Adjustable-rate Mortgages (ARMs)
Adjustable-rate mortgages (ARMs) usually start with a lower
interest rate than a fixed-rate mortgage, therefore lowering
monthly payments. This allows the borrower to qualify for
a larger mortgage than would be possible with a fixed-rate
mortgage. The interest rate on an ARM is adjusted periodically
based on an index that reflects changing market interest
rates. When the interest rate is adjusted, the monthly payment
goes up or down.
Asset Accumulation
The end result of capital inflow exceeding capital outflow,
being able to preserve the remainder, and accumulate additional
surplus.
Balloon Mortgages
Type of mortgage loan in which the final payment is significantly larger
than the payments that are made over the mortgage term. Buyers might choose
a balloon mortgage if they anticipate refinancing at the end of the term,
if they have enough money to pay off the loan in a lump sum, or if they
can afford to buy only because of the comparatively smaller monthly payments
that may be available with a balloon mortgage.
Capacity Building
Helping agencies to develop financially problematic areas in order to
further that agency’s ability to aid the population they are serving
(see training). These areas of assistance include the incorporation of
financial education programs, enhancing financial service, entrepreneur
empowerment, technical assistance, strategies for fair lending, loan underwriting,
and the use of data and statistics.
Capital
Wealth in the form of money or property, used or accumulated in a business
or by a person, partnership, or corporation.
Community Development
Building and maintaining a healthy community by engaging community members
in learning about and understanding community issues, such as the economic,
educational, social, environmental, political, psychological, and other
impacts associated with being a progressive member of society.
Community Development Financial Institution (CDFI)
Private institutions that serve to rebuild businesses, housing, voluntary
organizations, and services in poor and working class neighborhoods. There
are six basic types of CDFIs: community development banks, community development
loan funds, community development credit unions, micro-enterprise funds,
community development corporation-based lenders and investors, and community
development venture funds. CDFIs often work in partnership with banks
to develop innovative ways to deliver loans, investments, and financial
services to distressed communities, but take on the more risky debt.
Community Partnerships
National and international networks of institutions that work with communities
in order to improve the quality of life.
Community Reinvestment
The act of ensuring access to credit and capital in communities, especially
within the underserved populations. This can be done through financial
education, advocacy, and policy implementation.
Community Reinvestment Act (CRA)
A law formulated in 1977 that requires regulating agencies to examine
banks and savings and loans to ensure that they take affirmative steps
to help meet the credit needs of the communities they are chartered to
serve, especially low and moderate income communities. The CRA Reform
of 1995 further strengthened the lending requirements.
Consumer Rescue Fund (CRF)
A fund launched by NCRC and its member organizations, with support from
Household International, Inc., which helps individuals who have been victims
of predatory lending to refinance their mortgages.
Credit Life Insurance
A type of insurance often bought by people who hold mortgages in which
the amount of the insurance policy matches the balance of the mortgage.
It is designed so that the loan will be paid off in full in the event
of death. Credit life insurance is frequently more expensive than traditional
term life insurance. Further, if the borrower already owns a sufficient
amount of life insurance to cover their financial needs, including debt
repayment, buying credit life insurance is normally not advisable due
to its relatively high cost.
Credit Report
A credit report is a summary of your financial history that potential
lenders use to help them evaluate whether you are a good credit risk and
the likelihood that you will default on a loan.
Credit Risk
The credit industry term meaning the level of risk or likelihood of future
default by an individual borrower.
Credit score
Your credit rating is an independent statistical evaluation of your ability
to repay debt based on your borrowing and repayment history. Credit grantors
use a point system to evaluate your credit history, sometimes on a scale
of 300 to 900. If you always pay your bills on time, you are more likely
to have good credit and therefore may receive favorable terms on a loan
or credit card, such as relatively low interest rates. If your credit
rating is poor because you have paid bills late or have defaulted on a
loan, you are likely to get less favorable terms or may be denied credit
altogether.
Default
Failure to perform a task or fulfill an obligation, especially failure
to meet a financial obligation
Dispute Resolution
Occurs when a victim of a predatory, discriminatory, or any other type
of abusive lending, files a complaint against the lender and reaches a
common ground with the lender as to how to rectify the problem.
Economic Development
The process of improving the quality of human life through increasing
per capita income, reducing poverty, and enhancing individual economic
opportunities. It is also sometimes defined to include better education,
improved health and nutrition, conservation of natural resources, a cleaner
environment, and a richer cultural life.
Economic Justice
The increase of availability, affordability and accessibility of insurance,
credit, utilities, and other economic goods and services for low-income
and minority consumers. This can be done by eliminating unfair discrimination
in the availability, price, benefits and quality of basic goods and services
and create more equitable distribution of capital amongst communities,
and also, eliminating community deterioration resulting from the lack
of affordable and available basic goods and services.
