7.1) ARM?

Adjustable Rate Mortgages. A mortgage loan where the interest rate
on the note is periodically adjusted based on an financial index.


7.2) LIBOR?

ondon Interbank Offered Rate (pronounced LIE-bore) is a daily reference
rate based on the interest rates at which banks offer to lend unsecured
funds to other banks in the London wholesale money market (or interbank
market). LIBOR is the opposite of the London Interbank Bid Rate (LIBID).


7.3) Prime lending rate?

Originally this was the rate of interest at which banks would lend money
to their most favored customers, those with the highest credit rating.
Since approximately December 2008 the prime rate is about 300 basis
points above the federal funds rate. The lending rate since then has
dropped much lower than the prime rate.


7.4) Federal funds rate?

The rate that banks charge each other for overnight loans made to fulfill
reserve funding requirements. The Federal Open Markey Committee (FOMC)
meets eight times per year to set a target for the federal funds rate.


7.5) A-paper?

A-paper is a term to describe a mortgage loan for which the asset
and borrower meet the following criteria:

  • In the United States, the borrower has a FICO credit score of 680 or higher
  • The borrower fully documents his income and assets
  • The borrower’s debt-to-income ratio does not exceed 35%
  • The borrower has funds on hand amounting to two months of
    mortgage payments after closing
  • The borrower puts in a down payment comprising at least 20% equity

Meeting the above characteristics, can result in an A-paper loan
with the lowest cost and interest rate.


7.6) Alt-A?

Alternative A-paper. The Alt-A product is primarily credit-score driven,
as its borrowers don’t have proof of income from traditional employment.
The Alt-A loan alleviates the challenges associated with due diligence, such
as providing income verification and documentation of assets. On the
flip side, for this convenience, borrowers do pay a slightly higher
interest rate, usually from a quarter-point to a half-point
higher than traditional, fully documented loans.

Similar to: “stated income” “SISA – stated income, stated assets”
“no doc” or euphemistically as “liar”  loans.


7.7) Subprime?

 Credit extended to people who would otherwise not be able to have access.
The lending practice lets in borrowers who would otherwise be excluded: the young,
the discriminated-against, the people without a lot of money in the bank to use for a down payment.


7.8) NENQ?

Non-Escalating Non-Qualifying assumable mortgage loan
with a “subject to” provision that allowed a buyer of the property to
assume the liability to repay the balance on the mortgage loan.

If you have the home in the name of an LLC or other entity, this entity should be listed as an
“Additional Interest” (NOT the ‘Additional Insured‘ in most cases – there is a blurry legal difference
in these terms that actually matters). All property and liability coverages should carry over to the entity
listed as the ‘Additional Interest’ while, in many cases, only liability protection extends to
“Additional Insureds.”
Also most carriers will not allow a policy for personal residential property to be issued
with a commercial or corporate entity as the Primary Insured.




7.9) FICO?

Fair Isaac Corporation’s popular credit-score that is a numerical expression
based on a statistical analysis of a person’s credit files, to represent the
creditworthiness of that person, which is the likelihood that the
person will repay his or her debts. A credit score is primarily
based on credit report information, typically sourced from credit
bureaus / credit reference agencies: Experian, Equifax and TransUnion.



7.10) PITI?

Monthly residential mortgage payment of Principal &
Interest, real estate Tax escrow and Insurance.


7.11) D/E (Debt/Equity)?

Debt-To-Equity ratio.
In real estate lending, this measures the relationship between the
amount of debt owed (the mortgage loan(s)) and the property value.
As an example: buying a property for $500,000 with $100,000 cash
down payment and a $400,000 mortgage loan, yields a D/E of 80%


7.12) DTI?

Debt-To-Income ratio. PITI/GrossIncome = DTI.
Lenders consider this ratio when qualifying a potential borrower.


