Reverse Mortgage Glossary
The following is the Reverse Mortgage – Glossary of Terms:
|The process of completing a loan transaction at which time the mortgage documents are signed, funds are disbursed, and the property is transferred to the buyer. Also called a settlement.
|An organization that typically sells the mortgages it originates to other lenders with which it has an ongoing relationship.
(Line of Credit)
|A credit account that permits a borrower to control the timing and amount of the loan advances.
|Current Interest Rate
|In the HECM program, the interest rate currently being charged on a loan, which equals the one-year rate for U.S. Treasury Securities, plus a margin (see Margin).
|Deed of Trust
|A document which pledges real property to secure a loan, used instead of a mortgage in certain states.
|A breach or nonperformance of the terms of a note or of the provisions of a mortgage loan. Defaults under a reverse mortgage could include failure to repay the loan after a repayment notice has been issued, failure to maintain property, and failure to pay property taxes and/or hazard insurance.
|Deferred Payment Loan (DPL)
|A reverse mortgage providing a lump sum that must be used to make home repairs or improvements; generally offered by local government agencies.
|A decrease in value of a home.
|Expected Interest Rate
|In the HECM program, the interest rate used to determine a borrower’s loan advances, which equals the 10-year rate for U.S. Treasury Securities, plus a margin (see Margin).
|Fannie Mae (FNMA or Federal National Mortgage Association)
|A private company that buys and sells mortgages; a government-sponsored entity that operates under the Federal general oversight of the federal government. Reverse Mortgage investor for HECM and Home Keeper loan products.
|Federal (FHA) Housing Administration
|An agency within the U.S. Department of Housing and Urban Development (HUD) that issues insurance to private lenders for HECM loans.
|Federally Insured Reverse Mortgages
|Home Equity Conversion Mortgages (HECM).
|The value of a home minus any debt against it.
|Home Equity Conversion
|Turning home equity into cash without having to leave your home or make regular loan payments.
|Home Equity Conversion Mortgages (HECM)
|FHA-insured reverse mortgages that permit older homeowners to withdraw their cash equity from their home without having to leave their home or make regular home payments.
|Home Keeper Mortgage
|A reverse mortgage program for seniors who want to stay in their homes. This loan converts the equity in the senior’s home into a variety of payment plans, including tenure monthly payments, a line of credit, a lump sum payment, or a combination of the three.
|Home Keeper for Home Mortgage Purchase
|A reverse mortgage program for seniors who want to purchase a new home. This is a variation of the Home Keeper loan that provides seniors some of the funds for the purchase of a new home, so they do not have to dip too far into their savings or make monthly loan payments. This program is popular with seniors who want to downsize or find a home that better suits their needs.
|HUD (Housing and Urban Development)
|A federal agency that oversees the Federal Housing Administration and numerous housing and community development programs.
|Initial Interest Rate
|The original interest rate, or “state rate”, of an adjustable rate loan, which equals the index in effect as of the date of closing plus the margin, and is first charged upon the loan funding. For example, on a HECM loan, the initial rate equals the one-year rate for U.S. Treasury Securities plus a margin (see Margin).
|The net proceeds from selling a home, minus the total amount of debt owed against it and the cost of selling it.
|Payments made from a loan to a borrower, or to another party on behalf of a borrower.
|The amount owed, including principal and interest; capped (limited) in reverse mortgages by a non-recourse limit.
|London Interbank Offerred Rate (LIBOR Index)
|An index that is used to determine interest rate changes for certain ARM plans. It represents the average interest rate for 6-month or 1-year U.S. dollar-denominated deposits in the London Interbank market based on quotations of major banks.
|A single loan payment to the borrower at closing.
|The amount added to the index rate to determine interest rates, as stated in the note. The margin differs for different reverse mortgages. A HECM loan would use the one-year Treasury index rate plus the margin to calculate the initial and current interest rates, and use the 10-year U.S. Treasury index rate plus the margin to determine the expected interest rate.
|When a loan becomes due and payable.
|Maximum Claim Amount
|The lesser of a home’s appraised value and the maximum lending limit that can be insured by FHA for one-family residences in the area where the property is located. Used in determining the principal Limit for a HECM loan.
|Modified Tenure Payments
|Equal monthly payments to the borrower that continue until the borrower no longer occupies the property as his or her principal residence, combined with a line of credit on which the borrower may draw at any time.
