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Glossary of Banking Terms

A B C D E F G H I J K L M N O P Q R S T U V W Z

A


ACH - Automated Clearing House

An electronic deposit or withdrawal from your share account such as direct deposit of members' salaries and government benefit payments (e.g., social security, welfare, and veterans' entitlements), and preauthorized transfers.

Account Agreement

An agreement that defines membership eligibility and conditions of your share accounts. It also defines many other important banking operations such as how to order a stop payment on share drafts, transaction limitations on your accounts, overdrafts fees, and what happens if your account becomes dormant. The agreement may disclose if the credit union has a security interest if your loan becomes delinquent or your share account becomes negative. The agreement also discloses if the credit union has a cross collateralization clause for your automobile, for example, it can hold the automobile for security for other loans you have with the credit union.

Account History

The history of an account over a specific period of time for either shares or loans.

Account Holder

All persons designated and authorized to transact business on behalf of an account. Each account holder's signature needs to be on file with the credit union. The signature authorizes that person to conduct business on behalf of the account without the other account holders consent.

Accrued Interest

Interest that has been earned, but not yet paid, to the account holder for a share account; or interest due, but not yet paid by a borrower on a loan.

Adjustable Rate Mortgage (ARM)

A mortgage that does not have a fixed interest rate. The rate changes during the life of the loan based on movements in an index rate, such as the rate for Treasury securities or the Cost of Funds Index. ARMs usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates increase, generally your loan payments increase; when interest rates decrease, your monthly payments may decrease. For more information on ARMs, see the Consumer Handbook on Adjustable Rate Mortgages.

Adjustable-Rate Mortgages (ARMS)

A mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap.

Adverse Action

Under the Equal Credit Opportunity Act, this is when a creditor is unable to extend credit to grant a loan on the terms requested, or termination of an existing line of credit loan.

Adverse Action Notice

The notice required by the Equal Credit Opportunity Act advising a loan applicant or existing debtor of the denial of their request for credit or advising of a change in terms considered unfavorable to the borrower. Freezing the line of credit on a home equity loan requires the financial institution to send the adverse action notice to the borrower describing why the financial institution froze the line.

Affidavit

A sworn statement in writing before a proper official, such as a notary public.

Affiliate

A financial or nonfinancial company that is related by either common ownership or control.

Alteration

Any change involving a deletion or rewriting in the date, amount, or payee of a check or other negotiable instrument.

Amortization

The process of reducing debt through regular installment payments of principal and interest that will result in the payoff of a loan at its maturity.

Annual Percentage Rate (APR)

The cost of credit on a yearly basis, expressed as a percentage.

Annual Percentage Yield (APY)

A percentage rate reflecting the total amount of interest paid on a share account based on the interest rate and the frequency of compounding for a year.

Annuity

A life insurance contract sold by insurance companies, brokers, and other institutions. It is usually sold as a retirement investment. An annuity is a long-term investment and can have steep surrender charges and penalties for withdrawal before the annuity's maturity date. (Annuities are not federally insured by the NCUSIF.)

Application

Under the Equal Credit Opportunity Act (ECOA), an oral or written request for a loan that is made in accordance with the procedures established by the financial institution for the type of loan requested.

Appraisal

An independent evaluation of your home or vehicle to establish a value for a specific period of time.

Appreciation

An increase in property value.

Assessed Value

The value that a public official has placed on any asset (used to determine taxes).

Assessments

The method of placing value on an asset for taxation purposes.

Assessor

A government official who is responsible for determining the value of a property for the purpose of taxation.

Assets

Any item(s) with measurable value.

ATM - Automated Teller Machine

A machine, activated by a magnetically encoded card or other medium that can process a variety of banking transactions. These transactions include accepting deposits and loan payments, providing withdrawals, and transferring funds between accounts.

Authorization

The issuance of approval, by a credit card issuer, merchant, or other affiliate, to complete a credit or debit card transaction.

Automatic Bill Payment

An automated system generally found in online and mobile banking where an account holder has the ability to pay recurring bills. For example, the member will enter the payment information of the merchant into the bill payment system, and the system sends a payment either monthly or a one-time payment. The financial institution sends either a debit or a paper check depending upon the merchant’s capabilities.

Availability Date

The date, according to a financial institution's policy, as to when funds deposited into an account will be available for withdrawal. The Expedited Funds Availability Act requires a financial institution to adhere to a specific schedule.

Availability Policy

A financial institution’s policy as to when funds deposited into an account will be available for withdrawal.

Available Balance

The balance of an account, less any merchant or check holds from pending debit card transactions, uncollected funds, or other restrictions against the account.

Available Credit

The difference between the credit limit assigned to a cardholder’s account or a line of credit indicating the remaining amount of funds to borrow on the account.

B


Balance Transfer

The process of moving an outstanding balance from one credit card to another. This transfer is usually done to obtain a lower interest rate on the outstanding balance. Transfers are sometimes subjected to a Balance Transfer Fee.

Balloon Loan or Mortgage

A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.

Banking Day

In general, a banking day is any business day (up to the financial institution’s cut-off time) when the institution is open for substantially all of its banking activities.

Bankrupt

A person, firm, or corporation, which has insufficient assets to cover their debts. The debtor seeks relief through a court proceeding to work out a payment schedule or erase debts. In some cases, the debtor must surrender control of all assets to a court-appointed trustee.

Bankruptcy

The legal proceedings by which the affairs of a bankrupt person are turned over to a trustee or receiver for administration under the bankruptcy laws. There are two types of bankruptcy:
  • Involuntary bankruptcy-one or more creditors of an insolvent debtor file a petition having the debtor declared bankrupt.
  • Voluntary bankruptcy-the debtor files a petition claiming inability to meet financial obligations and willingness to be declared bankrupt.

Base Price

Base Price is the cost of a car without options, but includes standard equipment and factory warranty. It is also known as sticker price.

Beneficiary

A person who is entitled to receive the benefits or proceeds of a share account, will, trust, insurance policy, retirement plan, annuity, or other contract.

Billing Cycle

The time interval between the dates on which regular periodic statements are issued.

Billing Date

The month, date, and year when a periodic or monthly statement is generated. Calculations have been performed for appropriate finance charges, minimum payment due, and new balance.

Billing Error

A charge that appears on a periodic statement associated with an extension of credit (e.g., credit card) that includes:
  • unauthorized charges by a merchant to either a credit card, debit card ,or share account
  • charges not accepted by the cardholder or the cardholder's designee.

A billing error can also be caused by a creditor's failure to credit a payment, or other credit, to an account as well as accounting and clerical errors.

Bond, U.S. Savings

Savings bonds are issued in face value denominations by the U.S. Government in denominations ranging from $50 to $10,000. They are typically long-term, low-risk investment tools.

Budget

A budget is a plan on how much to save each week or month to make a purchase or to reach a savings goal.

Business Day

In general, a business day is defined as Mondays through Fridays except most federal holidays.

Buy Down

The seller pays an amount to the lender so the lender provides a lower rate and lower payments, many times for an ARM. The seller may increase the sales price to cover the cost of the buy down.

C


Canceled Check (Share Draft):

A check that a financial institution paid, charged to the account holder's account, and then endorsed. Once canceled, a check is no longer negotiable.

Cap:

A limit, such as one placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of the mortgage. Payment caps do not limit the amount of interest the lender is earning, so they may cause negative amortization.

Capacity:

The ability to make mortgage payments on time, dependent on assets and the amount of income each month after paying housing costs, debts and other obligations.

Cash-Out Refinance:

When a borrower refinances a mortgage at a higher principal amount to get additional money. Usually this occurs when the property has appreciated in value. For example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have additional $20,000 in cash.

