MORTGAGE GLOSSARY
IMPORTANT NOTICE REGARDING THIS GLOSSARY
The terms and definitions that follow are meant to give simple, informal meaning for words and phrases often used during the processing of you UC home loan. The specific meaning of a term or phrase will depend on where and how it is used, because the relevant documents, including signed agreements, customer disclosure, internal Program policy manuals and industry usage, will control meaning in a particular context. The terms and definitions that follow have no binding effect for purposes of any contracts or other transactions with us.
To find a definition, click the first letter of the term.
ACH: (see Automated Clearing House)
Acceleration Clause: Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.
Additional Principal Payment: A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due. Also known as a principal curtailment.
Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate.
Allocation: An Applicant's allocated loan amount that is specified on the completed Certification of Eligibility provided by the campus or laboratory. An "allocation" is not a committed loan amount as the Applicant must still demonstrate his/her ability to qualify for the allocated amount.
Amortization: Loan payments by equal periodic amounts calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Amortized Loan: A loan to be repaid, by a series of regular installments of principal and interest, that are equal or nearly equal, without any special balloon payment prior to maturity.
Anniversary Date: The date upon which the twelfth payment is due. This occurs in the same calendar month and day each year thereafter on any MOP or SHLP Promissory Note.
Annual Percentage Rate (APR): A percentage rate that reflects the amount of interest earned or charged.
Applicant: An eligible Appointee designated by one of the ten University campuses, Office of the President, or three major University laboratories as eligible to apply for a loan under the UC Home Loan Program.
Application Checklist: An itemized list of documentation that the borrower and the campus need to provide to the Office of Loan Programs for either pre-approval or loan approval. Also konwn as form OLP-09.
Appointee: A person who has been offered and has accepted a full-time position with the University of California.
Appraisal: A written analysis prepared by a qualified appraiser and estimating the value of a property. All appraisals used in connection with the UC Home Loan Program must be done by a University-approved appraiser.
Appraised Value: The dollar value assigned to a single-family residence by an appraiser approved by the Office of Loan Programs.
Automated Clearing House (ACH): An electronic funds transfer network that enables direct money transfers between participating bank accounts and lenders. This feature is available only to borrowers who are not currently on active payroll status.
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Balloon Payment: An installment payment on a promissory note - usually the final one for discharging the debt - which is significantly larger than the other installment payments provided under the terms of the promissory note.
Beneficiary: The lender on the note secured by a deed of trust.
Borrower: An eligible person as specified in an executed Certification of Eligibility, prepared by the appropriate campus representative. The Borrower will be primarily responsible for the repayment of a Program loan.
Bridge Loan: A short-term loan, usually less than 12 months, provided to a borrower when the net proceeds from a sale of a prior residence are not available for the purchase of a new home. It is intended that a bridge loan will be paid off with the net proceeds from the prior residence's sale.
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Campus Housing Representative: The person designated by the Chancellor of each campus and Director at each laboratory as the Home Loan Coordinator. This individual serves as the primary contact at the campus level for loan applicants.
Certification of Eligibility: Form signed by a designated campus representative certifying that the applicant is eligible for Program participation and the amount of the loan allocation. Also known as form OLP-30.
Close of Escrow: The meeting between the buyer, seller and lender (or their agents) where the property and funds legally change hands.
Closing Costs: These are expenses - over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs will include charges for title insurance and escrow costs, appraisal fee, pro-rated property taxes, hazard insurance premium, etc. Closing costs will vary according to the area. The University does not charge any origination fees or points that are normally included in closing costs.
Community Property: Property acquired by husband and wife, or either, during marriage, when not acquired as the separate property of either.
Co-Borrower: Any individual who will assume responsibility on the loan, take a title interest in the property and intends to occupy the property as their primary residence.
Co-Signer: Any individual who will assume responsibility on the loan, but who will not take a title interest in the property nor occupy the property.
Curtailment (to principal): An additional payment made to reduce the principal balance of a loan.
