Rental Housing Finance Survey

Accelerated federal income tax depreciation for low and moderate income properties  For tax purposes, reporting greater depreciation of the property value in the early years of the property’s existence.

Adjustable mortgage loan  A mortgage instrument that allows maximum flexibility in selecting the terms under which interest rates and payments may be adjusted over the maturity of the loan. Includes adjustable rate mortgages, renegotiated rate mortgages, variable rate mortgages.

Adjustable rate mortgage  A mortgage loan that allows the interest rate to be changed, usually based on an established index, at specific intervals over the maturity of the loan.

Age restricted housing  Community in which at least one member of each household must be of a certain age (usually 55 or older).

Amortization  Payment of a debt in equal installments of principal and interest, rather than interest only payments.

Assisted living facility  A multi-unit property wherein the management offers the following services to residents.

Balloon payment  The final payment on a loan, when that payment is greater than the preceding installment payments and pays the loan in full.

Capital improvements  The addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property's overall value or increases its useful life.

Capitalization  The process of converting an income stream into a lump-sum value.

Commercial bank  A financial institution that provides services such as a accepting deposits and giving business loans.

Community Development Block Grants (CDBG)  Flexible federal aid given to cities to promote neighborhood revitalization through economic development and improved community facilities and services in depressed neighborhoods. Local government can decide how to use the funds, which are administered by either state or city economic development offices.

Condominium  A building or development with individually owned apartments or houses. The owner has a deed, and possibly a mortgage, on the unit. The owner holds a common or joint ownership in all common areas and facilities that serve the project; land, roofs, hallways, entrance, elevators, etc.

Construction loan  Short term financing of real estate construction, also referred to as an "end loan," generally followed by long term financing. For this survey, a construction loan is not a mortgage. See also "permanent mortgage;" "piggyback loan."

Consumer discount company  A type of finance company. See “Finance Company.”

Contract to purchase  Same or similar to "mortgage." See "contract to purchase" under "mortgage."

Conventional mortgage pool  See “Mortgage pool.”

Cooperative  A building or development of two or more units in which the right to occupy a unit is obtained by the purchase of stock in the corporation which owns the building. The "owner" owns a share in the corporation, not the actual house or apartment. The "owner" does not have a deed. The "owner" may have taken a loan to purchase the stock, but will not have a mortgage on the unit. The mortgage, if any, covers the entire building or development and is an obligation of the corporation, not the individual "owner."

Cooperative bank  Type of finance company specializing in making particular loans. See “Finance company.”

Cross-collateralization  The act of using an asset that is currently being used as collateral for a loan is also used as collateral for a second loan. If the debtor was unable make either loan's scheduled repayments in time, the affected lender(s) can eventually force the liquidation of the asset and use the proceeds for repayment.

Debt  Money borrowed by one party from another.

Deed of trust  An instrument used in many states in place of a mortgage. The difference between a mortgage and a deed of trust is that a deed of trust involves a third party, known as the trustee, who has technical title to the property. Trust deeds, trusts, mortgage bonds, and vendor's liens are similar terms used in various parts of the country.

Economic development area  An area defined by local authorities for government assisted economic programs.

11th district cost of funds index  A monthly weighted average of the interest rates paid on checking and savings accounts offered by financial institutions operating in the states of Arizona, California and Nevada.

Equity  The market value of real property, less the amount of existing liens. Equity build up is the reduction of principal on a mortgage or deed of trust by periodic payments, which increases (builds up) the difference (equity) between the property value and amount of the lien.

Equity loan  Same or similar to "home equity line of credit." See also "home equity line of credit" under "mortgage."

Fannie Mae  A private corporation that specializes in buying primarily FHA and VA loans. Formerly called the "Federal National Mortgage Association (FNMA)."

Federal Home Loan Mortgage Corporation (FHLMC)  An organization that purchases conventional mortgage loans and sells securities based on pools of these loans. Also called "Freddie Mac."

Federal Housing Administration (FHA)  An agency, within the U.S. Department of Housing and Urban Development, that administers loan programs, loan guarantee programs, and loan insurance programs designed to make more housing available.

Federal savings bank  A type of "savings and loan association." See also "savings and loan association."

FHA mortgage loan  A mortgage loan insured by the FHA. Since the 1930s, FHA has insured first mortgages enabling lenders to loan a very high percentage of the purchase price. See "Federal Housing Administration."

Finance company  A company that makes loans primarily for consumer purchases.

Financing  Raising funds for a purchase.

First mortgage  A mortgage having priority over all other voluntary liens against the property. A first mortgage gives the lender a first claim against the owner's rights in the property if the owner fails to meet the required payments on the mortgage.

Fixed payment mortgage  A loan secured by real property which features a periodic payment of interest and principal that is constant over the term of the loan. All fixed payment mortgages are fixed rate mortgages, but some fixed rate mortgages may have variable payments, such as graduated payment mortgages (GPM).