Cashier's Check:

A check drawn on the funds of the financial institution, not against the funds in a depositor's account. However, the depositor paid for the cashier's check with funds from their account. The primary benefit of a cashier's check is that the recipient of the check is assured that the funds are available.

Certificate of Title:

A document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.

Certified Check:

A personal check drawn by an individual that is certified (guaranteed) to be good. The face of the check bears the words "certified" or "accepted," and is signed by an official of the financial institution issuing the check. The signature signifies that:
  • the signature of the drawer is genuine, and
  • sufficient funds are on deposit and earmarked for payment of the check.

Charge Card:

A charge card is a unique type of credit card. The balance on a charge card account is payable in full at the end of each billing cycle and cannot be carried over to the next. Charge cards don’t have an interest rate, but steep penalties can be assessed if the full balance isn’t paid by the due date. Charge cards usually have an annual fee. While they don’t allow cash advances, they often come with additional benefits not offered by other credit card issuers. Some charge cards don’t have a preset credit limit, though a reasonable spending limit is determined based on the cardholder’s income, spending and payment habits. American Express is a well-known organization that offers a charge card.

Charge-off:

The balance on a loan, or negative share draft account, that a financial institution no longer expects to be repaid and writes off as a bad debt.

Charter Number:

A unique number assigned to the credit union by NCUA, You can find a specific credit union’s charter number by visiting here

Check (Share Draft):

A written order instructing a financial institution to pay immediately on demand a specified amount of money from the member's account to the person named on the check or, if a specific person is not named (e.g. written to “Cash”), to whoever bears the check to the institution for payment.

Check 21 Act:

Check 21 is a Federal law designed to enable financial institutions, banks, and businesses that receive checks as payment to convert the check to an electronic payment (ACH), which is intended to make check processing faster and more efficient. Check 21 is the short name for the Check Clearing for the 21st Century Act, which went into effect on October 28, 2004.

Checkbook Register:

A book in ledger form in which are recorded all deposits, withdrawals, and earnings of a member's savings account.

Also known as a passbook.

Checking Account (Share Draft Account):

A demand deposit share account subject to withdrawal of funds by check. Credit unions refer to a checking account as a share draft account.

ChexSystems:

The ChexSystems, Inc. network is comprised of member financial institutions that regularly contribute information on mishandled checking and savings accounts to a central location. ChexSystems shares this information among member institutions to help them assess the risk of opening new accounts.

If you close an account with a negative balance and the financial institution writes your account off to bad debts, it may report your activity to ChexSystems which can make it difficult to open an account at another financial institution. Generally, information remains on ChexSystems for five years.

Closed-End Loan:

Generally, any loan in which the amount given to the borrower, plus any finance charges, is expected to be repaid in full by a specified date. Most real estate and automobile loans are closed-end loans.

Closing:

The final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing the seller receives payment for the property. Also known as settlement.

Closing Costs:

The expenses incurred by sellers and buyers in transferring ownership in real property. The costs of closing may include an origination fee, discount points, attorneys' fees, loan fees, title search and insurance, survey charge, recordation fees, and the credit report charge.

Closing a Mortgage Loan:

The consummation of a contractual real estate transaction in which all appropriate documents are signed and the proceeds of the mortgage loan are then disbursed by the lender.

Co-Borrower:

An additional person that is responsible for loan repayment and is listed on the title.

Co-Maker:

A person who signs a loan note made with another person and is jointly liable with the maker for repayment of the loan. (Can be interchangeable with co-signer.)

Co-Signed Account:

An account signed by someone in addition to the primary borrower, making both people responsible for the amount borrowed.

Co-Signer:

An individual who signs the note of another person as support for the credit of the primary signer and who becomes responsible for the obligation.

Collateral:

Assets that are offered to secure a loan or other credit. For example, if you obtain a real estate mortgage, the credit's collateral is typically your house. Collateral becomes subject to seizure on default.

Collection Agency:

A company hired by a financial institution to collect a debt that is owed. Creditors typically hire a collection agency only after they have made efforts to collect the debt themselves, usually through letters and telephone calls. How the collection agency interacts with you in the collection of the debt is regulated by the Fair Debt Collection Practices Act.

Compound Interest:

Compound interest is the interest paid on a deposit or share account, which is added to the account balance at the end of the dividend period. Compounding occurs during the next dividend period when you earn dividends or interest on the dividend credited to your account at the end of the prior dividend period.

Consumer Credit Counseling Service:

A service that specializes in working with consumers who are overextended in debts and need to make repayment arrangements with creditors.

Consumer Reporting Agency:

An agency that regularly collects or evaluates individual consumer credit information, or other information about consumers, and sells consumer reports for a fee to financial institutions and or others creditors.

Conventional Fixed Rate Mortgage:

Mortgage loans other than those insured or guaranteed by a government agency such as the FHA (Federal Housing Administration), the VA (Veterans Administration), or the Rural Development Services (formerly known as the Farmers Home Administration or FmHA). A fixed-rate mortgage offers you a set interest rate and payments that do not change throughout the life, or "term," of the loan. A conventional fixed-rate mortgage loan is fully paid off over a given number of years-usually 15, 20, or 30. A portion of each monthly payment goes towards paying back the money borrowed, the "principal"; the rest is "interest."

Conversion Clause:

A provision in some ARMs allowing it to change to a fixed-rate loan at some point during the term. Usually conversions are allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed rate mortgages. There may be additional cost for this clause.

Convertible ARM:

An adjustable-rate mortgage that provides the borrower the ability to convert to a fixed-rate within a specified time.

Coverdell Education Savings Account:

Formerly called education IRA. An education account that accumulates interest tax-free. You can also withdraw money from this account without penalty.)

Credit Application:

Also known as a loan application, which is given to a potential borrower to provide details about his or her credit worthiness, which includes details about residence, employment, income, and existing debt. Sometimes, an application fee is charged to cover the cost of loan processing.

Credit Card:

A credit card enables the account owner to conveniently make purchases electronically and be billed later. Most credit cards allow the balance to be carried over from one billing cycle to the next. However, the account owner will usually have to pay interest on that balance. The account owner will likely have to pay at least a certain amount of the balance due each billing cycle. Credit cards have a set credit limit that’s established when the account is opened, and may increase or decrease over time. The use of a credit card involves potential fees and penalties, depending on the cardholder’s payment history.

Credit Card Account Agreement:

A written agreement, for a credit card account, that explains the
  • terms and conditions of the account,
  • credit usage and payment by the cardholder, and
  • duties and responsibilities of the card issuer.

Credit Card Issuer:

Any financial institution that issues debit or credit cards such as a credit union.

Credit Disability Insurance (CDI):

A type of insurance, also known as accident and health insurance, that makes payments on the loan if you become ill or injured and cannot work. Preexisting conditions may limit your ability to receive payments. CDI is optional coverage.

Credit History:

A record of an individual’s or company’s past borrowing and repaying behavior maintained by an independent credit reporting agency. It will list personal or corporate information, including how long your credit lines remained open, history of late and current payments, the original amount and the outstanding balance, monthly payments, charged-off accounts, delinquent accounts, and accounts charged-off in bankruptcy.

Credit History:

A record of an individual that lists all debts and the payment history for each. The report that is generated from the history is called a credit report. Lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit Life Insurance (CLI):

A type of life insurance that helps repay a loan if you should die before the loan is fully repaid. CLI is optional coverage.

Credit Limit:

The maximum amount of credit that is available on a credit card or other line of credit loan.