Current MOP Program Rate: MOP rate currently in effect for Program loans. The "locked-in" MOP rate will be the Program rate in effect at the time of loan commitment. This rate is calculated by using the most recently available four-quarter average earnings rate of the University of California’s Short-Term Investment Pool (STIP), plus an administrative fee component of 0.25%, subject to the applicable minimum interest rate. Also known as the Standard Rate.
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Deed of Trust: A security instrument, used in place of a mortgage, conveying title in trust to a third party covering a particular piece of property. It is used to secure payment of a promissory note.
Default: Failure to fulfill a duty or promise as specified in the Promissory Note and/or Deed of Trust.
Deferred Payment Loan: A loan which allows the borrower to defer all the monthly principal and interest payments until the maturity date of the promissory note, at which time the outstanding principal loan balance and all accrued interest is due and payable.
Delinquency: Failure to make mortgage payments on time.
Denial Letter: A letter denying a loan to a specific individual. The reasons for denial may include credit history, lack of verifiable liquid assets, inadequate income, ineligible property, etc. Also known as an Adverse Action Letter.
Downpayment: The difference between the purchase price of real estate and the loan amount. The borrower is responsible for providing the funds for the downpayment.
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Earnest Deposit: This is the sum of money given to bind the sale of real estate.
Employee: An Appointee who has actively begun to serve in his or her full-time position.
Equity: The difference between the fair market value of a property and the current indebtedness secured on the property.
Escrow: A situation in which a third party, acting as the agent for the buyer and the seller, carries out the instructions of both and assumes the responsibilities of handling all the paperwork and disbursement of funds at settlement or at closing.
Escrow Holdback: Funds retained by the escrow company after the close of escrow until repairs and/or required termite work has been completed.
Evidence of Insurance: Written documentation from a hazard insurance company that a homeowners’ policy is in existence on a property. Typically, this is NOT an insurance policy, but a commitment from the insurance company to provide a policy for a specific property at a specific time and premium amount.
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Faculty Recruitment Allowance Program (FRA): A University of California program that assists faculty recruitment through grants to selected eligible participants. The primary purpose of the Faculty Recruitment Allowance is to provide support for housing costs, but the individual may also use the allowance to support childcare expenses, education or tuition assistance, or similar expenses. Each campus is responsible for identifying or developing sources to fund the Recruitment Allowance Program. The assistance may be paid in one lump sum or over a period not to exceed ten years in equal, unequal, or declining balance amounts. The maximum assistance amount is indexed based upon salary increases for faculty.
Flood Insurance: A separate insurance policy required for properties in a designated Special Flood Hazard Area (SFHA) or flood zone, as determined by the Federal Emergency Management Agency (FEMA). Flood insurance is only available through the National Flood Insurance Program (NFIP) and from a few private insurers.
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Graduated Payment Mortgage Origination Program (GP-MOP): The Graduated Payment Mortgage (GP-MOP) is an alternative loan product under the Mortgage Origination Program (MOP) that results in an initial lower interest rate (Borrower Rate) than the most recently published MOP rate (Standard Rate).
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Hazard Insurance: A contract where an insurer, for a premium, undertakes to compensate the insured for loss on a specific property due to certain hazards. (See Homeowner’s Insurance Policy).
Home Improvement: Repairs and/or additions made to better the status of the permanent structure of a primary residence.
Home Loan Coordinator: The person designated by the Chancellor of each campus or the Director at LBNL as the Home Loan Coordinator. This individual serves as the primary contact at the campus level for loan applicants.
Homeowners Association (HOA): An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.
Homeowner’s Insurance Policy: An insurance policy available to owners of private dwellings that covers the dwelling and contents in the case of fire, wind damage, theft, and, personal liability. The typical policy does not include flood insurance or earthquake coverage. Also referred to as Hazard Insurance.
HUD-1 Closing Statement: A financial disclosure giving an accounting of all funds received and disbursed at loan closing. Also referred to as a Settlement Statement.
