US Residential Mortgage

A mortgage that follows Fannie Mae and Freddie Mac's rules and stays under their size limit, so it can be sold to them.

e.g. A $360,000 loan that meets credit, income, and size guidelines is conforming; a $2 million loan exceeds the limit and is 'jumbo' (non-conforming).

A quasi-government company chartered by Congress to support a market; in mortgages this means Fannie Mae and Freddie Mac.

e.g. When a lender says 'the GSEs require two years of tax returns,' they mean Fannie Mae and Freddie Mac's shared rulebook demands it.

The marketplace where lenders sell loans they've already made to bigger buyers, instead of holding them.

e.g. A local lender sells your fresh mortgage to Fannie Mae a month after closing so it gets its cash back to lend again.

A bond made by pooling thousands of mortgages together so investors can buy a slice of the monthly payments.

e.g. A pension fund buys $10 million of a Fannie Mae MBS and earns returns from the combined monthly payments of thousands of homeowners.

The process of bundling many loans into a tradable bond (an MBS) and selling it to investors.

e.g. Freddie Mac takes 5,000 conforming loans, guarantees them, and securitizes them into a bond it sells on Wall Street.

Software that instantly checks a loan against the rules and recommends approve or deny.

e.g. The lender runs the file through Desktop Underwriter and gets back 'Approve/Eligible' in seconds.

The two main automated underwriting systems: DU is Fannie Mae's, LPA is Freddie Mac's.

e.g. A self-employed borrower's file is run through LPA because Freddie Mac's system is historically more flexible on non-traditional income.

The process of evaluating whether a borrower and property are safe enough to lend on, ending in an approve/deny decision.

e.g. During underwriting, the underwriter recalculates the borrower's income from tax returns and confirms the appraised value covers the loan.

A holding account the servicer uses to collect a slice of each monthly payment and pay the borrower's property taxes and insurance when due.

e.g. Jane's $2,400 monthly payment includes $400 that goes into escrow, which the servicer uses to pay her $3,600 property tax bill and $1,200 insurance bill each year.

The four parts of a typical monthly mortgage payment: Principal, Interest, Taxes, and Insurance.

e.g. A $2,400 PITI payment might be $1,500 principal+interest, $700 taxes, and $200 homeowner's insurance.

The ongoing job of collecting payments, running escrow, and handling the loan day-to-day after it closes.

e.g. Three months after closing, Jane gets a letter saying her servicing has transferred and she now pays a company she's never heard of.

The reliable monthly income figure an underwriter calculates and uses to decide how big a loan the borrower can afford.

e.g. A freelancer reports wildly different yearly earnings, so the underwriter averages two years of tax returns to set qualifying income at $6,250/month.

A mistake found in a closed loan during quality-control review, most commonly a miscalculated income figure.

e.g. A QC review finds the underwriter counted a one-time bonus as recurring income, creating an income-calculation defect.

When Fannie or Freddie forces a lender to buy back a sold loan because it violated the rules.

e.g. Because the income was overstated by a defect, Fannie Mae demands the lender repurchase the $360,000 loan at full price.

The share of loan applications that actually close and fund.

e.g. If a lender takes 100 applications and 77 close, its pull-through rate is 77%.

An underwriter's 'yes, but' - approval that depends on the borrower supplying a final list of items.

e.g. The loan is approved on the condition the borrower provides one more pay stub and a letter explaining a $5,000 deposit.

The loan amount as a percentage of the home's value; lower means more borrower equity and less lender risk.

e.g. A $360,000 loan on a $450,000 home is an 80% LTV, meaning the borrower put 20% down.