Credit Repair Organization:

Generally, a person or organization that sells, provides, performs, or assists in improving a member's credit record, credit history, or credit rating (or says that that they will do so) in exchange for a fee or other payment. It also includes a person or organization providing advice or assistance about how to improve a member's credit record, credit history, or credit rating.

Credit Report:

A detailed report of an individual's credit history prepared by a credit reporting agency and used by a financial institution in determining a loan applicant's creditworthiness and loan rate.

Credit Risk:

A term used to describe the possibility of default on a loan by a borrower.

Credit Score:

A number, roughly between 300 and 800, measuring an individual's credit worthiness. The most well-known type of credit score is the FICO® score. This score is derived from a mathematical formula that assigns numerical values to various pieces of information in your credit report. The score of 800 is the best rating you can receive. Financial institutions may use a credit score to help determine whether you qualify for a particular credit card, loan, or service.

Credit Union:

A not-for-profit financial institution owned by its members and represented by a volunteer board of directors who are elected by the membership. Credit Unions are formed by people who join together to form a common bond. To become a member, you must meet the credit union’s field of membership requirements and open a share account. Credit unions make money by loaning other members your savings. The members who borrow money from the credit union pay interest on their loan (like rent for using the money). The credit union then takes the interest from the loans and pays you a dividend on your share account.

Credit Union Statement:

Periodically the credit union provides a statement of a member's share account. It shows all deposits made, all checks paid, and other debits posted during the period (usually one month), as well as the current balance.

Creditor:

The lending institution providing a loan or credit.

Creditworthiness:

The way a lender measures the ability of a person to qualify and repay a loan.

Cross-Collateralization Clause:

Common stipulation in a loan agreement whereby the collateral pledged for one loan is also used as collateral to secure a different loan with the same financial institution. This action gives the financial institution a legal right to seize any or all assets pledged by a borrower, even if only one loan goes into default.

Currency:

A form of money, something (such as coins or bills) generally accepted as a way of measuring value, as a way to trade value, and as a way to pay for goods and services.

Customer Identification Program (CIP):

A program required to prevent financing of terrorist operations and money laundering. Banks and other financial institutions are required to adopt written procedures to ensure proper identification of customers. Financial institutions also must keep records of identifying information and check customer names against terrorist lists. This applies to anyone who opens a new account as well as existing account holders when the institution is unfamiliar with their identity.

Cut-Off Time:

A time of day established by a financial institution for receipt of deposits. After the cut-off time, deposits are posted to your account on the next banking day.

Cyber Crime:

Computer crime, or cybercrime, refers to any crime that involves a computer and/or a network, where the computers may or may not have played an instrumental part in the commission of a crime.

D


Dealer Sticker Price:

Dealer Sticker Price, usually on a supplemental sticker, is the Monroney sticker price plus the suggested retail price of dealer-installed options, such as additional dealer markup (ADM) or additional dealer profit (ADP), and dealer preparation.

Debit:

A debit may be an account entry representing money you owe a lender or money that has been taken from your deposit account.

Debit Card:

A debit card allows the account owner to access their funds electronically. Debit cards may be used to obtain cash from automated teller machines, or purchase goods or services using point-of-sale systems. The use of a debit card involves immediate debiting and/or crediting of consumers' accounts.

Debt Collector:

Any person who regularly collects debts owed to others.

Debt Elimination Scheme:

A plan that is advertised as a way for an individual to eliminate various types of debt simply by paying someone a small fee compared to the amount of debt to be eliminated. These schemes are fraudulent. As a result of using a fraudulent scheme, individuals will lose money, could lose property, may incur damage to their credit rating, and possibly incur additional debt. In addition, a creditor may take legal action against an individual to resolve a fraudulent attempt to eliminate debt. It is also possible for the victim to have identify theft occur by participating in such a fraudulent scheme.

Debtor:

Someone who owes monies to another party.

Debt-to-Income Ratio (DTI):

The percentage of a member's monthly gross income that goes toward paying installment debts. Generally, the higher the ratio, the lower is your capacity to repay the loan. The DTI is calculated by dividing total monthly debts by total monthly gross income.

Decedent:

A deceased person, ordinarily used with respect to one who has died recently.

Deed:

A document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature. Also known as the title.

Default:

The inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60 to 90 days. Once in default the lender can exercise legal rights defined in the contract to begin foreclosure proceedings.

Deferred Payment:

A payment postponed until a future date.

Delinquency:

A debt that was not paid by the loan’s payment date

Deposit Slip:

An itemized memorandum of the cash, and other funds, that a member presents to the financial institution for depositing into his or her account.

Depreciation:

A decrease in the value or price of a property due to changes in market conditions, wear and tear on the property, or other factors.

Derogatory Information:

Information received by a financial institution indicating a credit applicant has not paid his or her accounts with other creditors according to the required terms.

Direct Deposit:

A payment that is electronically deposited into an individual's account at a depository institution.

Direct Dispute:

A dispute submitted directly to the financial institution about the accuracy of information in your credit report that relates to an account or other relationship you have with the financial institution.

Disclosures (Credit):

Certain information that federal and state laws require creditors to give to borrowers relative to the terms of the credit extended.

Disclosures (Deposit):

Certain information that federal and state laws require depository financial institutions give to depositors relative to the terms of the deposit account.

Disclosures:

The release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. "Full disclosure" usually refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lied about a defect may face legal penalties.

Dividends:

The money the credit union pays you for keeping your money in your savings account, also known as a share account.

Dodd-Frank Wall Street Reform and Consumer Protection Act:

Signed by President Barack Obama in 2010, the act is intended to promote the financial stability of the United States by improving accountability and transparency in the financial system and to protect consumers from abusive financial services practices.

Down Payment:

The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount. Mortgage insurance is required when a down payment less than 20 percent is made.

Draft:

A signed written order by which one party (the drawer) instructs another party (the drawee) to pay a specified sum to a third party (the payee), at sight, or at a specific date. Typical bank drafts are negotiable instruments and are similar in many ways to checks.

Drawee:

The entity (bank, credit union, or other institution) who is expected to pay a check or draft when it is presented for payment.

Drawee Institution:

The bank or credit union upon which a check or draft is drawn.

Drawer:

The person or entity who writes a check or draft instructing the drawee to pay someone else.

E


Early Withdrawal Penalty:

A charge that is given to holders of fixed –term investments if they withdraw their money before maturity.

Earnest Money:

Money given to a seller by a buyer to demonstrate the buyer’s good faith. If the deal falls through, the deposit is usually forfeited.

Economy:

The way a country manages its money and resources (such as workers and land) to produce, buy, and sell goods and services.

Electronic Banking:

A service that allows an account holder to obtain account information, and manage certain banking transactions, through a personal computer or other electronic device via the financial institution's Web site on the Internet. (This is also known as Internet or online banking.)

Electronic Check Conversion:

A process in which your check or draft is used as a source of information-for the check number, your account number, and the number that identifies your financial institution. The information is then used to make a one-time electronic payment from your account (an electronic fund transfer). The check itself is not the method of payment.

Electronic Funds Transfer (EFT):

The transfer of money between accounts by consumer electronic systems, such as automated teller machines (ATMs) and electronic payment of bills, rather than by check or cash. (Wire transfers, checks, drafts, and paper instruments do not fall into this category.)

Electronic Funds Transfer Act (EFTA):

Signed by President Jimmy Carter in 1978, the act is intended to protect individual consumers engaging in electronic fund transfers (EFTs).

Embezzlement:

In most States, embezzlement is defined as theft/larceny of assets (money or property) by a person in a position of trust or responsibility over those assets.