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Impounds: That portion of the mortgagor’s monthly payments held by the lender to pay for property taxes or hazard insurance premiums as they become due. The University does not impound for either property taxes or hazard insurance premiums.
Inspection Reports: Reports ordered by the borrower to assess the quality of the home. Typically, this includes a Termite Report and “whole house” inspection. Other reports that may be ordered, such as roof, foundation, geological, chimney/fireplace and septic tank inspections.
Interest: Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share or title in property.
IRS 1098 Mortgage Interest Statement: A statement provided by the lender to the borrower indicating the total amount of interest paid by the borrower for a given calendar year. 1098's are also filed with the IRS.
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Joint Tenancy: Joint ownership by two or more persons giving each tenant equal interest and equal rights in the property, including the right of survivorship.
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Lender’s Escrow Instructions: Instructions produced by the Office of Loan Programs for an escrow or title company detailing the documentation and procedures required before a loan is funded.
Loan-to-Value Ratio: The ratio of the principal balance of a mortgage loan to the value of the securing property, as determined by the purchase price or Appraised Value, whichever is less.
Loan Commitment: A commitment letter (also known as “loan approval”) issued by the Office of Loan Programs (OLP) committing to the funding of a Program loan for a specific borrower and property. A loan commitment letter will only be issued after OLP’s satisfactory underwriting review of all property documentation (i.e. purchase contract, property appraisal, inspections, etc.) and will state the approved loan amount, initial interest rate and loan term. The letter will also require that certain conditions are met prior to loan funding. The initial interest rate specified will be the Program rate in effect at the time a loan commitment is issued.
MOP Calculator (MOP-CALC): A web-based computer program, which enables the user to determine estimated costs and monthly payments for a hypothetical MOP transaction.
Mortgage Origination Program (MOP): MOP was established by The Regents of the University of California in 1984 and utilizes funds from the unrestricted portion of the University's Short-Term Investment Pool (STIP) to make variable interest rate first deed of trust loans of up to 30 years in length to eligible Faculty and members of the Senior Management Group. The program provides loans at maximum amounts of 80% to 90% of value, depending upon loan size, with the initial interest rate equal to the most recently available four-quarter average earnings rate of the University of California's Short Term Investment Pool (STIP), plus an administrative fee component of 0.25%, subject to the applicable minimum interest rate. The maximum annual adjustment of the interest rate for a loan, upward or downward, is one percent.
Mortgagee: A lender or creditor who holds a mortgage or Deed of Trust.
Mortgagor: A borrower who is obligated to pay on a mortgage or Deed of Trust.
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Negative Amortization: Monthly payments do not cover all of the interest cost. The interest cost that is not covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. All Program loans are regularly amortized and therefore, do not have negative amortization.
Net Income: The monthly salary paid to a borrower after deducting any Federal and/or State payroll taxes.
Notice of Completion: Documentation, typically from a termite company, stating that required repairs have been completed. Sometimes called a “clear” termite report. May also refer to work completed by a contractor for other, non-termite related work done on a property.
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Office of Loan Programs (OLP): Located within the Capital Asset Strategies and Finance Department of the Office of the President, OLP is responsible for the design, delivery and management of housing assistance programs for recruitment and retention of faculty and senior managers.
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PAF: An acronym for Personnel Action Form, referring to a campus generated document verifying an applicants’ employment data (salary, title code, start date, etc.) that is printed from the campus payroll computer system.
Participant: The term "Participant" shall mean an Appointee who has been designated as an eligible Applicant and Primary Borrower.
Pre-Approval: Certification from a lender that an applicant's credit, assets and income have been verified and the applicant qualifies for a loan at a specified interest rate and loan amount. A pre-approval is a more rigorous review than a pre-qualification, which is a simple review of an applicant's "stated" financial situation and employment.
Preliminary Disclosures: A generic term referring to a group of disclosure forms required by Federal law to be sent to a loan applicant. The forms include the Loan Estimate, Fair Lending Notice, Appraisal Information Notice, California Credit Disclosure, and a Hazard Insurance Requirement Disclosure.
