Mortgage Servicing Glossary

ARM (adjustable-rate mortgage): A mortgage loan with an interest rate that can change during the life of the loan, based on an industry-standard rate index. If the rate index shifts, your payment could increase or decrease. Typically, ARMs have upper limits or “caps.” An ARM may also be called a variable-rate mortgage.

Amortization: A gradual reduction in the principal amount owed on a debt. In the first few years of your loan, most of each payment covers interest charges. During the later years of your loan, most of your payment covers your loan’s principal.

Amortization schedule: A table that breaks down your monthly payments by principal and interest.

Appraisal: An independent assessment of a property’s value. When your home is appraised, the primary factor considered is the recent sale of similar nearby properties, called “comparables” or “comps.” In-person appraisals are typical for first mortgage loans, but in certain cases, a lender might opt for an automated appraisal system such as a broker price opinion (BPO) or an automated valuation model (AVM).

APR (annual percentage rate): The annual cost of borrowing money. The APR is expressed as a percentage of a property’s purchase price, or principal. The APR includes not only the interest rate, but other charges and fees (such as insurance premiums and closing costs) that reflect the total loan cost. The law requires that lenders provide the APR to borrowers.

Bankruptcy: The legal process that allows a person or entity with outstanding debts to be freed from having to repay some or all of what they owe. Typically an attorney will represent the debtor. The court will review the debtor’s assets (money and property), some of which might be sold to repay part of the debt to whoever it is owed.

Cash for keys: An alternative to foreclosure where your lender pays you to vacate your home in a timely manner with the home in good condition. Lenders prefer to avoid the cost and hassle of foreclosure, so this option may be presented to financially distressed homeowners.

Credit bureau: A business that gathers and stores financial records of anyone who has been granted credit. The credit bureau is responsible for providing consumer credit reports to lenders and other authorized entities for a fee. The three major U.S. credit bureaus are Equifax®, Experian® and TransUnion ®. By federal law, you are entitled to receive one free report each year from the three agencies. Get free copies of your reports each year by visiting annualcreditreport.com or calling 877-322-8228.

Curtailment: An extra payment borrowers can make to reduce their loan’s unpaid principal balance, also known as “prepayment.”

DIL (deed-in-lieu of foreclosure): An alternative to foreclosure in which a homeowner voluntarily transfers ownership of the property to the lender of their mortgage. The lender then releases the homeowner from the mortgage, and the lender doesn’t report a foreclosure to the credit bureaus.

Default: Failure to pay your mortgage on time. Ongoing default can lead to late fees, damage to your credit score, and may ultimately lead to the foreclosure of your home. We will work with you to find an alternative payment plan so you can get back on track and minimize or avoid these consequences.

Deferment: A repayment plan that allows mortgage payments that have been set aside during forbearance to be paid at the end of the loan term. A deferment must be arranged with your loan servicer, and not everyone is eligible for this type of repayment plan.

Delinquency: Failure to make mortgage payments on time. Late mortgage payments are described as 30, 60, or 90 days delinquent (past due). Once a payment is 90 days delinquent, the loan is considered seriously delinquent.

Down payment: A large up-front payment that a home buyer makes out of pocket in the early stages of buying a property. The down payment is a percentage (usually between 3% and 20%) of the home’s purchase price. The buyer typically takes out a mortgage loan to pay the remaining amount owed to the seller.

Due date: Date by which we need to receive your mortgage payment, as shown on your regular account statement. As long as your payment gets to our office within 15 days or less of your due date (a “grace period”), your payment is considered late, but you will not be charged a late fee. It is very important that we get your payment on or before the due date.

Escrow: Money we hold in reserve for you in order to pay your homeowner’s insurance and property taxes. You contribute to your escrow account already as a part of your regular mortgage payment.

Escrow analysis: An analysis of your escrow account that compares the funds in your account with your previous property tax and homeowner’s insurance bills to ensure you have enough funds to cover upcoming bills. This analysis is performed at least annually; more if there is a triggering event.

Escrow cushion: The reserve amount kept in your account in case property taxes or homeowner’s insurance end up being higher than expected. Equal to no more than 2 months of escrow payments.

Escrow disbursement: The withdrawal we make from your escrow account to pay for your property taxes and homeowner’s insurance.

Escrow shortage: This happens when our escrow analysis concludes that the amount of money in your escrow account is less than is needed to cover projected property taxes and insurance bills. This often occurs because your taxes and bills increase. When this happens, you may need to make up for the shortage through a higher monthly payment, or you can pay a lump sum into your escrow account.

Escrow surplus: This occurs when escrow analysis demonstrates you have more money in your escrow account than what is needed to pay property taxes, insurance bills and cover your escrow “cushion.” This may occur because insurance premiums have dropped. If your surplus exceeds $50, we’re required by law to return those funds to you by mailing a check along with your escrow analysis letter.