Encoding:

The process used to imprint or inscribe MICR characters on checks, deposits, and other financial instruments. (Magnetic Ink Character Recognition (MICR) is a character recognition technology adopted mainly by the banking industry to facilitate the processing of checks. Each check is encoded at the bottom with the dollar amount of the check. If that information is entered incorrectly, there is an encoding error.)

Equal Credit Opportunity Act (ECOA):

Prohibits creditors from discriminating against loan applicants on the basis of race, color, religion, national origin, sex, marital status, age, or because an applicant receives income from a public assistance program.

Equity:

An owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.

Error Resolution:

The required process for resolving errors involving electronic transfers to and from deposit accounts.

Escape Clause:

A provision in a purchase contract that allows either party to cancel part or the entire contract if the other does not respond to changes to the sale within a set period. The most common use of the escape clause is if the buyer makes the purchase offer contingent on the sale of another house.

Escheat:

Transferring savings accounts to the State when 1) a person dies without leaving a will and has no heirs, or 2) when the property (such as a bank account) has been inactive for a certain period of time.

Escrow:

The holding of money or documents by a neutral third party before closing on a property. It can also be funds held in reserve by a financial institution or mortgage company to pay taxes, insurance, and other mortgage-related items when due.

Escrow Account:

An account held in the name of a decedent that is administered by an executor or administrator of the estate.

Escrow Analysis:

The periodic examination of escrow accounts by a mortgage company to verify monthly deposits are sufficient to pay taxes, insurance, and other escrow-related items on when due.

Estate:

The ownership interest of a person in real property. The sum total of all property, real and personal, owned by a person.

Estate Account:

A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

Exception Hold:

A period of time that allows a financial institution to exceed the maximum hold periods defined in the Expedited Funds Availability Act.

Exchange Rate:

The amount a dollar is worth when you exchange it for money from another country. In other words, the price of one country’s currency expressed in another country’s currency.

F


Fair Credit Reporting Act (FCRA):

A Federal law, established in 1971 and revised in 1997 that gives consumers the right to see their credit records and correct any mistakes. The FCRA regulates consumer credit reporting and related industries to ensure that consumer information is reported in an accurate, timely, and complete manner. FCRA was amended to address the sharing of consumer information with affiliates.

Fair Debt Collection Practices Act (FDCPA):

FDCPA is a set of United States statutes added as Title VIII of the Consumer Credit Protection Act. Its purpose is to ensure ethical practices in the collection of consumer debts, i.e. prohibits the use of abusive, unfair or deceptive practices, and to provide consumers with an avenue for disputing and obtaining validation of debt information in order to ensure the information's accuracy. It is often used in conjunction with the Fair Credit Reporting Act.

Fair Housing Act:

A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair Market Value:

The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Fair and Accurate Credit Transactions Act of 2003 (FACT Act or FACTA):

The purpose of this Act is to help consumers protect their credit identities and recover from identity theft. One of the key provisions of FACTA is consumers can request and obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies (Equifax, Experian, and TransUnion). www.AnnualCreditReport.com provides consumers with the secure means to request a free credit report.

Federal Credit Union:

A credit union chartered, examined, and supervised by the federal government through NCUA.

Federal Credit Union Act:

Federal law enacted in June 1934 that allowed the organization of federal credit unions and established methods for their chartering, supervision, and examination.

Federal Deposit Insurance Corporation (FDIC):

A government corporation that insures the deposits of all national and State banks that are members of the Federal Reserve System.

Federal Emergency Management Agency (FEMA):

Federal agency responsible for the emergency evaluation and response to all disasters, natural and man-made. FEMA oversees the administration of flood insurance programs and the designation of certain areas as flood prone.

Federal Reserve System:

The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the Board of Governors) and twelve regional Federal Reserve Banks in major cities throughout the United States. You can divide the Federal Reserve's duties into four general areas:
  • Conducting monetary policy
  • Regulating banking institutions and protecting the credit rights of consumers
  • Maintaining the stability of the financial system
  • Providing financial services to the U.S. government

Fee:

A charge or payment for products and services, a sum paid or charged for a privilege, for example, some financial institutions charge a monthly fee to have a savings account, or to receive a monthly paper statement.

FHA:

Federal Housing Administration; Established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

FICO Score:

FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.

Fiduciary:

Undertaking to act as executor, administrator, guardian, conservator, or trustee for a family trust, authorized trust, or testamentary trust, or receiver or trustee in bankruptcy.

Finance Charge:

The total cost of credit a member must pay on a consumer loan, including interest. The Truth in Lending Act requires disclosure of the finance charge.

Financial Performance Report (FPR):

A report providing a financial summary for a credit union, including assets, liabilities & capital, and income & expense. Users may request an FPR shortly after the credit union’s Call Report data has been submitted and validated by the regulator.

First Mortgage:

A real estate loan, which is in a first lien position, taking priority over all other liens. In case of a foreclosure, the first mortgage will be repaid before any other mortgages.

Fixed Rate Loan:

Loans that have a fixed rate of interest. Both the interest rate and the monthly payments (for principal and interest) stay the same during the life of the loan.

Fixed-Rate Mortgage:

A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Float:

1) The amount of uncollected funds represented by checks in the possession of one bank but drawn on other credit unions and banks. 2) The time that elapses between the day a check is deposited and the day it is presented for payment to the financial institution on which it is drawn.

Flood Insurance:

Flood insurance protects against water from an overflowing river or a hurricane's tidal surge and covers damage from water that builds up during storms.

Flood Plain:

A strip of land alongside a stream, river, or lake that is covered by water during a flood.

Forbearance:

A temporary period of time during which a regular monthly mortgage payment is reduced or suspended.

Foreclosure:

The legal process by which a property may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the homeowner is in default for a reason other than the failure to make timely mortgage payments.

Foreign Transaction Fee:

A fee assessed by your financial institution for making a transaction at another financial institution or bank's ATM.

Forged Check:

A check on which the drawer's signature has been forged.

Forgery:

The fraudulent signing or alteration of another's name to an instrument such as a deed, mortgage, or check. The intent of the forgery is to deceive or defraud.

Fraud Alert:

One of several security measures placed on a credit report for identity theft management and prevention. It is a key provision of the Fair and Accurate Credit Transactions Act of 2003 allowing a consumer to place a fraud alert on their credit record. A consumer would use this option if they believe they were a victim of identity theft. The alert requires any creditor that is asked to extend credit to contact the consumer by phone and verify that the credit application was not made by an identity thief.

Freedom of Information Act (FOIA):

A Federal law that mandates that all the records created and kept by Federal agencies in the executive branch of government must be open for public inspection and copying. The only exceptions are those records that fall into one of nine exempted categories listed in the statute.

Frozen Account:

An account on which funds may not be withdrawn, and/or deposited, until a lien is satisfied and a court order or other legal process makes the account available for withdrawal (e.g., the account of a deceased person is frozen pending a court order distributing the funds to the new lawful owners). An account may also be frozen when there is a dispute regarding the true ownership of an account. The financial institution will freeze the account to preserve the existing funds until legal action can determine the lawful owner.

Furnisher:

An entity, such as a credit union or bank, that provides information about a consumer to a credit reporting agency for inclusion in a consumer credit report.

G


Garnishment/Garnish:

A legal process allowing a financial institution to remove funds from your deposit or share account to satisfy a debt that you have not paid. If you owe money to a person or company, they can obtain a court order directing your financial institution to take money out of your account to pay off your debt. Not all states allow garnishment actions.

Government-Sponsored Enterprises (GSEs):

Private corporations created by the U.S. Government to reduce borrowing costs. They are chartered by the U.S. Government but are not considered direct obligations. For example, Fannie Mae and Freddie Mac are GSEs.

Grantee:

An individual to whom an interest in real property is conveyed.