7.13) The 28/36 Rule (front-end and back-end ratios)

Two debt-to-income ratios (DTI) typically used by homeowner mortgage
lenders when the D/E is between 70% and 80% (paying
20% to 30% down). The front-end ratio, computed by your monthly
cost to carry the home (mortgage principal & interest, real estate
tax escrow and insurance or PITI) should not exceed 28% of your
gross monthly income. Your back-end ratio, computed by your total
monthly debt service (including PITI plus all other debt payments)
should not exceed 36% of your gross monthly income.


7.14) 33/45 mortgage loan ratios

Two debt-to-income ratios (DTI) typically used by homeowner mortgage
lenders when the D/E is less than 70%. The
front-end ratio, computed by your monthly cost to carry the home
(mortgage principal & interest, real estate tax escrow and insurance
or PITI) should not exceed 33% of your gross monthly income. Your
back-end ratio, computed by your total monthly debt service
(including PITI plus all other debt payments) should not exceed
45% of your gross monthly income.

FHA ratio limits can be 31/43

FHA Energy Efficient Mortgage, stretch ratio limits can be 33/45

VA ratio limits can be 41/41 (referred to only as 41% for VA loans)

USDA ratio limits can be 29/41

FHA rules / Qualified Mortgage rules, starting in 2013/2014, cap the DTI ratio at no higher than 43%
for borrowers with a FICO score under 620


7.15) Dodd-Frank?

Dodd-Frank Wall Street Reform and Consumer
Protection Act became law in 2010. Among other things, the Act
called for the creation of the Qualified Mortgage (QM) rule
(effective January 2014).


7.16) QM?

The Qualified Mortgage rule. Starting on January 10, 2014 a set of
rules intended to result in safer home loans. Consumer Financial
Protection Bureau (CFPB) announced that QM loans “generally will
be provided to people who have debt-to-income ratios less than or
equal to 43%. This cap on debt ensures consumers are only getting
what they can likely afford.”

  • No interest only or negative amortization loans and after
    January 10, 2016, no balloon payment loans
  • Maturity is limited to no more than 30 years Lender must
    verify borrower’s income and assets
  • Points and fees limited to 3% of the borrowed amount
    for loans of at least $100,000
  • DTI limited to no more than 43% or the loan is FHA or VA
    eligible or the lender is a small lender
  • FICA score under 620 has additional restrictions, especially
    for a cash-out refinance loan
  • No minimum down payment is required


7.17) QRM?

The Qualified Residential Mortgage rule is to protect investors from
faulty packaging of a mortgage loan when it is delivered to the
secondary mortgage markets.


7.18) ATR?

The Ability To Repay rule requires most lenders to determine the
borrower’s ability to repay a mortgage loan.


7.19) Freddie Max allowing assets to benefit the DTI?

Under Freddie Mac’s guidelines assets may be considered for DTI.
Freddie Mac requirements:

  1. Add up all of the borrower’s eligible assets.
  2. Multiply the total asset number by 70% (0.7).
  3. Subtract the amount of money needed to close the
    loan (closing costs, prepaid interest, down payment, etc.).
  4. Divide the remaining amount by 360 months.

If the lender’s underwriter decides that the result, when added
to the borrower’s monthly income, meets basic income-eligibility
requirements, the borrower may be eligible for a mortgage loan.



7.20) FDIC?

The Federal Deposit Insurance Corporation is an independent agency
created by the Congress that maintains the stability and public confidence
in the nation’s financial system by insuring deposits, examining and supervising
financial institutions
, and managing receiverships.


7.21) SIPC?

Securities Investor Protection Corporation. The cash and
securities – such as stocks and bonds – held by a customer
at a financially troubled brokerage firm are protected by SIPC.
Among the investments that are ineligible for SIPC protection are
commodity futures contracts and currency, as well as investment
contracts (such as limited partnerships) and fixed annuity contracts
that are not registered with the U.S. Securities and Exchange
Commission under the Securities Act of 1933.


7.22) ACH?