Fixed rate mortgage  A loan secured by real property featuring an interest rate that is constant for the term of the loan.

FNMA  See “Fannie Mae.”

Freddie Mac  Same as "Federal Home Loan Mortgage Corporation." See also "Federal Home Loan Mortgage Corporation."

Free and clear  Owning property free and clear is having title to a property without encumbrances; that is, free of liens. Also known as having "clear title" or "marketable title."

Full amortization  the repayment of a loan calculated so that the principal will be paid in full through monthly payments of principal and interest for a predetermined period of time.

General partnership  A arrangement by which partners conducting a business jointly have unlimited liability, which means their personal assets are liable to the partnership's obligations

GNMA  A federal association, working with FHA, that offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity. Ginnie Mae's two main programs guarantee payments to investors in mortgage-backed securities, and absorb the write-down of low interest rate loans that are used to finance low income housing. Formerly known as the "Government National Mortgage Association (GNMA)."

Historic structure  A building that is officially recognized for its historic significance and has special status under the 1976 Tax Reform Act which encourages rehabilitation and discourages demolition or substantial alteration of the structure.

HOME  A program administered by the Department of Housing and Urban Development to provide grants to States and localities (often used in partnership with local nonprofits) to fund a wide range of activities that build, buy, and rehabilitate affordable housing for rent or homeownership or provide direct rental assistance to low-income people.

Home equity line of credit  See "home equity line of credit" under "mortgage."

HOPE VI  A program administered by the Department of Housing and Urban Development with the following objectives: to change the physical shape of public housing; to establish positive incentives for resident self-sufficiency and comprehensive services that empower residents; to lessen concentrations of poverty by placing public housing in non-poverty neighborhoods and promoting mixed-income communities; to forge partnerships with other agencies, local governments, nonprofit organizations, and private businesses to leverage support and resources.

Housing and Urban Development (HUD)  A U.S. government agency responsible for the major federal housing programs, such as FHA insurance and community development programs.

Housing cooperative organization  See “Cooperative.”

Housing for the elderly direct loan program (Section 202)  A program that provides interest-free capital advances to private, nonprofit sponsors to finance the development of supportive housing for the elderly.

Housing unit (or residential unit)  A housing unit is a house, apartment, group of rooms or a single room occupied as separate living quarters.

Income tax credit  See "tax credit."

Index  A statistic that indicates some current economic or financial condition. The term, payment, interest rate, or principal amount of a long term loan may be adjusted periodically according to a specific index. The index and the manner of adjustment are generally stated in the loan contract.

Individual investor  People who buy and sell an asset for their personal account, and not for another company.

Industrial bank  A financial institution that sells certificates labeled as investment shares and also accept customer deposits. They then invest the proceeds in installment loans for consumers and small businesses. These banks are also known as Morris banks or industrial loan companies.

Insurance  See "property insurance;" "private mortgage insurance;" "insured mortgage;" "title insurance."

Insured mortgage  A mortgage insured against loss to the mortgagee (lender) in the event of default. May be insured by FHA, VA, FmHA, or by a private insurance company.

Interest  Money charged for the use of money (principal).

Interest only loan  A loan in which interest is payable at regular intervals until loan maturity (when the full loan balance is due.) Does not require amortization of loan principal.

Interest rate  The percentage of an amount of money (principal) which is charged for its use for a specified time.

Investment trust  Same or similar to "Real Estate Investment Trust." See also "Real Estate Investment Trust."

Joint ownership  Situation in which two or more people share ownership of property, securities, or rights.

Land contract  Same or similar to "contract to purchase." See also "contract to purchase" under "mortgage."

LIBOR  An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers' Association.

Life insurance company  Financial intermediary (the insurer) that shares the financial risk of untimely death of its policy holder (the insured).

Limited liability company  A corporate structure whereby the shareholders of the company have a limited liability to the company's actions.

Limited liability partnership  One in which there is at least one partner whose liability is limited to the amount invested, and at least one partner whose liability extends beyond monetary investment.

Line of credit  An agreement whereby a financial institution promises to lend a certain amount of money without the need to file another application. See "home equity line of credit."

Living quarters  Any site where people live, stay, or could live.

Loan  A lending of a principal sum of money to one who promises to repay the sum plus interest.

Loan servicing company  A company that handles the administrative aspects of a loan from the time the proceeds are dispersed until the loan is paid off.

Low income housing  Housing intended to be occupied by low or moderate income persons that is eligible for special tax credits under the 1986 tax act.

Low income tax credit program  A tax credit that gives investors a dollar-for-dollar reduction in their federal tax liability in exchange for providing financing to develop affordable rental housing.