Equal Credit Opportunity Act (ECOA)
Federal law requiring creditors to make credit equally available without
discrimination based on race, color, religion, national origin, age, sex,
marital status, or because all or part of the applicant's income is derived
from any public assistance program, or because the applicant has, in good
faith, exercised any right under the Consumer Credit Protection Act.
Equal Opportunity
Absence of discrimination, as in the workplace, based on, but not limited
to race, color, age, gender, national origin, religion, or mental or physical
disability.
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit
reports by consumer credit reporting agencies and establishes procedures
for correcting mistakes on one's credit record.
Fair Lending
The prohibition of lenders from practicing unlawful discrimination against
anyone on the basis of race, color, religion, national origin, age, sex,
marital status, family status, handicap, receipt of public assistance
and good faith exercise of rights under the Consumer Protection Act. Fair
lending is governed by four major federal regulators: the Equal Credit
Opportunity (ECOA or Regulation B), Fair Housing Act, Home Mortgage Disclosure
Act (HMDA or Regulation C), and Community Reinvestment Act (CRA or Regulation
BB).
Federal Deposit Insurance Corporation (FDIC)
An independent agency created by Congress in 1933, the FDIC supervises
banks, insures deposits up to $100,000 and helps maintain a stable and
sound banking system.
Federal Home Loan Mortgage Corporation (Freddie Mac)
Freddie Mac is a shareholder-owned corporation that was chartered in 1970
to increase the supply of mortgage money that lenders are able to make
available to homebuyers. Freddie Mac buys mortgages from banks and other
lenders, packages them as securities, and sells the securities to investors.
The money it raises by selling these bonds pays for purchasing the mortgages.
Lenders use the money they realize from selling mortgages to Freddie to
make additional loans. Lenders must be approved in order to participate
in the program. Loans must meet Freddie Mac qualifications to be eligible
for purchase. To facilitate the lending process, Freddie Mac provides
lenders with an automated underwriting tool to help them evaluate mortgage
applications. Freddie Mac guarantees the securities it issues, but the
bonds are not federal debts and are not federally guaranteed.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD)
whose main activity is insuring residential mortgage loans made by private
lenders. The FHA sets standards for construction and underwriting but
does not lend money or plan or construct housing.
Federal National Mortgage Association (FNMA or FannieMae)
Fannie Mae has a dual role in the US mortgage market. Specifically, the
corporation buys mortgages that meet its standards from mortgage lenders
around the country and packages those loans as debt securities, which
it offers for sale on the open market. By making the money it collects
from selling bonds available to lenders, the corporation makes it possible
for more potential homeowners to borrow at affordable rates. At the same
time, it provides the investment marketplace with interest-paying bonds.
It is sometimes described as a quasi-government agency because of its
special relationship with the federal government.
Federal Reserve Board
Under the direction of a chairman, a seven-member Federal Reserve Board
oversees the Federal Reserve System and determines national monetary policy,
with the goal of keeping the economy healthy and its currency stable.
Federal Reserve System
Established in 1913 to stabilize the country's financial system, the Federal
Reserve System, sometimes known as the Fed, is the central bank of the
US. The Federal Reserve System includes 12 regional Federal Reserve banks,
25 Federal Reserve branch banks, all national banks, and some state banks.
Member banks must meet the Fed.’s financial standards. Responsibilities
of the Fed include balancing the supply of money and credit, regulating
the banking system, and providing financial services to banks and the
U.S. government. Investors closely watch the Fed, especially when it changes
the discount rate, which is the interest rate banks pay for borrowing
overnight from the Fed. Raising or lowering the discount rate influences
short-term interest rates.
Federal Trade Commission (FTC)
Enforces a variety of federal antitrust and consumer protection laws.
It seeks to ensure that the nation's markets function competitively, and
are vigorous, efficient, and free of undue restrictions. FTC works to
enhance the smooth operation of the marketplace by eliminating acts or
practices that are unfair or deceptive
Financial Education
Focuses on building basic money management skills which leads to an understanding
of banking, finance, savings, and the importance of good credit. These
tools can enable an individual or family to save enough money to buy a
home or start a small business and ultimately build their net wealth.
Foreclosure
The legal proceedings initiated by a lender to repossess the collateral
for the loan that is in default
Home Equity Line of Credit
A mortgage loan that allows the borrower to obtain multiple advances of
the loan proceeds at his/her own discretion, up to an amount that represents
a specified percentage of the borrower's equity in a property.
Home Mortgage Disclosure Act (HMDA)
An act established by Congress in 1975 and implemented by the Federal
Reserve Board’s Regulation C that requires lending institutions
to report public loan data.
Department of Housing and Urban Development (HUD)
The U.S. Department of Housing and Urban Development is the federal agency
that administers many of the nation's community development programs.
HUD's mission is to increase homeownership, support community development
and increase access to affordable housing free from discrimination.
Income
Money earned through employment and investments. Area median income refers
to the average amount of money (as defined by HUD) that is being made
in each family in a given area.