The Automated ClearingHouse Network is a highly reliable and efficient
nationwide batch-oriented electronic funds transfer system governed
by the NACHA OPERATING RULES which provide for the interbank
clearing of electronic payments for participating depository financial
institutions. The Federal Reserve and Electronic Payments Network
act as ACH Operators, central clearing facilities through which financial
institutions transmit or receive ACH entries.

NEACH [knee~each] is the New England Automated
learingHouse is an example of one of the

ACH Associations
including: NACHA, ALACHA, EastPay, EPN,
GACHA [Gotch Ya], MPX, MACHA, MIDWEST, NWCHA, Payment Central, PRO,
VISA, WACHA and WesPay.


7.23) ACH credit?

ACH Credit is a banking term that applies to the electronic transfer of
funds in which you, the customer, initiate the transaction by instructing
your bank to transfer funds from your bank account to Payee on your behalf.


7.24) ACH debit?

ACH Debit is a banking term that applies to the electronic
transfer of funds in which you authorize the Payee to initiate
a withdrawal of funds from your bank account
for the amount to be paid, via an electronically debit.


7.25) Regulation D, Section 204.2(d)(2)?

Federal Deposit Insurance Corporation (FDIC)
and Federal Reserve Board (FRB) rule governing savings accounts.

Federal Reserve Board’s current definition (October 2009):

…the depositor is permitted or authorized to make no more than six
transfers and withdrawals, or a combination of such transfers and
withdrawals, per calendar month or statement cycle … to another
account (including a transaction account) of the depositor at the
same institution or to a third party by means of a preauthorized or
automatic transfer, or telephonic (including data transmission)
agreement, order or instruction, or by check, draft, debit card,
or similar order made by the depositor and payable to third parties.


Federal Reserve Board’s definition prior to 2009:

…the depositor is permitted or authorized to make no more than six
transfers and withdrawals, or a combination of such transfers and
withdrawals, per calendar month or statement cycle . . . to another
account (including a transaction account) of the depositor at the
same institution or to a third party by means of a preauthorized or
automatic transfer, or telephonic (including data transmission)
agreement, order, or instruction, and no more than three of the
six such transfers may be made by check, draft, debit card, or
similar order made by the depositor and payable to third parties.



7.26) Post-Dated?

Refers to a check which bears a date in the
future. A check delivered now with a written date in the
future, so that it cannot be cashed until that date.

Banks are allowed to cash a check while it is still post-dated in
certain circumstances, pursuant to § 4-401(c) of the Uniform
Commercial Code.



7.27) Ante-Dated or Back-Dated?

Refers to a check which when written by the maker was dated at
some point in the past. A date given to an event or a document
that is earlier than the actual date. This is legal to do in certain
circumstances pursuant to § 3-113 of the Uniform Commercial Code.



7.28) Certified Mail?

Used to comply with the
Timely Mailed/Timely Filed rule.


7.29) Rule of 72?

An investment at a particular interest rate will double in a certain
number of years. You can easily determine how quickly your
investments will double simply by dividing 72 by the interest
rate that you anticipate receiving in a given investment.
For example, an investment that will yield 10% per year
will double approximately every 7.2 years (72/10 = 7.2). A 12% yield
would mean your investment doubles every 6 years (72/12 = 6).



7.30) Rule of 78?

Method to accelerate the amortization of simple interest,
other than by straight simple month-to-month interest on
the declining principal balance. This does not really differ
in the long-run as long as the loan is paid off timely,
month-to-month from the beginning until the scheduled final
payment. Otherwise, the interest taken is higher than simple
in the earlier months of the loan and is less than simple in the
final months of the loan.

78 = 1+2+3+4+5+6+7+8+9+10+11+12 (for the number of months in a
year). Example: on a 60 month car loan the first month’s
amortization is more heavily loaded as being 60/1830ths of the total
of the interest as computed using straight simple interest assuming
a full-term normal payoff. (hint: shortcut to get the number
1830 is as follows: (60/2)*(60+1)). The next month’s
amortization is 59/1830ths and so on until the last month is 1/1830ths.