Manufactured housing community  Manufactured homes are homes made or manufactured in a factory and designed to be transported to a site. Manufactured homes can be large or small, and while they are constructed in the same manner as mobile homes, manufactured homes are not truly mobile. Mobile homes can be moved from one location to another, while manufactured homes are permanently attached to the site using conventional on site construction. (The terms “mobile home” and “manufactured home” tend to be used interchangeably, although technically they refer to different types of housing.)

Margin over index  The portion of the interest rate on an adjustable-rate mortgage that is over and above the adjustment-index rate.

Market index  An aggregate value produced by combining several stocks or other investment vehicles together and expressing their total values against a base value from a specific date.

Market value  The price at which investors can buy or sell a property at a given time.

Maturity  The due date of a loan.

Mortgage  Includes all forms of debt for which real property, that is, land and/or buildings, is given as security. Such security may be in one or more of the following.

• First mortgage: A mortgage having priority over all other voluntary liens against the property. A first mortgage gives the lender a first claim against the owner's rights in the property if the owner fails to meet the required payments on the mortgage.
• Second mortgage: A junior mortgage that ranks after a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts, as liens at the same time. Legal priority would determine whether they are called a first, second, third, etc. lien.
• Deed of trust: An instrument used in many states in place of a mortgage. The difference between a mortgage and a deed of trust is that a deed of trust involves a third party, known as the trustee, who has technical title to the property. Trust deeds, trusts, mortgage bonds, and vendor's liens are similar terms used in various parts of the country.
• Contract to purchase: An arrangement for the sale of real estate whereby the buyer may use, occupy, and enjoy land, but no deed is given by the seller (and no title passes) until all or a specified part of the sale price has been paid. A purchaser who is buying the property by means of a contract to purchase may not consider himself/herself to be the owner since the seller actually has the title. However, for this survey, the purchaser is considered to be the owner. Contract for deed, land contract, purchase agreement, agreement of sale, and assumption agreement are similar terms used frequently in some areas of the country.
• Home equity line of credit: Allows the property owner to borrow against the equity in the home from time to time without reapplying for a loan.

Mortgage bank  A company providing mortgage financing with its own funds. Although the mortgage banker or company uses its own funds, these funds are generally borrowed and the financing is either short term or, if long term, the mortgages are sold to investors within a short time.

Mortgage insurance  A policy that guarantees repayment to a lender of a mortgage loan in the event of default. See "insured mortgage;" "FHA;" "VA;" "FmHA;" "private mortgage insurance."

Mortgage pool  A collection of loans of similar nature which are sold as a unit in the secondary market or used to back a security which is then sold in the capital markets.

Mortgage servicing  Performing the necessary duties of a mortgagee, such as collecting payments, releasing the lien upon payment in full, foreclosing if in default, and making sure the taxes are paid, insurance is in force, etc. Servicing may be done, for a fee, by the lender or by a company acting for the lender.

Mutual savings bank  An institution owned by its depositors and operated for their benefit. Most of these banks are in the northeastern United States and hold a large portion of their assets in home mortgage loans.

Nonprofit  An organization not conducted or maintained for the purpose of making a profit.

Nonresidential  Property designed for use by retail, wholesale, office, hotel, service, or other commercial use.

Operating expense  A category of expenditure that a business incurs as a result of performing its normal business operations.

Permanent financing  Long-term debt or equity financing. In general, permanent financing is used to purchase or develop long-term fixed assets. Since the payoff from a long-term asset tends to be over a period of time, financing through long-term options reduce the risk of principal payoff not being made (in the case of debt financing).

Personal guarantee  Promise made by an entrepreneur which obligates him/her to personally repay debts his/her corporation defaults on.

Principal  The amount of money raised by a mortgage or other loan, as distinct from the interest paid for its use. The amount of debt excluding interest.

Principal and interest payment (P & I)  A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to amortization of the principal balance.

Principal, interest, taxes, and insurance payment (PITI)  The periodic (typically monthly) payment required by an amortizing loan that includes escrow deposits. Each periodic payment includes a principal and interest payment plus a contribution to the escrow account set up by the lender to pay insurance premiums and property taxes on the mortgaged property.

Private mortgage insurance  Default insurance on conventional loans provided by private insurance companies. See "mortgage insurance."

Property  Real estate; that is, land and anything permanently affixed to the land, such as buildings and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items which would be personal property if not attached. A property may consist of a single-family house (attached or detached), a multifamily house, a condominium unit, a mobile home, an apartment building, or a group of apartment buildings.

Property equity loan  See home equity line of credit under “Mortgage.”

Property insurance  A form of insurance that protects real property against certain risks, such as from fires or storms; often called fire and hazard insurance. May include flood insurance. Does not include mortgage insurance or mortgage life insurance.

Property tax  A tax levied on privately owned real property. The amount of the tax is dependent on the value of the property. Also known as "real estate tax."