Preliminary Title Report: A title search by a title company prior to issuance of a title binder or commitment to insure, required during the processing of a loan.
Prepaid Interest: Mortgage interest that is paid from the date of the funding to the end of that calendar month.
Prepayment Penalty: A fee that may be charged to a borrower who pays off a loan before it is due. All Program loans do not have a prepayment penalty.
Primary Residence: A dwelling where one actually lives and is considered as the legal residence for income tax purposes.
Principal: The amount of debt, exclusive of interest, remaining on a loan.
Principal and Interest to Income Ratio (P&I Ratio): The ratio, expressed as a percentage, which represents a borrower's proposed Principal and Interest monthly payment divided by the verified monthly Household Income. The maximum allowable ratio for MOP loans is 40%. Also known as P&I ratio.
Processing: The preparation of a mortgage loan application and supporting documents for consideration by a lender.
Program: The term "Program" refers to any loan made under a University of California Home Loan Program.
Purchase Transaction Documents: The aggregate term for independent third party documentation pertaining to the subject property. This includes fully-executed purchase contract and all counteroffers/addenda, property appraisal, termite report, preliminary title report, transfer disclosure statement, roofing, geological, foundation, septic inspections, and overall home inspection.
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Quit Claim Deed: A deed relinquishing all, or a portion of, the interest, title, or claim in a property by a grantor; also know as Interspousal Deed if property rights are being transferred between parties who are married to each other.
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Rate Lock: A commitment issued by a lender to a borrower guaranteeing a specified interest rate for a specified period of time. All Program loans have a 60-day rate lock period at the time a loan commitment is issued.
Reconveyance: The transfer of the title of land from one person to the immediate preceding owner. This instrument of transfer is commonly used to transfer the legal title from the trustee to the trustor after a deed of trust has been paid in full.
Recording: The date on which a properly executed legal document (e.g., Deed of Trust) is officially entered on the books of the county recorder in the county in which the property is located and is made public record.
Refinancing: The process of paying off an existing loan and establishing a new loan.
Renovation: The restoration of the primary residence. Generally, this includes repairs, improvements and additions to the permanent structure of the primary residence.
Right of Rescission: The right to cancel a contract and restore the parties to the same position they held before the contract was entered into. For a refinance transaction, a borrower has three working days from the signing of the loan documents to cancel the loan without penalties. The right to rescind does not apply to purchase transactions.
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Servicing: The collection of payments and management of operational procedures related to a mortgage loan. All Program loans are serviced by the Office of Loan Programs.
Short-Term Investment Pool (STIP): STIP was established in fiscal 1976 and is an interest-only cash investment pool in which all University fund groups participate, including current funds earmarked to meet payrolls, operating expenses, and construction at all campuses and teaching hospitals of the University.
Standard Rate: The most recently available four-quarter average earnings rate of the University of California's Short-Term Investment Pool (STIP), plus an administrative fee component of .025%, subject to the applicable minimum interest rate.
Subordination Agreement: An agreement by the holder of an encumbrance against real property to permit that claim to take an inferior position to other encumbrances against the property.
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Tenants in Common: Joint ownership by two or more persons giving each tenant an interest and rights in a property, these interests need not be equal in quantity or duration.
Title: The evidence of the right to or ownership in property.
Title Insurance: A policy, usually issued by a Title Insurance company, which insures a homebuyer and the lender against errors in the title search. The cost of the policy is usually a percentage of the sales price and the lender’s policy is a percentage of the loan amount.
Truth-in-Lending: A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
Trustee: One who holds legal title to a property for the benefit of another, or for the purpose of securing performance of an obligation.
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Underwriting: The process of evaluating a loan application package to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness, including income, assets and the quality of the property itself.
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Withdrawal letter: A letter from the Office of Loan Programs acknowledging that a borrower no longer wishes to pursue a loan from the University of California. A loan may be withdrawn due to dissatisfaction with the property or desire to use another lender, among other reasons.