|Modified Term Payments
|Equal monthly payments to the borrower over a fixed term agreed to by the lender and borrower, combined with a line of credit on which the borrower may draw at any time.
|A legal document that pledges property to a ender as security for the repayment of the loan. Collectively, the security instrument, note title evidence, and all other documents and papers that evidence as secured debt. The term is also used to refer to the loan itself.
|Mortgage Insurance Premium (MIP)
|The fee paid by a borrower to FHA or a private insurer for mortgage insurance. Charged to the borrower to reduce the risk of loss in the event that the outstanding balance exceeds the vale of the property at the times that the reverse mortgage is due and payable. The FHA requires a single, upfront Mortgage Insurance Premium to be paid at closing. A monthly Mortgage Insurance Premium will be assessed throughout the life of the loan and will be added to the outstanding balance and remitted to HUD monthly by the lender.
|Net Principal Limit
|The amount of money available to the borrower at any time over the life of the loan. Equal to the Principal Limit less (1) any payments to the borrower, (2) any financed closing cost, (3) the servicing fee allocations, (4) any set-asides, plus (5) any partial repayments.
|A home loan in which a lender may look only to the value of the home for repayment; no other assets may be attached if the loan balance grows beyond the mortgaged home value.
|The overall administrative process of setting up a mortgage, from taking down the loan application through the loan closing.
|A fee charged to the borrower for processing a loan application, usually computed as a percentage of the loan amount. Each loan product may differ. For HECM loans, the origination fee is the greater of $2000 or 2% of the Maximum Claim Amount. For home Keeper loans, the fee is the greater of $2000 or 2% of the adjusted property value.
|Manner in which loan proceeds are paid out to the borrower. In the HECM program, six options are available: (1) Tenure Payments, (2) Term Payments, (3) Credit Line, (4) Lump Sum, (5) Modified Tenure Payments, and (6) Modified Term Payments. For Home Keeper loans, borrowers may receive payments in one of three ways: (1) tenure plan, (2) line of credit plan, and (3) Lump Sum. All options are not available on all products: see Reverse Mortgage Handbook for payment plans offered for each specific product type.
|The total amount of money available to a borrower at loan origination. The principal limit is based on the maximum claim amount, the expected average interest rate, and the age of the youngest borrower.
|Property Tax Deferral (PTD)
|Reverse mortgages providing annual loan advances for paying property taxes usually offered by state or local governments. Payment of property taxes is deferred for as long as the borrower lives in the home. A tax deferral is usually set up with the county of residence, allowing the borrower to defer their tax payment until a later date.
|Proprietary Reverse Mortgages
|Reverse Mortgages owned by a private company, like the Cash Account Advantage product.
|PUD (Planned-Unit Development)
|A real estate project in which each unit owner has title to a residential lot and building and a nonexclusive easement on the common areas of the project. The owner may have an exclusive easement over some parts of the common areas (for example, a parking space_ while the common facilities are owned and maintained by a homeowner’s association.
|A financial tool which provides seniors with funds from the equity in their homes. Generally, no payments are made on reverse mortgages until the borrower moves or the property is sold. The final repayment obligation is designed to not exceed the proceeds from the sale of the home and is usually repaid in lump sum.
|Right of Rescission
|A borrower’s right to cancel a home loan within three business days of closing.
|The tasks a lender performs to protect the mortgage investment, including the collection of the loan payments, escrow administration, and delinquency management.
|Funds for specified uses that are netted out when determining the borrower’s Principal Limit.
|Single-Purpose Reverse Mortgages
|Reverse mortgages that can be used for only one purpose, generally offered by state or local government agencies.
|Supplemental Security Income (SSI)
|A federal program providing monthly cash benefits to low-income persons aged 65+, blind, or disabled.
|Tenure Payments/ Tenure Advances
|Fixed monthly loan advances for as long as a borrower lives in a home.
|Term Payments/ Term Advances
|Fixed monthly loan advances or payments for a specified period of time.
|Total Annual Loan Cost (TALC) Rate
|The projected annual average cost of a reverse mortgage including all itemized costs.
|U.S. Department of Housing and Urban Development (HUD)
|A federal agency that oversees the Federal Housing Administration (FHA) and numerous housing and community development programs.