Grantor:

An individual conveying an interest in real property.

Gross Income:

Money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.

Guaranteed Student Loan:

An extension of credit from a financial institution that is guaranteed by a Federal or State government entity to assist with tuition and other educational expenses. The government entity is responsible for paying the interest on the loan and paying the lender to manage it. The government entity also is responsible for the loan if the student defaults.

Guarantor:

A party who agrees to be responsible for the payment of another party's debts should that party default.

H


Hazard Insurance:

Protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.

HELOC:

Please see “Home Equity Line of Credit” definition below.

Hold:

Used to indicate that a certain amount of a member's balance may not be withdrawn until an item has been collected, or until a specific check or debit is posted.

Home Affordable Modification Program (HAMP):

A program that provides eligible homeowners the opportunity to modify their mortgages to make them more affordable. See www.MakingHomeAffordable.gov.

Home Affordable Refinance Program (HARP):

A program that provides homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance into more affordable monthly payments. See www.MakingHomeAffordable.gov.

Home Equity Line of Credit (HELOC):

A line of credit secured by the equity in a member's home. It is typically used for home improvements, debt consolidation, and other major purchases. Interest paid on the loan is generally tax deductible (consult a tax advisor to be sure). The funds may be accessed by writing checks against the line of credit or by getting a cash advance.

Home Equity Loan (HEL):

A home equity loan allows you to tap into your home's built-up equity, which is the difference between the amount that your home could be sold for and the amount that you still owe. Homeowners often use a home equity loan for home improvements, or to finance their child's college education. The interest paid is usually tax-deductible. Because the loan is secured by your home's equity, if you default, the financial institution may foreclose on your house and take ownership of it. This type of loan is sometimes referred to as a second mortgage or borrowing against your home.

Home Inspection:

An examination of the structure and mechanical systems to determine a home's quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.

Home Warranty:

Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.

Homeowner's Insurance:

An insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms or other damages with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately.

I


Inactive Account:

An account that has no activity; neither deposits nor withdrawals posted to the account, for a significant period of time.

Indemnification:

To secure against any loss or damage, compensate or give security for reimbursement for loss or damage incurred. A homeowner should negotiate for inclusion of an indemnification provision in a contract with a general contractor or for a separate indemnity agreement protecting the homeowner from harm, loss or damage caused by actions or omissions of the general (and all sub) contractor.

Index:

The measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time. No one can be sure when an index rate will go up or down. If a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported. You should ask how the index for any ARM you are considering has changed in recent years, and where it is reported.

Individual Account:

An account in the name of one individual.

Individual Retirement Account (IRA):

A retirement savings program for individuals to which yearly tax-deductible contributions, up to a specified limit, can be made. The amount contributed is not taxed until withdrawn. Withdrawal is not permitted without penalty until the individual reaches age 59 1/2.*

*Note: This statement is only true for a Traditional IRA. Roth IRAs are not taxed deferred; Members pay taxes upfront.

Inquiry:

A credit report request. Each time a credit application is completed or more credit is requested counts as an inquiry. A large number of inquiries on a credit report can sometimes make a credit score lower.

Insolvency:

Insolvency is when your total debts are more than the fair market value of your total assets.

Insufficient Funds:

When a member's checking or share draft account balance is inadequate to pay a check or ACH presented for payment.

Insurance (Hazard):

Insurance to protect the homeowner and the lender against physical damage to a property from sources such as but not limited to fire, wind, or vandalism.

Insured Shares:

Deposits held in federal and most state chartered credit unions that are guaranteed by the National Credit Union Share Insurance Fund (NCUSIF) against loss due to credit union failure.

Interest:

The term interest is used to describe the cost of using money, a right, share, or title in property.

Interest Rate:

The rate paid by a borrower to a financial institution in exchange for the use of the financial institution's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures.

J


Joint Tenancy (with Rights of Survivorship):

Two or more owners share equal ownership and rights to the property. If a joint owner dies, his or her share of the property passes to the other owners, without probate. In joint tenancy, ownership of the property cannot be willed to someone who is not a joint owner.

Judgment:

A legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

Jumbo Loan:

Or non-conforming loan, is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Joint Account:

An account owned by two or more persons. Either party can conduct transactions separately or together as set forth in the deposit account contract. In addition, some states allow one owner of the account to use the share balance as collateral in case of default.

K


Kiting:

Writing a check in an amount that will overdraw the account but making up the deficiency by depositing another check on another financial institution. For example, mailing a check for the mortgage when your checking account has insufficient funds to cover the check, but counting on receiving and depositing your paycheck before the mortgage company presents the check for payment.

L


Late Charge:

The fee charged for delinquent payment on an installment loan, usually expressed as a percentage of the loan balance or payment. Also, a penalty imposed by a card issuer against a cardholder's account for failing to make minimum payments.

Late Payment Charges:

The penalty the homeowner must pay when a mortgage payment is made after the due date grace period.

Lease:

A contract transferring the use of property or occupancy of land, space, structures, or equipment in consideration of a payment (e.g., rent).

Lender:

An individual, financial institution, or other entity that lends money with the expectation that the money will be returned with interest.

Liabilities:

A person's financial obligations such as long-term / short-term debt, and other financial obligations to be paid.

Lien:

Legal claim against a property. Once the property is sold, the lien holder is then paid the amount that is owed.

Life Cap:

A limit on the range interest rates can increase or decrease over the life of an adjustable-rate mortgage (ARM).

Line of Credit:

A pre-approved loan authorization with a specific borrowing limit based on creditworthiness. A line of credit allows borrowers to obtain a number of loans without re-applying each time as long as the total of borrowed funds does not exceed the credit limit.

Liquid Asset:

A cash asset or an asset that is easily converted into cash.

Listing Agreement:

A contract between a seller and a real estate professional to market and sell a home. A listing agreement obligates the real estate professional (or his or her agent) to seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.

Loan:

Money borrowed that is usually repaid with interest.

Loan Contract:

The written agreement between a borrower and a lender in which the terms and conditions of the loan are established.

Loan Fee:

A fee charged by a lender to make a loan (in addition to the interest charged to the borrower).

Loan Modification Provision:

A contractual agreement in a loan that allows the borrower or lender to permanently change one or more of the terms of the original contract

Loan Origination Fee:

A charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.

Loan Proceeds:

The net amount of funds a financial institution disburses under the terms of a loan, and which the borrower then owes.

Loan-to-Value Ratio (LTV):

The ratio of the loan principal (amount borrowed) to the appraised value (selling price). For example, on a $100,000 home, with a mortgage loan principal of $80,000, the loan-to-value ratio is 80 percent. The LTV will affect the types of programs available to the borrower; generally, the lower the LTV, the more favorable the program terms offered by lenders.

Local Check:

A check payable by, at, or through a financial institution in the same check processing region as the location of the branch of the depository institution. The depository institution is the institution into which the check was deposited. As of February 27, 2010, the Federal Reserve consolidated its checking processing centers into one processing center. Therefore, all checks are now considered local.

Lock-In:

Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Lock-in Period:

The length of time that the lender has guaranteed a specific interest rate to a borrower.

Loss Mitigation:

A process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.

M


Manufactured (Mobile) Home:

A structure, built on a permanent chassis, transported to a site in one or more sections, and affixed to a permanent foundation. The term does not include recreational vehicles.

Margin:

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value:

The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.

Maturity:

The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Median Price:

The price of the house that falls in the middle of the total number of homes for sale in that area.

Member Business Loans:

A member business loan includes any loan, line of credit, or letter of credit (including any unfunded commitments) where the borrower uses the proceeds for commercial; corporate; business investment property or venture; or agricultural purposes.

