We break down them all down here so that you are crystal clear on who Fannie Mae is all the way down to what a promissory note is.
Appraisal
A home appraisal is the act of estimating the value of a home by a licensed appraiser. An appraisal may take into account the quality of the property, values of surrounding properties, and market conditions in the area. An appraisal is important for determining the property taxes as well as the potential sale price of the home.
Approval
An Approval from a bank is always in writing and lays out all the terms and conditions that are required for the Short Sale to go through. Approvals will identify a date of closing, agreed upon sale price, debt forgiveness amounts, acceptable commissions to be paid, and if applicable, any monies that the borrower needs to contribute. See examples of Short Sale Approvals.
Bankruptcy
Bankruptcy is the legal status of an insolvent person or business that cannot repay debts owed to creditors. Learn more on How to Avoid Bankruptcy.
BPO
A BPO, otherwise known as a Broker Price Opinion, is essentially a bank ordered appraisal. They are typically used to determine if the offer submitted by a Buyer for a Short Sale or Foreclosure is consistent with what the bank feels the value is.
Cash Contribution
Similar in nature to a promissory note, if the bank is unwilling to forgive the entire difference between what is owed on the home and its sale price, sometimes they may ask for cash to be contributed. Depending on one’s financial position, usually helps determine if this is even an option for the bank.
Deed in Lieu of Foreclosure
Deed in Lieu of Foreclosure occurs when a borrower conveys all interest in their property over to the bank to satisfy a loan that is in default and avoid foreclosure proceedings.
Default
The technical definition of default is the failure to satisfy the terms of a loan obligation or to pay back a loan. In real estate terms, defaulting is falling behind on your mortgage with no intention of catching up.
Deficiency Balance
A Deficiency Balance occurs when a home is worth less than the mortgage, resulting in a “Short Fall” or deficit at time of closing. In a Short Sale, the Deficiency Balance usually is forgiven.
Equity
Equity in a home is the Market Value of the home (minus) all outstanding Mortgages = Equity ($300,000 Market Value – $200,000 Mortgage = $100,000 in Equity). With more and more homes having negative equity, the popularity of Shorts Sales continues to increase ($250,000 Market Value – $300,000 Mortgage = negative $50,000 in equity).
Fannie Mae
The Federal National Mortgage Association, commonly known as Fannie Mae, is a government sponsored enterprise (GSE) that was set up to expand the mortgage market by securitizing mortgages in the form of mortgage-backed securities.
FHA
Started during the Great Depression, the FHA now is part of HUD (Department of Housing and Urban Development) and is one of the largest insurers of mortgages. Majority of first-time buyers, use FHA backed mortgages that have mortgage insurance built into the loan that is paid up front and monthly.
Forbearance
Forbearance is a special agreement between the lender and the borrower to delay a foreclosure.
Foreclosure
Foreclosure is the legal process by which a bank obtains a court order, to repossess the property, due to the terms set forth in the mortgage.
Freddie Mac
The Federal National Mortgage Association, commonly known as Freddie Mac, is a government sponsored enterprise (GSE) that was set up to expand the mortgage market by securitizing mortgages in the form of mortgage-backed securities.
HUD
The United States Department of Housing and Urban Development is part of the Executive Branch of the Unites States Government. Established in 1965, HUD oversees everything from settlement statements to mortgage programs. HUD even will foreclose and take ownership of a home, when an FHA borrower defaults.
Investor
An Investor is essentially the “money man” behind the loan. Since the major players own 90% of this market, it is usually Fannie Mae, Freddie Mac, HUD, or VA. If it is not one of these investors, it may be a large bank like Chase or Citi.
Loan Modification
A loan modification is the formal process of refinancing the mortgage to get a more suitable rate to stay in the home. Sometimes loan modifications are confused with just a rate reduction, but they are actually a full refinancing that may include a rate or principal reduction and even an extension of the length of the mortgage.
MHA
The Massachusetts Housing Association provides loans to first-time buyers, with limited money down by doing what Fannie and Freddie does in the secondary market. MHA underwrites loans and then securitizes then into state bonds to reduce its risk.
Personal Guarantee
A Personal Guarantee is part of the Mortgage and states that you are “personally guaranteeing” the loan, in case of a default. In theory, it pledges all of your assets to repay the mortgage if a default occurs.
PMI
Primary Mortgage Insurance, also known as Lenders Mortgage Insurance or Mortgage Insurance, is insurance payable to the Bank, if the down payment is less than 20%.
Promissory Note
A Promissory Note is an uncollateralized personal loan that can be issued by the bank, if they are unwilling to forgive the difference between what is owed on the home and its sale price. Typically, these loans have little to no interest rates and can be paid back over several years. Since they are not attached to any assets, their default rate is very high.
Servicer
A Servicer is a bank that handles the administrative tasks of the mortgage, for the Investor. Tasks usually involve facilitation of monthly payments.
Short Sale
A Short Sale is the process through which a mortgage company agrees to settle for less than what is owed to them.