This method can also be referred to as “the sum of the year’s digits.”

In 1992, the U.S. Congress outlawed the use of the “Rule of 78”
formula in closed-end loans longer than 61 months. Whether a lender
can apply the method to installment loans of five years or less is a
matter of state law. Many U.S. states prohibit the practice.


7.31) ATF?

Alcohol, Tobacco, and Firearms.
The United States federal agency that regulates via licensing, the
sales, possession, and transportation of firearms, ammunition, and
explosives in interstate commerce. Its responsibilities
include the investigation and prevention of federal offenses
involving the unlawful use, manufacture, and possession of firearms
and explosives, acts of arson and bombings, and illegal trafficking
of alcohol and tobacco products.

In 1968, with the passage of the Gun Control Act, the Alcohol and
Tobacco Tax Division (ATTD) of the IRS changed its name to the
Alcohol, Tobacco, and Firearms Division, but was still a part of the
IRS. This is when it first began to be referred to by the initials “ATF.”


7.32) BATF?

Bureau of Alcohol, Tobacco and Firearms. In 1972,
President Richard Nixon signed an Executive Order creating a
separate Bureau of Alcohol, Tobacco, and Firearms within the
Treasury Department.


7.33) BATFE?

Bureau of Alcohol, Tobacco, Firearms and Explosives
The Homeland Security Act of 2002 created created
the Department of Homeland Security and shifted ATF (and its
investigative and regulatory inspection functions) from the Treasury
Department to the Justice Department. The agency’s name was changed
to the “Bureau of Alcohol, Tobacco, Firearms and Explosives” in
recognition of the agency’s role in explosives regulation and
enforcement; the Bureau retained, however, the use of its original
acronym, “ATF”, for all purposes.


7.34) OSS?

Office of Strategic Services formed during WWII
as an intelligence agency for USA national security purposes
and was then disbanded after the war on September 20, 1945.


7.35) CIA?

Central Intelligence Agency formed after WWII, in 1946/1947 to replace the OSS.


7.36) FinCEN?

Financial Crimes Enforcement Network is a bureau of the United States
Department of the Treasury that collects and analyzes information about
financial transactions in order to combat money laundering, terrorist
financiers, and other financial crimes, including informing the IRS
about possible unreported taxable income.


7.37) SAR?

With the Suspicious Activity Report Program FinCEN requires a SAR report
to be filed by a financial institution when the financial institution suspects:
insider abuse by an employee; violations of law aggregating over
$5,000 or more where a subject can be identified; violations of law
aggregating over $25,000 or more regardless of a potential subject;
transactions aggregating $5,000 or more that involve potential money
laundering or violations of the Bank Secrecy Act; computer
intrusion; or when a financial institution knows that a customer is
operating as an unlicensed money services business.


7.38) Form 8300?

The general rule is that you must file Form 8300, Report of Cash Payments
Over $10,000 Received in a Trade or Business, if your business receives
more than $10,000 in cash from one buyer as a result of a single transaction
or two or more related transactions.

The form is filed using the Bank Secrecy Act (BSA) Electronic Filing (E=Filing)


7.39) White Plastic?

A term given to any piece of plastic used inappropriately as a bank
credit card. Normally, a blank piece of plastic embossed and encoded
with a stolen account number is used for fraudulent cash withdrawals
at ATM machines or with cooperation by merchants.

White plastic is also being used in a scheme called “shoulder
surfing” which either involves setting up a video camera or person
to record individuals using an ATM. The camera is focused on the PIN
pad to capture a customer’s PIN or is accomplished by merely
standing in a position to see what you type. At the end of the day
or periodically, suspects retrieve discarded receipts from around
the ATM which contain the account number and time of transaction.
Once the criminal has both the PIN and the account number, they can
produce a duplicate card.