Membership:

To have a savings account at a credit union, you must belong to a group of people with a common bond. As a member of a credit union, you also become an owner of the credit union. Because you are an owner, your savings account is called a regular share account.

Minimum Balance:

The amount of money required to be on deposit in an account to qualify the member for special services or to waive a service charge.

Minimum Payment:

The minimum dollar amount that must be paid each month on a loan, line of credit, or other debt.

Missing Payment:

A payment that has been made on, but not credited to, the appropriate account.

Modification:

When a lender agrees to modify the terms of a mortgage without refinancing the loan.

Money Market Share Account:

A savings account that generally offers a higher rate of interest in exchange for larger than normal deposits. Insured by the NCUSIF, these accounts have limits on the number of transactions allowed and may require higher balances to receive the higher rate of interest.

Monthly Spending Plan:

A document that helps you to estimate what you can afford to pay, for example, a home, including the mortgage, property taxes, insurance, and monthly maintenance and utilities.

Mortgage:

A contract or debt instrument used in a real estate transaction where the property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to pay off the loan.

Mortgage Loan:

A loan made by a financial institution to a borrower for the financing of real property.

Mortgage Qualifying Ratio:

Used to calculate the maximum amount of funds that an individual traditionally may be able to afford. A typical mortgage qualifying ratio is 28:36.

Mortgage Score:

A score based on a combination of information about the borrower that is obtained from the loan application, the credit report, and property value information. The score is a comprehensive analysis of the borrower's ability to repay a mortgage loan and manage credit.

Mortgagee:

The financial institution in a mortgage loan relationship.

Mortgagor:

The borrower in a mortgage loan relationship.

N


National Credit Repositories:

Currently, there are three companies that maintain national credit — reporting databases. These are Equifax, Experian, and Trans Union, referred to as Credit Bureaus.

National Credit Union Administration (NCUA):

The Federal regulatory agency that charters and supervises Federal credit unions. NCUA also administers the National Credit Union Share Insurance Fund, which insures the deposits of federally insured credit unions (both Federal credit unions and state-chartered credit unions.)

National Flood Insurance Program (NFIP):

The program of flood insurance coverage and floodplain management administered under the Flood Disaster Protection Act (FDPA or Act) and applicable Federal regulations found in Title 44 of the Code of Federal Regulations, Subchapter B.

Negative Amortization:

Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't 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. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Net Income:

Your take-home pay; the amount of money that you receive in your paycheck after taxes and deductions.

Non-Affiliate:

A financial or nonfinancial company that is unrelated by common ownership or control.

Non-Sufficient Funds (NSF):

The status of an account that does not have enough money in it to cover one or more transactions. NSF also describes the fee incurred from a check that cannot be honored or does not clear because of insufficient funds in the checking account. NSF checks are often known as bad checks, bounced checks, or returned checks.

Note:

A legal document obligating a borrower to repay a mortgage loan at a stated interest rate over a specified period of time.

Note Rate:

The interest rate stated on a mortgage note.

Notice of Default:

A formal written notice to a borrower that there is a default on a loan and that legal action is possible.

O


Offer:

Indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.

Official Check:

A check drawn on a financial institution and signed by an authorized financial institution official. (Also known as a cashier's check.)

Online Banking:

A service that allows an account holder to obtain account information and manage certain banking transactions through a personal computer, or other electronic device, via the financial institution's Internet web site. (This is also known as Internet, electronic, or home banking.)

Open-End Credit:

A credit agreement (typically a credit card) that allows a member to borrow against a preapproved credit line when purchasing goods and services. The borrower is only billed for the amount that is actually borrowed plus any interest due. (Also called a charge account or revolving credit.)

Original Principal Balance:

The total principal owed on a mortgage prior to any payments being made.

Origination:

The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

Origination Fee:

The charge for originating a loan; is usually calculated in the form of points and paid at closing. One point equals one percent of the loan amount. On a conventional loan, the loan origination fee is the number of points a borrower pays.

Outstanding Check:

A check written by a member that has not yet been presented for payment to the financial institution.

Over Limit:

An open-end credit account in which the assigned dollar limit has been exceeded.

Overages:

The difference between the lowest available price and any higher price that the homebuyer agrees to pay for a loan. Loan officers and brokers are often allowed to keep some or all of this difference as extra compensation.

Overdraft:

When the amount of money withdrawn from a checking or share draft account that is greater than the amount actually available in the account, the excess is known as an overdraft and the account is said to be overdrawn.

Overdraw:

To write a check for an amount that exceeds the amount on deposit in the account.

Owner Financing:

A home purchase where the seller provides all or part of the financing, acting as a lender.

Ownership:

Ownership is documented by the deed to a property. The type or form of ownership is important if there is a change in the status of the owners or if the property changes ownership.

P


PITI (Principal, Interest, Taxes, and Insurance):

The four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

PITI Reserves:

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

PMI (Private Mortgage Insurance):

Privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.

Participating Community:

A community for which the Federal Emergency Management Agency (FEMA) has authorized the sale of flood insurance under the National Flood Insurance Program (NFIP).

Passbook:

A book in ledger form in which are recorded all deposits, withdrawals, and earnings of a member's savings account.

Also known as a checkbook register.

Past Due Item:

Any note or other time instrument of indebtedness that has not been paid on the due date.

Payday Loans:

A small-dollar, short-term loan that a borrower promises to repay out of their next paycheck or deposit of funds. Payday loans generally charge high fees and interest.

Payee:

The person or organization to whom a check, draft, or note is made payable.

Payment Cap:

A limit on how much an ARM's payment may increase, regardless of how much the interest rate increases.

Payment Change Date:

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

Payment Due Date:

The date on which a loan or installment payment is due. It is set by the financial institution and disclosed on your original loan note. Any payment received after this date is considered late and fees and penalties may be assessed.

Payoff:

The complete repayment of a loan, including principal, interest, and any other amounts due. Payoff occurs either over the full term of the loan or through prepayments.

Payoff Statement:

A formal statement prepared when a loan payoff is contemplated. It shows the status of the loan account, all sums due, and the daily rate of interest.

Payor:

The person or organization who pays.

Peer Average Ratio:

How a credit union compares to a group of federally insured credit unions of similar asset size.

Percentile Rankings:

How a credit union ranks in relation to the federally insured credit unions in its peer group in key area of financial performance. For example, a ranking of 75 means 25 percent of all federally insured credit unions in the peer group have the same or higher ratios and 75 percent have lower ratios.

Periodic Rate:

The interest rate described in relation to a specific amount of time. The monthly periodic rate, for example, is the cost of credit per month; the daily periodic rate is the cost of credit per day.

Periodic Statement:

The billing summary produced and mailed at specified intervals, usually monthly.

Personal Identification Number (PIN):

Generally, a four-character number or word, the PIN is the secret code given to credit or debit cardholders enabling them to access their accounts. The code is either randomly assigned by the financial institution or selected by the consumer. It is intended to prevent unauthorized use of the card while accessing a financial service terminal.

Phishing:

When internet fraudsters impersonate a business in an attempt to trick you into giving out your personal information, such as usernames, passwords, and credit card details. Legitimate businesses do not ask you to send sensitive information through insecure channels.

Point of Sale (POS):

1) The location at which a transaction takes place. 2) Systems that allow consumers to effect transfers of funds from their deposit accounts and other financial transactions at retail establishments.

Points (also called discount points):

One point is equal to 1 percent of the principal amount of a mortgage loan. For example, if a mortgage is $200,000, one point equals $2,000. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages to cover loan origination costs or to provide additional compensation to the lender or broker. Points are paid usually on the loan closing date and may be paid by the borrower or the home seller, or split between the two parties. In some cases, the money needed to pay points can be borrowed, but increases the loan amount and the total costs. Discount points (sometimes called discount fees) are points that the borrower voluntarily chooses to pay in return for a lower interest rate.