Public housing authority  A public agency created by a state or local government to finance or operate low-income housing.

Purchase agreement  Same or similar to "contract to purchase." See also "contract to purchase" under "mortgage."

Purchase price  The amount of money paid for the property, including down payment and mortgage, but excluding closing costs and other fees.

Real estate  A term that is generally synonymous with real property. See also "property."

Real Estate Investment Trust (REIT)  A real estate trust which sells shares of ownership and must invest in real estate or mortgages. If it meets certain requirements, it is exempt from corporate income tax. It distributes a minimum of 95 percent of its income to its shareholders.

Real estate tax  Same or similar to "property tax." See also "property tax."

Real estate tax appeal  A petition with a taxing authority to have the property value, and subsequent.

Refinancing  The substitution of an old loan(s) with a new loan(s) either with the same lender or with a different lender. Also, renewing an existing or a maturing loan with the same lender.

Rent control/stabilization  The legal regulation as to the maximum rental charge that can be made for the use of certain real property.

Rural Housing Service/Rural Development  An agency, within the U.S. Department of Agriculture, formerly called the Farmers Home Administration (FmHA). It administers assistance programs for purchasers of homes and farms in small towns and rural areas.

Savings and loan association (S&L)  An association chartered to hold savings and make real estate loans. Active in long term financing (mortgages) rather than construction loans.

Second mortgage  Similar to a "mortgage." See "second mortgage" under "mortgage."

Second mortgage  A junior mortgage that ranks after a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts, as liens at the same time. Legal priority would determine whether they are called a first, second, third, etc. lien.

Section 38  A portion of the US tax code that refers to a tax credit for certain types of properties.

Section 8  Housing Assistance Payments Program, authorized by the Housing and Community Development Act of 1974. There are two types of Section 8 housing: 1) unit-based: landlords of privately owned units sign a Section 8 contract under which they agree to charge below-market rent and receive direct government subsidies to make up the difference; 2) tenant-based: as of October 1999, the Section 8 certificate and voucher programs merged and became the Housing Choice Voucher Program.

Single family house  A type of residential structure designed to include one housing unit. Adjacent units may share walls and other structural components, but each unit has separate access to the outside and does not share kitchen facilities or plumbing or heating equipment.

Stock cooperative  A multi-unit property owned by a corporation in which individual ownership is acquired through purchase of stock and exclusive right of occupancy to a portion of the property is acquired through a proprietary lease

Student housing  Housing targeted usually towards undergraduate or graduate students at a college or university.

Targeted economic development area  See economic development area

Tax abatement  A reduction in taxes

Tax credit, Tax depreciation, Tax relief  Tax incentive programs designed to encourage, stimulate, or subsidize the ownership of real estate.

Tenancy in common  As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.

Term  The time during which principal and/or interest payments must be made. Generally the time needed to amortize the loan fully.

Terms  Conditions and arrangements specified in the mortgage contract, such as interest rate, required payments, etc.

Third mortgage  Similar to a "second mortgage." See also "second mortgage" under "mortgage."

Time of origination  When a mortgage or loan was first made.

Trust company  Same or similar to "commercial bank." See also "commercial bank."

Trustee  An individual or organization which holds or manages and invests assets for the benefit of another. (http://www.investorwords.com/5086/trustee.html)

VA mortgage loan  A form of mortgage insurance. Housing loans to veterans by banks, savings and loans, or other lenders are guaranteed by the U.S. Department of Veterans Affairs (formerly the Veterans Administration). This enables a veteran to buy a principal residence with little or no down payment.

Variable interest rate  An amount of compensation to a lender rate that is allowed to vary over the maturity of a loan. The amount of variation is generally governed by an index.

Variable maturity mortgage  A long term mortgage loan under which the interest rate may be adjusted periodically. Payment levels remain the same but the loan maturity is lengthened or shortened to accommodate the adjustment.

Variable payment plan  Any mortgage repayment schedule that provides for periodic change in the amount of monthly payments. Changes may occur as a result of the expiration of an interest only period (flexible payment mortgage), a planned step up in payments (graduated payment mortgage), or a change in the interest rate due to fluctuation in an index (variable or adjustable rate mortgage).

Variable rate mortgage (VRM)  A long term mortgage loan applied to residential properties under which the interest rate may be adjusted on a month basis over the term of the loan. Rate increases are restricted to no more than 1/2 point per year and 2 1/2 points over the term. 6

Veterans Administration (VA)/Veterans Affairs  An agency of the federal government that provides services for eligible veterans. See also "VA mortgage loan."

The following websites were consulted in constructing this glossary:

• www.census.gov

• www.merriam-webster.com

• www.teachmefinance.com

• www.incomeanalysis.com

• www.hud.gov

• www.investorwords.com

• www.novoco.com

• www.housingjustice.org

• www.realestateabc.com