 Seller Financing, 287 Servicing, 288 Servicing Agent, 293 Servicing Fee, 293

7 Topics W Y Waiver of Escrows, 332 Yield Curve, 335 Warehouse Lender, 332 Yield-Spread Premium, 336 Warrantable Condo, 332 Weekly Payment Mortgage, 333 Z Wholesale Lender, 333 Zero Balance, 336 Wholesale Mortgage Prices, 333 Zillow Mortgage, 336 Workout Assumption, 334 Worst-Case Scenario, 334 Wraparound Mortgage, viii

Wholesale Lender, 333 Zero Balance, 336 Wholesale Mortgage Prices, 333 Zillow

Mortgage Terms. Accrued interest Interest that is earned but not paid, adding to the amount owed.

Mortgage Terms. Accrued interest Interest that is earned but not paid, adding to the amount owed. Mortgage Terms Accrued interest Interest that is earned but not paid, adding to the amount owed. Negative amortization A rise in the loan balance when the mortgage payment is less than the interest due.