In Mortgage Lending Terms Explained De – Fi we discussed several key terms related to the mortgage and refinance industries. These included Deed in Lieu of Foreclosure, Default, Down Payment, Equity and Escrow. Understanding these and other terms is critical whether you’re applying for your first mortgage or refinancing an aged loan. The better grasp mortgage borrowers have of the terms and jargon used and the concepts behind them, the better prepared they’ll be to obtain the right loan at the best possible rate.
Fannie Mae is a government sponsored enterprise that buys FHA mortgages. By doing so, Fannie Mae creates a liquid secondary mortgage market because they allow banks to reinvest their money or to create new loans. Furthermore, mortgage lenders gain additional benefit by the guarantee of payment of loans and interest in the event the buyer defaults.
The Federal Housing Administration insures mortgage loans as part of an effort to improve the housing market and make home ownership more available to US citizens. Setup after the Great Depression and failure of the banking system, the FHA works to protect and benefit both lenders and mortgage borrowers.
Generally referred to simply as a “credit score,” FICO is an acronym for Fair Isaac Corporation – the company responsible for the primary algorithm used by credit agencies to rank an individual’s credit worthiness. Today many banks and lenders use their own internal ranking systems in addition to scores provided by reporting agencies, including FICO scores.
In the event where more than one entity has a claim to a specific property, the first mortgage is the priority mortgage. This means that in the event a borrower defaults, the first mortgage holder will be entitled to their full share of what is owed from proceeds of liquidating the property. Any amount beyond this is passed to the second and subsequent mortgages.
Fixed Rate Mortgage
A simple type of mortgage structure where the payment and interest amount do not change for the duration of the mortgage loan.
If a borrower defaults on their loan by not paying beyond a certain period of time, the mortgage lender may opt to foreclose on the property if they are in their rights to do so. In this case the borrower will be forced to vacate the premises and the property will be reclaimed and sold by the bank.
In general foreclosure does not happen right away – there are protections in place to allow a homeowner time to recover from financial stress. In many cases banks have not foreclosed until loans have gone behind by more than a year. However, foreclosure should always be avoided as it has a negative impact on a person’s credit for several years in most cases, sometimes much longer.
In the next installment in this article series we’ll take a look at more terms related to the mortgage industry. But if you need to get an accurate quote and find out exactly what type of loan and rate you could get, call the number at the top of your screen for an immediate, free consultation now.