Eviction: The legal process of removing inhabitants from a foreclosed home. A lender may be forced to take this route if occupants of the home refuse to leave on their own even though they no longer have a legal right to live there.

FCRA (Fair Credit Reporting Act): A law designed to protect the credit information of borrowers. Credit bureaus are required to provide accurate credit information to authorized businesses for use in evaluating applications for insurance, employment, credit cards, and loans.

Fannie Mae® (Federal National Mortgage Association, or FNMA):  A government-sponsored enterprise owned by private stockholders. Fannie Mae® buys residential mortgages from banks and mortgage companies, pools them into mortgage-backed securities (MSBs) and sells them to investors. Buying mortgages and guaranteeing timely payment of interest and principal to investors (“underwriting”), Fannie Mae® assumes the bulk of the credit risk in mortgage lending and provides money that banks and other lenders can loan to homebuyers.

FHA (Federal Housing Administration): U.S. government agency that boosts homeownership opportunities (part of the U.S. Department of Housing and Urban Development, or HUD). Borrowers can get FHA loans with a low down payment and flexible credit guidelines. The FHA also insures lenders to protect them from losses when homeowners default on mortgage payments. This makes lenders more willing to lend by removing some of the risk involved, and creates more avenues of homeownership to low-income and first-time buyers.

FHFA (Federal Housing Finance Agency):  A federal regulatory agency of Fannie Mae®, Freddie Mac® and the Federal Home Loan Banks, which are a group of 11 regional banks that provide mortgage and community development funds for lenders to provide.

FICO® (Fair Isaac Corporation): A company that develops credit scoring models. Your FICO® score is a credit rating based on your credit history. Most lenders and credit card companies use your FICO® score to estimate whether or not you will pay your bills. Your score uses information provided by the three major credit bureaus, and the number falls between 300 and 850. The higher the score, the less of a credit risk you are to a lender.

Fixed-rate mortgage: A mortgage loan that has the same interest rate for the entire life of the loan.

Flood insurance: An insurance policy that protects a property against financial losses that are directly caused by flooding. Properties in high-risk flood areas with mortgages from government-backed lenders are required by law to have flood insurance. Even if you don’t live in a flood-prone area, your lender may require you to have it.

Forbearance: A temporary pause in a homeowner’s mortgage payments (generally a year or less). Forbearance is meant to give the homeowner time to sort out their financial difficulties that might prevent them from making mortgage payments, such as being laid off. During the forbearance period, principal payments are suspended or reduced, but interest continues to add up. After forbearance ends, the paused payments are due.

Foreclosure: A legal process by which a lender takes ownership of a property when a homeowner falls too far behind on their mortgage payments. The lender then sells the property and uses the funds to repay as much of the homeowner’s debt as possible. The money from the sale might not be enough to fully repay the loan, so the homeowner might continue to owe the lender the difference. Foreclosure may also seriously damage the borrower’s credit score, making it much more difficult for the borrower to buy another home in the future. Foreclosure is a last step taken by lenders after every other repayment option is exhausted.

Form 1098 (Mortgage Interest Statement): A tax form required by the government that lenders use to report your annual interest payments. If you’ve paid $600 or more in interest, insurance premiums, or points during the tax year, we’ll send you a Form 1098, which you will need to file with your annual tax return.

Ginnie Mae® (Government National Mortgage Association): A government-owned corporation within HUD created to help provide affordable home loans for underserved residents. Ginnie Mae® provides credit guarantees for mortgage-backed securities that are made up of loans insured by the FHA, VA and the Rural Housing Service of the USDA.

Grace period: The period between when your payment is due and when we charge you a late fee—typically 15 days. It is still important that you pay your mortgage ON the day it is due as shown on your billing statement.

HELOC (Home Equity Line of Credit): A line-of-credit loan secured by a homeowner’s property. Many of Newrez’ HELOCs are structured with a 30-year term, which includes a 10-year draw period followed by a 20-year repayment period. HELOCs can be used for home improvements, debt consolidation, college tuition or other major expenses. Usually you can withdraw funds up to your credit limit during the draw period using checks, debit cards or online money transfers.

Homeowner’s insurance (also called “hazard” or “liability” insurance): An insurance policy that is mandated by your lender to protect your home against losses due to fire, hurricane, tornado or other catastrophic event (except flooding). Most homeowner’s insurance policies also protect against loss due to theft, vandalism and personal liability if someone is injured on your property.

HUD (U.S. Department of Housing and Urban Development): A cabinet-level department in government created to develop, implement and enforce policies related to housing and community development. HUD oversees the FHA, Ginnie Mae®, Fannie Mae®, Freddie Mac® and many other government agencies and programs.