White plastic is also used to describe a type of cyber fraud, such
as a scheme to defraud a bank card plan. A merchant working in
collusion with someone else submits phony sales drafts to a
processing bank and then splits the sales draft income with the
person supplying the account numbers that were charged.

Such frauds can be committed by a lone thief or merchant or can be
as involved as international counterfeiting and distribution
syndicates. One example was a coordinated international ATM
scam done one day in February 2009 that netted $9MM from 130 ATMS
machines in 49 different cities around the world.


7.40) Monetizing the debt?

In the United States, and in many other countries, the government does
not have the right to issue new currency to pay its bills – it must instead
finance the deficit by issuing new bonds and selling them to the public to
acquire the necessary money to pay its bills. However, if these bonds do
not end up in the hands of the public, the only alternative is for them to
be purchased by the central bank. For the bonds not to end up in the
public hands the central bank must conduct an open market purchase.
This action by the central bank increases the monetary base through
the money creation process. This process of financing government
spending is called monetizing the debt. Monetizing debt is a two
step process where (1) the government issues debt to finance its
spending, and (2) the central bank purchases the debt from the
public and the public is left with high powered money.

Said another way, this is the printing of money to buy your own national
debt. In other words, The Federal Reserve is buying its own debt by
creating new money out of thin air. The impact of this is inflation.
To explain, if you have $100,000 in the bank, and it’s the only
$100,000 in the world, than that $100,000 becomes very desirable,
and hence very valuable. If the government goes out and creates
another $100,000, your $100,000 is now worth only about half of what
it was worth before. This is the essence of inflation. Each new
dollar the Government creates reduces the value of the previously
existing dollars you hold, and continue to receive as your income.


7.41) Quantitative Easing?

QE is when the Federal Reserve buys bonds with the intent to to lower
interest rates in order to stimulate a severely ailing economy, and
as a result the price of those bonds increases.

QE1 was announced November 24, 2008 and mortgage bond buying started
January 1, 2009. On March 18, 2009 the level was raised to $1.25T
until the end of QE1 on March 31, 2010.

QE2 was publicly discussed on October 1, 2010 and Treasury bond buying
started November 3, 2010, continuing through June 30, 2011.
The plan included purchasing $75B of longer-term Treasuries each month.

QE3 was announced September 13, 2012 to continue at least through mid-2015.
The plan including purchasing $40B of mortgage-backed securities each month.

QE4 was announced December 12, 2012 to overlap
QE3 with an additional $45B of long-term Treasury securities (making
it a total of $85B of monthly purchases, but also see Operation Twist,
below). QE4 itself is similar to the 2nd
phase of Operation Twist. No end date to QE4 was announced, prompting
pundits to name this QE4-Ever

On May 22, 2013 the Federal Reserve commented that QE may be ending,
saying that a number of participants have expressed a willingness to
reduce QE in June 2013.


7.42) Operation Twist?

Operation Twist was a Federal Reserve program started between QE2
and QE3 – running from September 2011 through June 2012 to further help
stimulate the economy. Operation Twist was the nickname for this
plan of buying $40B per month in longer-term Treasuries and simultaneously
selling some of the shorter-dated issues it already held in order to
bring down long-term interest rates. The term “Operation Twist” was
first used in 1961 – in a reference to the Chubby Checker song –
when the Fed employed a similar policy.

Operation Twist was expanded and raised the monthly purchases from
$40B to $45B, during June 2012 and to continue until December 2012,
effectively overlapping on QE3 a bit; for a total of $85B in monthly purchases.


7.43) Sequestration?

In the U.S government since enactment of the
Balanced Budget and Emergency Deficit Control Act of 1985
– is the employment of automatic,
across-the-board spending cuts in the face of annual
budget deficits. It is the permanent cancellation of budgetary
resources by a given percentage applied against all programs,
projects, and activities within a budget account.

Various government programs and activities and congressional
wages are exempt from sequestration or have special rules carved
out for them regarding the application of a sequester.

Also reference the Pay As You Go Act of 2010 and the Budget Control Act of 2011.