Power of Attorney:

A written instrument that authorizes one person to act as another's agent or attorney. The power of attorney may be for a definite, specific act, or it may be general in nature. The terms of the written power of attorney may specify when it will expire. If not, the power of attorney usually expires when the person granting it dies. Some institutions require that you use the financial institution's power of attorney forms. (The financial institution may refer to this as a Durable Power of Attorney: The principal grants specific rights to the agent.)

Preapproval:

A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.

Preauthorized Electronic Fund Transfers:

An EFT authorized in advance to recur at substantially regular intervals.

Preauthorized Payment:

A system established by a written agreement under which a financial institution is authorized by the customer to debit the customer’s account in order to pay bills or make loan payments.

Predatory Lending:

Abusive lending practices that include a mortgage loan to someone who does not have the ability to repay. It also pertains to repeated refinancing of a loan charging high interest and fees each time.

Preferred Risk Policy (PRP):

A policy that offers fixed combinations of building/contents coverage or contents-only coverage at modest, fixed premiums. The PRP generally is available for property located in B, C, and X Zones in Regular Program Communities that meets eligibility requirements based on the property’s flood loss history.

Prepayment:

The payment of a debt before it actually becomes due.

Prepayment Clause:

A clause in a mortgage allowing the mortgagor to pay off part or all of the unpaid debt before it becomes due.

Prepayment Penalty:

A penalty imposed on a borrower for repaying the loan before its due date. (In the case of a mortgage, this applies when there is not a prepayment clause in the mortgage note to offset the penalty.)

Prepayment Penalty:

A provision, in some loans, that charges a fee to a borrower who pays off a loan before it is due. Pre-Foreclosure sale: allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Prequalify:

A lender informally determines the maximum amount an individual is eligible to borrow. This is not a guaranty of a loan.

Previous Balance:

The account balance as of the previous billing statement.

Prime Rate:

The interest rate that banks charge to preferred customers. Changes in the prime rate are publicized in the business media. Prime rate can be used as the basis for adjustable rate mortgages (ARMs) or home equity lines of credit (HELOC). The prime rate also affects the current interest rates being offered at a particular point in time on fixed mortgages. Changes in the prime rate do not affect the interest on a fixed mortgage.

Principal:

The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow that money. The principal balance is the amount owed on a loan at any given time. It is the original loan amount minus the total repayments of principal made.

Principal Balance:

The outstanding balance on a loan, excluding interest and fees.

Private Mortgage Insurance (PMI):

Protects the lender against a loss if a borrower defaults on the loan. It is a payment usually required of a borrower for loans in which a down payment is less than 20 percent of the sales price, or in a refinancing, when the amount financed is greater than 80 percent of the appraised value. When you acquire 20 percent equity in your home, PMI is cancelled. Depending on the size of your mortgage and down payment, these premiums can add $100 to $200 per month or more to your payments.

Property Tax:

A tax charged by local government and used to fund municipal services such as schools, police, or street maintenance. The amount of property tax is determined locally by a formula, usually based on a percent per $1,000 of assessed value of the property.

Q


Qualifying Ratios:

Guidelines utilized by lenders to determine how much money a homebuyer is qualified to borrow. Lending guidelines typically include a maximum housing expense to income ratio and a maximum monthly expense to income ratio.

R


Rate Cap:

A limit on an ARM on how much the interest rate or mortgage payment may change. Rate caps limit how much the interest rates can rise or fall on the adjustment dates and over the life of the loan.

Rate Lock:

A commitment by a lender to a borrower guaranteeing a specific interest rate over a period of time at a set cost.

Real Estate Settlement Procedures Act (RESPA):

Federal law that, among other things, requires lenders to provide "good faith" estimates of settlement costs and make other disclosures regarding the mortgage loan. RESPA also limits the amount of funds held in escrow for real estate taxes and insurance.

Reconciliation:

The process of analyzing two related records and, if differences exist between them, finding the cause and bringing the two records into agreement. Example: Comparing an up-to-date check book with a monthly statement from the financial institution holding the account.

Recording:

The recording in a registrar's office of an executed legal document. These include deeds, mortgages, satisfaction of a mortgage, or an extension of a mortgage making it a part of the public record.

Recording Fees:

Charges for recording a deed with the appropriate government agency.

Redlining:

The alleged practice of certain lending institutions of not making mortgage, home improvement, and small business loans in certain neighborhoods-usually areas that are deteriorating or considered by the lender to be poor investments.

Refinancing:

A way of obtaining a better interest rate, lower monthly payments, or borrow cash on the equity in a property that has built up on a loan. A second loan is taken out to pay off the first, higher-rate loan.

Refund:

An amount paid back because of an overpayment or because of the return of an item previously sold.

Regular Program Community:

A community wherein a Flood Insurance Rate Map is in effect and full limits of coverage are available under the Flood Disaster Protection Act (FDPA).

Release of Lien:

To free a piece of collateral from a mortgage or lien.

Remaining Balance:

The amount of principal that has not yet been repaid.

Remaining Term:

The original amortization term minus the number of payments that have been applied.

Remittance Transfers:

Federal law defines “remittance transfers” to include certain electronic money transfers from consumers in the United States to recipients abroad, including friends, family members, or businesses. Remittance transfers are commonly known as “international wires,” “international money transfers,” or “remittances.”

Renewal:

A form of extending an unpaid loan in which the borrower's remaining unpaid loan balance is carried over (renewed) into a new loan at the beginning of the next financing period.

Repayment Plan:

An agreement between a lender and a delinquent borrower where the borrower agrees to make additional payments to pay down past due amounts while making regularly scheduled payments.

Residual Interest:

Interest that continues to accrue on your credit card balance from the statement cycle date until the financial institution receives your payment. For example, if your statement cycle date was January 10 and the bank received your payment on January 20, there were ten days for which interest accrued. This amount will be posted on your next statement.

Retirement Accounts:

An account that helps you plan for your retirement. It is also the best way to save for tomorrow. Retirement accounts include defined contribution plans (e.g. IRA, 401k, or profit sharing plans) and defined benefit plans (e.g. pension or cash balance plans).

Return Item:

A negotiable instrument, principally a check that has been sent to a financial institution for collection and payment and is returned unpaid by the sending financial institution.

Reverse Mortgage:

A special home loan product that allows a homeowner aged 62 or older the ability to access the equity that has accumulated in their home. The home itself will be the source of repayment. The loan is underwritten based on the value of the collateral (home) and the life expectancy of the borrower. The loan must be repaid when you die, sell your home, or no longer live there as your principal residence. (Also called home equity conversion mortgages or reverse-annuity mortgages).

Revolving Credit:

A credit agreement (typically a credit card) that allows a customer to borrow against a preapproved credit line when purchasing goods and services. The borrower is only billed for the amount that is actually borrowed plus any interest due. (Also called a charge account or open-end credit.)

Right of Offset:

Financial institution's legal right to seize funds a guarantor or debtor may have on deposit to cover a loan in default. It is also known as the right of set-off.

Right of Rescission:

Right to cancel, within three business days, a contract that uses the home of a person as collateral, except in the case of a first mortgage loan. There is no fee to the borrower, who receives a full refund of all fees paid. The right of rescission is guaranteed by the Truth in Lending Act (TILA).

S


Safe (or Safety) Deposit Box:

A type of safe usually located in groups inside a financial institution vault and rented to customers for their use in storing valuable items.