Initial interest rate: The first interest rate on an adjustable-rate mortgage. The initial rate applies to the loan for a set time period, which could be anywhere from 6 months to 10 years. After the initial period passes, the rate changes periodically according to an industry-standard rate index. The new rate might be higher or lower than the initial rate, and when it adjusts, your mortgage payment will change accordingly.

Interest rate: A fee that lenders charge you for the convenience of borrowing money, expressed as a percentage of the amount of money you’ve borrowed. You pay part of that fee over the life of the loan as part of your regular mortgage payment.

Late fee: A penalty you pay if we receive your mortgage payment after the grace period ends. Depending on the terms of your mortgage, your late fee could be as high as 4-5% of the past due amount. Ex: If your monthly mortgage payment (principal and interest) is $1,800, a 5% late fee would be $90.

Lien: A legal contract between you and your mortgage lender that you sign when you close on your mortgage loan. This document is filed at the local county recorder’s office, confirming that the lender is the actual owner of your property until you pay off your mortgage. The lien also gives your lender the right to take the property back if you stop paying your mortgage. Additionally, the lien disallows you from selling or transferring your property to anyone else until you repay the loan in full, or another party legally takes over the responsibility of repaying the loan. If you have a mortgage, your lender has a lien on your property.

LPI (lender-placed insurance): Homeowner’s insurance that your servicer buys on behalf of your lender to cover your home if the insurance policy you buy is cancelled, lapses or has insufficient coverage, and if you do not buy a replacement policy. LPI policies tend to be much more expensive than homeowner’s insurance you can buy yourself, and they usually only cover the amount due to the lender and don’t typically cover liability or personal property. We add the LPI cost to your regular mortgage payment, but we will remove it when you prove to us that you’ve purchased a valid policy of your own.

LTV (loan-to-value) ratio: A loan’s outstanding principal balance as compared to the actual current property value, expressed as a percentage. Ex: If you have a home valued at $400,000 and the mortgage is $360,000, you end up with 0.9, or a 90% loan-to-value ratio.

Loan modification (or “mod”): An alternative payment program where the lender or loan servicer changes the terms of a mortgage to assist a homeowner who is behind on their mortgage payments. Loan mods can help struggling homeowners get back on top of their payments so they can avoid foreclosure. A mod may extend the loan’s term, reduce its interest rate, or reduce the unpaid principal amount, or some combination of the three. Also called a “workout.”

Loan officer (or “LO”): A lender sales representative. LOs help homebuyers complete their loan applications, help them during the qualification process, assist in choosing a mortgage product and oversee the entire loan origination process.

Loan origination: The process of obtaining a mortgage loan. It starts with a homebuyer getting pre-approved by a lender, once a lender determines how much money the buyer can afford to put toward a house. The loan origination process ends at closing, when the buyer and all parties involved in the mortgage transaction sign the necessary documents and the buyer takes ownership of their new home.

Loan origination fee: A fee you pay your lender at loan closing to cover the administrative costs of creating your mortgage loan. The fee will vary depending on the lender and the loan type. Typically the fee will be roughly 1-2% of the total mortgage principal.

Loan transfer (or “servicing transfer”): Occurs when your lender/loan servicer transfers the management of your loan to another lender or servicing company. Nothing changes for the customer except that their payments and escrow are being managed by a new company. A transfer does not change your mortgage agreement, principal, interest rate, payment or payment schedule. A transfer can occur at any time during the term of the loan and are arranged by your lender; you cannot opt out or select another loan servicer.

Loss mitigation: When a homeowner falls behind on their mortgage payments, loss mitigation is the process in which a loan servicer works closely with the homeowner to find a way for that homeowner to avoid foreclosure. Loss mitigation occurs to protect both the homeowner and the mortgage lender from the severe costs and hassle of foreclosure. Some loss mitigation options can enable homeowners to stay in their homes, while other options require surrendering the property.

Mortgage: A property loan that a homeowner agrees to pay back over time, typically by making regular payments over 10 to 30 years. The mortgage agreement is a legal contract that gives the lender claim of ownership on the home until the homeowner has repaid the borrowed funds. (Also called a “deed of trust” or “security deed.”)

Mortgage servicer (or “loan servicer”): The company that collects mortgage payments from homeowner and pays out those funds to investors, tax agencies and insurance companies. A loan servicer may be a department of the original mortgage lender, or an outsourced third-party vendor. Mortgage servicers help homeowners in default avoid foreclosure through loss mitigation. Servicers also manage the foreclosure process after all loss mitigation options have been exhausted.

Mortgage type: There are three primary U.S. mortgage programs, Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans and conventional mortgage loans. VA and FHA loans are underwritten by the federal government. Conventional loans are available to all qualified homeowners.

