Mortgage Compliance & QC Audit Glossary

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4506-T Requirement

As of September 1, 2009, Fannie Mae is now requiring its lenders to "obtain a completed and signed Form 4506-T from all borrowers at both application and closing." (See Announcement 09-19 for further information)


A

Appraisal

A written estimate of a property's current market value, prepared by an appraiser.

Appraisal Desk Review

A report commenting on the completeness and accuracy of the appraisal.

Appraisal Field Review

A visual inspection of the property from the street, as well as the neighborhood surrounding the property. This may be required in addition to a standard appraisal. For FHA, Fannie Mae, and Freddie Mac, the general quality control guidelines is that you need to perform an appraisal field review on 10% of the loans selected for review.

Appraiser

A professional with knowledge of real estate markets, who estimates the value of a property through an appraisal.

Automated underwriting

An automated, computer-driven process for providing a recommendation for the lender either to approve the loan or forward the loan to an underwriter. This helps inform the loan applicant very quickly about approval.

Automated underwriting system

A computer system for automated underwriting. Mortgage insurers and some large lenders have developed their own systems, but the most widely used are Fannie Mae's "Desktop Underwriter" and Freddie Mac's "Loan Prospector."


C

Cash-Out Refinancing

Refinancing for an amount larger than the remaining balance on the old loan plus settlement costs, so that the borrower takes "cash-out."

Compliance

The state of being in accordance with established regulations, guidelines, specifications, etc.

Conventional Mortgage

A home mortgage that is neither FHA-insured nor VA-guaranteed.

Correspondent

A lender who can extend loans but generally sells them to a larger wholesale lender.


D

Default

A borrower's failure to fulfill the terms of the loan agreement. Generally loans that are delinquent for 90 days or more are viewed as being in default.

Delinquency

A mortgage payment that is more than 30 days late.


F

Fannie Mae

Federal National Mortgage Association (FNMA). Along with Freddie Mac, it is one of two Federal agencies that purchase home loans from lenders.

FHA

Federal Housing Administration. An agency of HUD that insures residential mortgages.

FHA Mortgage

A mortgage insured by the Federal Housing Administration, which insures the lender against loss. One advantage of an FHA loan is the low down payment requirement.

Freddie Mac

Federal Home Loan Mortgage Corporation. Along with Fannie Mae, it is one of two Federal agencies that purchase home loans from lenders

FTC

Federal Trade Commission. The FTC helps protect consumers and promote fair competition, while prohibiting "unfair and deceptive acts or practices."


G

Good Faith Estimate (GFE)

The form that lists estimated settlement charges the borrower must pay at closing. Lenders must provide borrowers with the GFE within three business days of receiving the loan application.

Ginnie Mae (GNMA)

Government National Mortgage Association. A Federal agency that guarantees residential mortgages insured or guaranteed by FHA or VA.


H

Home Equity Line Of Credit (HELOC)

A mortgage set up as a line of credit for the borrower to draw up to a maximum amount, with the borrower's equity in their home as collateral.

Home Equity Conversion Mortgage (HECM)

An FHA reverse mortgage program.

Home Valuation Code of Conduct (HVCC)

A rule effective May 1, 2009, which states that Fannie Mae and Freddie Mac are prohibiting lenders from working directly with appraisers. Instead, lenders must arrange appraisals through third-party management companies.

HUD

Department of Housing and Urban Development, which deals with programs for urban renewal and improved housing.

HUD-1 Form

The standardized form a borrower receives at closing, detailing all funds paid at closing in a real estate transaction. This includes RE commissions, loan fees, points, taxes, initial escrow amounts, and other parties receiving distributions.

HUD Mortgagee Letters

HUD Mortgagee Letters


L

Loan Prospector

Automated underwriting system for Freddie Mac loans.


M

Mortgage Broker

An independent contractor who acts as an intermediary to sell mortgage loans. In contrast to a correspondent, a mortgage broker does not fund the loans.

Mortgage Lender

The financial institution that disburses funds to the borrower. The lender receives the note evidencing the borrower's obligation to pay, and the mortgage which is the lien on the subject property.


N

Non-Conforming Mortgage

A mortgage that does not meet the purchase requirements of Fannie Mae or Freddie Mac.

Note

A written agreement that evidences a debt and a promise to repay the loan, including the manner in which the loan shall be paid.


Q

Quality Control Audit

Often referred to as a "quality control review." Frequent, independent review of loan files to determine compliance with various standards and regulations.

Quality Control Plan

A written program for improving the quality of loans, ensuring compliance with various regulations and guidelines, and reducing error/fraud. Some agencies that require a QC plan include FHA, Fannie Mae, and Freddie Mac.


R

Red Flag Policy

A program required by the FTC to detect, prevent, and mitigate identity theft. Financial institutions and creditors must have a Red Flag Policy in place.

Red Flags Rule

A regulation from the Federal Trade Commission requiring all financial institutions and creditors to have a Red Flag Policy in place, in order to help prevent identity theft.

Regulation Z

Regulation from the Federal Reserve promoting "the informed use of consumer credit by requiring disclosures about its terms and cost. The regulation also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes." (See www.federalreserve.gov)

RESPA

The Real Estate Settlement Procedures Act. RESPA was designed to protect consumers by requiring lenders to provide certain disclosures, as well as prohibiting referral fees and kickbacks.

Reverse Mortgage

A special type of home equity loan available to seniors aged 62 and older. A reverse mortgage allows the home owner to convert some of the home's equity into cash and usually does not need to be repaid during their lifetime (unless they sell their home or move to a retirement community).

Right of Rescission

The right of refinancing borrowers, under the Truth in Lending Act, to cancel the deal within three days of closing, at no cost.


S

Streamlined Refinancing

Refinancing that doesn't require as much paperwork as a regular refinance, and is therefore quicker and less costly.


T

Truth in Lending (TIL)

The Federal law designed to protect consumers in credit transactions, by requiring a meaningful disclosure of credit terms to borrowers, including fees, terms, and conditions.


U

Underwriting Requirements

A lender's standards for determining if a borrower qualifies for a loan. These standards are more comprehensive than qualification requirements because they evaluate a borrower's creditworthiness.


V

VA Mortgage

A mortgage insured by the Veterans Administration, with no down payment requirement. Available only to ex-servicemen and women, as well as those on active duty.


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