Satisfaction of Mortgage:

A document signed by a lender indicating that a mortgage has been fully paid and all debts satisfied. The document must be filed with the County Recorder (or Recorder of Deeds) to clear the title.

Second Mortgage:

An additional mortgage on property. In case of a default the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and usually carry a higher interest rate.

Secured Loan:

A loan backed by collateral such as property.

Security:

The property that will be pledged as collateral for a loan.

Service Charge:

A charge assessed by a depository institution for processing transactions and maintaining accounts.

Settlement:

Another name for closing.

Settlement (or Closing) Costs:

Fees paid at a loan closing. May include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys’ fees; recording fees; estimated costs of taxes and insurance; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a “good faith” estimate of closing costs within three days of application. The good faith estimate lists each expected cost either as an amount or as a range.

Share Account:

Credit unions call savings accounts share accounts because at a credit union you are a part owner of the credit union. By example, if you own a piece of a company you own a share of stock. If you have an account at a credit union, you have a share account.

Share Certificate:

A form of savings instrument where the member agrees to maintain the deposit in the credit union for a specific period of time in exchange for interest payments. Early withdrawal of the share certificate generally includes an early withdrawal penalty.

Share Draft Account:

Credit unions call checking accounts share draft accounts. Share draft accounts are a transaction accounts.

Signature Card:

A card signed by each depositor and customer of a financial institution, which may be used as a means of identification. The signature card represents a contract between the financial institution and the depositor.

Smishing:

A combination of “SMS” and phishing. Smishing uses cell phone text messages or SMS (Short Message Service) to deliver a message in order to get you to divulge your personal and financial information. The method used to obtain information in the text message may be a web site URL; however, it has become more common to see a phone number that connects to an automated voice response system.

Special Flood Hazard Area (SFHA):

An area defined on a Flood Insurance Rate Map with an associated risk of flooding.

Stale-Dated Check:

A check/share draft presented to a paying financial institution 180 days (6 months) or more after the original issue date. Financial institutions are not required by the Uniform Commercial Code to honor stale-dated checks/share drafts and can return them to the issuing financial institution unpaid. The maker of a check/share draft can discourage late presentment by writing the words "not good after X days" on the back of the check.

State Banking Department (also State Supervisory Authority):

The organization in each State that supervises the operations and affairs of State financial institutions. Complaints against a state chartered credit union must be directed to the state banking department where the credit union is located.

State Chartered Credit Union:

A credit union organized under the laws of a State and chartered by that State to conduct the business of banking. Most state chartered credit unions are federally insured but a few have private deposit insurance guaranteed by an insurance company.

Statement:

A summary of all transactions that occurred over the preceding month and could be associated with a deposit account or loan account.

Stop Payment:

An order not to pay a check or share draft that has been issued but not yet cashed. If requested soon enough, the check will not be debited to the payer's account. Most financial institutions charge a fee for this service.

Student Loan:

Loans made, insured, or guaranteed under any program authorized by the Higher Education Act. Loan funds are used by the borrower for education purposes.

Substitute Check or Share Draft:

A substitute check is a paper copy of the front and back of the original check. A substitute check is slightly larger than a standard personal check so that it can contain a picture of your original check. A substitute check is legally the same as the original check if it accurately represents the information on the original check and includes the following statement: “This is a legal copy of your check. You can use it the same way you would use the original check.” The substitute check must also have been handled by a financial institution. Substitute checks were created under Check 21, the Check Clearing for the 21st Century Act, which became effective on October 28, 2004.

T


Terms:

The conditions of an agreement between a financial institution and consumer. Membership, deposit, and loan agreements contain terms. When discussing loan terms, it includes the period of time a borrower has to repay a loan, and the interest rate the borrower agrees to pay the lender.

Third Party Origination:

A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

Title:

A legal document establishing the right of ownership and is recorded to make it part of the public record. Also known as a Deed. Title 1: an FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home; Title I loans less than $7,500 don't require a property lien.

Title Company:

A company that specializes in examining and insuring titles to real estate.

Title Defect:

An outstanding claim on a property that limits the ability to sell the property. Also referred to as a cloud on the title.

Title Insurance:

Insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event of a title defect. This charge is included in the closing costs. A policy that protects the buyer from title defects is known as an owner's policy and requires an additional charge.

Title Search:

A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Transfer Agent:

A bank or trust company charged with keeping a record of a company's stockholders and canceling and issuing certificates as shares are bought and sold.

Transfer Taxes:

State and local taxes charged for the transfer of real estate. Usually equal to a percentage of the sales price.

Transfer of Ownership:

Any means by which ownership of a property changes hands. These include purchase of a property, assumption of mortgage debt, exchange of possession of a property via a land sales contract or any other land trust device.

Treasury Index:

Can be used as the basis for adjustable rate mortgages (ARMs) It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities.

Trustee:

A person who holds or controls property for the benefit of another.

Truth in Lending Act (TILA):

A Federal law that requires lenders to provide standardized information so that borrowers can compare loan terms. In general, financial institutions must provide information on:
  • what credit will cost the borrower,
  • when charges will be imposed, and
  • what the borrower's rights are as a consumer.

Truth-in-Lending:

A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.

Two Step Mortgage:

An adjustable-rate mortgage (ARM) that has one interest rate for the first five to seven years of its term and a different interest rate for the remainder of the term.

U


Uncollected Funds:

A portion of a deposit balance that has not yet been collected by the depository financial institution.

Underwriting:

The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.

Uniform Commercial Code (UCC):

A set of statutes enacted by the various States to provide consistency among the States' commercial laws. It includes negotiable instruments, sales, stock transfers, trust and warehouse receipts, and bills of lading.

Up Front Charges:

The fees charged to homeowners by the lender at the time of closing a mortgage loan. This includes points, broker's fees, insurance, and other charges.

Usury:

Charging an illegally high interest rate on a loan.

Usury Rates:

The maximum rate of interest lenders may charge borrowers. The usury rate is generally set by State law. The NCUA Board sets the maximum loan interest rate a federal credit union may charge.

U.S. Department of Housing and Urban Development (HUD):

HUD is a Cabinet department in the Executive branch of the United States federal government. HUD’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD is working to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes: utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination; and transform the way HUD does business.

U.S. Department of Justice (DOJ):

DOJ is the United States federal executive department responsible for the enforcement of the law and administration of justice. DOJ’s mission is to enforce the law and defend the interests of the United States according to the law; to ensure public safety against threats foreign and domestic; to provide federal leadership in preventing and controlling crime; to seek just punishment for those guilty of unlawful behavior; and to ensure fair and impartial administration of justice for all Americans.

V


VA (Department of Veterans Affairs):

A federal agency, which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.

VA Mortgage:

A mortgage guaranteed by the Department of Veterans Affairs (VA).

Variable Rate:

Any interest rate or dividend that changes on a periodic basis.

W


Walk Through:

The final inspection of a property being sold by the buyer to confirm that any contingencies specified in the purchase agreement such as repairs have been completed, fixture and non-fixture property is in place and confirm the electrical, mechanical, and plumbing systems are in working order.

Warranty Deed:

A legal document that includes the guarantee the seller is the true owner of the property, has the right to sell the property and there are no claims against the property.

Wire Transfer:

An electronic transfer of money from one person to another. A more narrow technical meaning, referring to one certain method of transferring funds, which usually involves an electronic transfer of funds from one credit union account to another.

Z


Zoning:


Local laws established to control the uses of land within a particular area. Zoning laws are used to separate residential land from areas of non-residential use, such as industry or businesses. Zoning ordinances include many provisions governing such things as type of structure, setbacks, lot size, and uses of a building.

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