Past due: A payment that has not been received by the due date shown on your billing statement. In other words, late, overdue or delinquent.

Payoff: To pay the outstanding balance of a loan in full.

Points: A banking term for “percent” or “percentage points.” An amount of money you pay the lender, generally at closing, to bring down the interest rate of your loan. One “point” refers to one percent of the total loan amount. For instance, two points on a $400,000 mortgage loan equals $8,000.

Prepayment: Money that a homeowner pays ahead of schedule to reduce their loan’s principal balance.

Prepayment penalty: A fee incurred by some lenders if a homeowner pays off their mortgage loan before the specified term. The fee is due at loan payoff in addition to the principal balance. Typically these types of penalties are limited to the early years of the loan term.

Principal: The amount of money you borrow to pay a home seller to buy the home. This is the primary amount of your mortgage loan that you are paying back to the lender, not including interest.

Principal balance: The amount you owe on your mortgage loan at any given time. In other words, the original loan amount minus the payments you’ve made since the loan closed.

P&I (Principal and interest): The amount of money borrowed that you are paying back to the lender plus the interest you pay for the privilege of borrowing the money. This makes up the bulk of your mortgage payment, but in many cases your monthly mortgage payment also includes payment into your escrow account, from which your mortgage servicer pays your property taxes, homeowners’ insurance, private mortgage insurance and other regular periodic costs related to your home.

PITI (principal, interest, taxes and insurance): In most cases, all the components of your monthly mortgage payment. Principal and interest are paid to your lender, and the interest and tax portion of your payment is deposited into your escrow account until those payments are due.

PMI (private mortgage insurance): An insurance policy that you pay for that protects your lender from financial loss if you stop making your mortgage payments. Your lender may have required PMI depending on your credit score, your down payment and other factors. Your PMI is rolled into your monthly mortgage payment.

Property preservation: Work done on a property by a mortgage servicer to repair and maintain a foreclosed property in order to make it saleable.

Recast (or reamortization): A loan modification that results from you paying a lump sum toward your principal without changing the loan’s interest rate or term. The lender will then recalculate (or “reamortizes”) your loan using your original term and interest rate, factoring in the now lowered principal balance. This will result in a lower monthly payment. This can occur, for instance, because the borrower received a large inheritance they want to use to reduce their mortgage costs.

REO (real estate owned) property: Property owned by a lender, investor or mortgage servicer as a result of acquiring the property through a foreclosure or a deed-in-lieu transaction.

Refinance (or “refi”): Paying off one loan by obtaining another. Refinancing often results in better loan terms (such as a lower interest rate) and a lower monthly mortgage payment.

RESPA (Real Estate Settlement Procedures Act): A U.S. consumer protection law that requires lenders to disclose settlement costs to homebuyers and sellers before the sale. The law prohibits certain fees and establishes rules for escrow accounts. RESPA also requires that homeowners be notified if the lender transfers servicing of a loan to another company.

Short sale: An alternative to foreclosure where a homeowner who has defaulted on their mortgage payments agrees to sell their home for less than the loan’s unpaid principal balance. All sale proceeds go to the lender, and the lender either forgives the difference or gets a “deficiency judgement” from the courts, requiring the homeowner to pay the remaining loan balance.

SPOC (single person of contact): A loan professional who serves as the point of contact for all communications with a homeowner who is behind on payments. The SPOC’s job is to keep communication clear and to make themselves accessible for the homeowner as they go through the loss mitigation process. They answer the homeowner’s inquiries, provide updates and coordinate the sending and receiving of necessary documents.

Term: The number of years left on your loan. Lenders use the loan term to determine your monthly payment amount and your total amount of interest.

USDA (U.S. Department of Agriculture): A federal department made up of many agencies that develop and carry out laws related to farming, forestry, rural economic development and food. For example, the Rural Housing Service is a USDA agency that manages programs designed to provide homeownership opportunities to low-and moderate-income households in rural areas.

V.A. (U.S. Department of Veterans Affairs): A cabinet-level department of the federal government that provides a broad range of services to U.S. Military Veterans, including mortgage loans.

Workout: An informal term for a loan modification.

Equifax® is a registered trademark of Equifax Inc.
Experian® is a registered trademark of Experian Technology Limited.
TransUnion® is a registered trademark of Trans Union LLC.
Fannie Mae® is a registered trademark of the Federal National Mortgage Association.
Freddie Mac® is a registered trademark of the Federal Home Loan Mortgage Corporation.
FICO® is a registered trademark of Fair Isaac Corporation.
Ginnie Mae® is a registered trademark of the Government National Mortgage Association.
None of the above-mentioned companies are affiliated with Newrez LLC.