· Extremely low income – income that is below 30% of the
area median income
· Very low income – income that below 50% of the area median
income
· Low income – income that ranges between 50% and 80% of
the area median income
· Moderate income – income that ranges between 80% and 100%
of the area median income
Individual Development Account (IDA)
A special type of savings program organized by nonprofit organizations.
Borrowers keep their money in a bank, and the amount of money that is
put in the IDA savings account is matched by the nonprofit organization.
These accounts are usually reserved for buying a home, paying for education
job training expenses, starting a small business, or saving for retirement.
Insurance
Protection against a specific loss over a period of time that is secured
by the payment of a regularly scheduled premium.
Interest
The cost for borrowing a sum of money; it is usually calculated at a percentage
rate over a period of time. For example, if you borrow $1,000 for a year
at an annual percentage rate of 10%, you would pay $100 in interest for
a year's use of the money: $1,000 x .10 =
$100.
Loan
Money borrowed that is usually repaid with interest.
Loan Flipping
Persuading a borrower to refinance a loan repeatedly in order to charge
high points and fees each time the loan is refinanced. See also Predatory
Lending.
Microenterprise
A synonym for small-scale enterprise: a business, often family-based or
a cooperative that has five or fewer employees, one or more of whom owns
the enterprise.
Micro-loan
A very small, often short-term loan made to an impoverished entrepreneur
Minority Business Development
The process of identifying and promoting certified minority business entrepreneurs
to both the public and private areas of business.
Office of the Comptroller of the Currency (OCC)
An independent bureau of the Treasury Department and the oldest federal
financial regulatory body. The OCC oversees the nation's federally chartered
banks and promotes a system of bank supervision and regulation that promotes
safety and soundness. The OCC does this by requiring that national banks
adhere to sound management principles and comply with the law, and, also,
encourages banks to satisfy customer and community needs while remaining
efficient competitors in the financial services market.
Payday Loan
A cash advance loaned to the borrower to be paid back on the borrower’s
next payday. Most loans do not exceed $500, but loan fees usually equate
to about 400% annual percentage rate. Payday loans that are renewed repeatedly
can accumulate fees that exceed the borrowed amount.
Points
Prepaid interest on the borrower’s mortgage, charged by the lender
at the time of the closing. Each point is one percent of the loan amount.
For example, 2 points on a $100,000 mortgage would be $2,000.
Predatory Lending
A predatory loan is an unsuitable loan designed to exploit vulnerable
and unsophisticated borrowers. Predatory loans are a subset of sub-prime
loans. A predatory loan has one or more of the following features: 1)
charges more in interest and fees than is required to cover the added
risk of lending to borrowers with credit imperfections, 2) contains abusive
terms and conditions that trap borrowers and lead to increased indebtedness,
3) does not take into account the borrower’s ability to repay the
loan, and 4) often violates fair lending laws by targeting women, minorities,
and communities of color.
Premium
The amount of money an insurance company charges for insurance coverage.
Prepayment
Additional payments made by the borrower towards their loan, which will
reduce the interest costs by lowering the balance and thereby shorten
the time to pay off the loan.
Prepayment Penalty
A fine for paying off a loan partially or in full before its maturity.
Prime Rate
The interest rate that banks charge to preferred customers. Changes in
the prime rate influence changes in other rates, including mortgage interest
rates.
Rating Agency
An organization that assesses and issues opinions regarding the relative
credit quality of bond issues. The three major municipal bond rating agencies
are Fitch Investors Service, Moody's Investors Service, and Standard and
Poor's.
Red-lining
To refuse home mortgages or home insurance to areas or neighborhoods that
are poor and considered to be high financial risks
Refinancing
The process of paying off one loan with the proceeds from a new loan secured
for the same property.
Risk
The chance of capital loss
Risk adjusted rate
An interest rate determined by the degree of financial risk involved with
the potential borrower.
Small Business Administration (SBA)
Federal Government agency that administers loan guarantees and related
small business development programs
Small Business Development
The process by which a current or small business seeks management assistance
or business-building information and guidance from a development center
such as the Small Business Administration (SBA).
Sub-prime
Industry term used to describe credit and loan products that have less
stringent lending and underwriting (loan approval) terms and conditions.
As a compensating factor for the higher risk, however, sub-prime products
charge consumers higher interest rates and fees.
Office of Thrift Supervision (OTS)
The primary regulator of all federally chartered and many state-chartered
thrift institutions, which include savings banks and savings and loan
associations. OTS was established as a bureau of the U.S. Department of
the Treasury on August 9, 1989, and has four regional offices located
Jersey City, Atlanta, Dallas, and San Francisco. OTS is funded by assessments
and fees levied on the institutions it regulates.
Training
Capacity building for community based organizations. Specific training
in areas of financial education, fair lending, and HMDA data analysis
is given to NCRC member organizations or any agency that is interested
in economic empowerment. These agencies, in turn, use what they have learned
to train the population they are serving
Underwriting
The process of evaluating a loan application to determine the risk involved
for the lender. Underwriting involves an analysis of the borrower's creditworthiness
and the quality of the property itself.
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