Money Jargon Buster

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

 

A

ACCELERATION CLAUSE The part of a contract that says when a loan may be declared due and payable.

ACCELERATION CLAUSE A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.

ACCEPTANCE An offeree’s consent to enter into a contract and be bound by the terms of the offer.

ACCIDENTAL DEATH BENEFIT In a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. There can be certain exclusions as well as time and age limits.

ACCOUNT BALANCE Your account balance is the amount of money you have in one of your financial accounts. For example, your bank account balance refers to the amount of money in your bank accounts. Your account balance can also be the amount of money outstanding on one of your financial accounts. Your credit card balance, for example, refers to the amount of money you owe a credit card company. With your 401(k), your account balance, also called your accrued benefit, is the amount your 401(k) account is worth on a date that it’s valued. For example, if the value of your account on December 31 is $250,000, that’s your account balance. You use your 401(k) account balance to figure how much you must withdraw from your plan each year, once you start taking required distributions after you turn 70 1/2. Specifically, you divide the account balance at the end of your plan’s fiscal year by a divisor based on your life expectancy to determine the amount you must take during the next fiscal year.

ACCREDITED INVESTOR An accredited investor is a person or institution that the Securities and Exchange Commission (SEC) defines as being qualified to invest in unregistered securities, such as privately held corporations, private equity investments, and hedge funds. The qualification is based on the value of the investor’s assets, or in the case of an individual, annual income. Specifically, to be an accredited investor you must have a net worth of at least $1 million or a current annual income of at least $200,000 with the anticipation you’ll earn at least that much next year. If you’re married, that amount is increased to $300,000. Institutions are required to have assets worth $5 million to qualify as accredited investors. The underlying principle is that investors with these assets have the sophistication to understand the risks involved in the investment and can afford to lose the money should the investment fail.

ACCRUED INTEREST Accrued interest is the interest that accumulates on a fixed-income security between one interest payment and the next. The amount is calculated by multiplying the coupon rate, also called the nominal interest rate, times the number of days since the previous interest payment. Interest on most bonds and fixed-income securities is paid twice a year. On corporate and municipal bonds, interest is calculated on 30-day months and a 360-day year. For government bonds, interest is calculated on actual days and a 365-day year. When you buy a bond or other fixed-income security, you pay the bond’s price plus the accrued interest and receive the full amount of the next interest payment, which reimburses you for the accrued interest payment you made when you purchased the bond. Similarly, when you sell a bond, you receive the price of the bond, plus the amount of interest that has accrued since you received the last interest payment. On a zero-coupon bond, interest accrues over the term of the bond but is paid in a lump sum when you redeem the bond for face value. However, unless you hold the bond in a tax-deferred or tax-exempt account, you owe income tax each year on the amount of interest that the government calculates you would have received, had it been paid.

ACCUMULATION PERIOD The accumulation period refers to the time during which your retirement savings accumulate in a deferred annuity. Because annuities are federal income tax deferred, all earnings are reinvested to increase the base on which future earnings accumulate, so you have the benefit of compounding. When you buy a deferred fixed annuity contract, the company issuing the contract promises a fixed rate of return during the accumulation period regardless of whether market interest rates move up or down. With a deferred variable annuity, the amount you accumulate depends on the performance of the investment alternatives, known as subaccounts or separate account funds, which you select from among those offered in the contract. At the end of the accumulation period, you can choose to annuitize, agree to some other method of receiving income, or roll over your account value into an immediate annuity. The years in which you receive annuity income are sometimes called the distribution period.

ACCUMULATION UNIT Accumulation units are the shares you own in the separate account funds of a variable annuity during the period you’re putting money into your annuity. If you own the annuity in a 401(k) plan, each time you make a contribution that amount is added to one or more of the separate account funds to buy additional accumulation units. The value of your annuity is figured by multiplying the number of units you own by the dollar value of each unit. During the accumulation phase, that value changes to reflect the changing performance of the underlying investments in the separate account funds.

ACQUISITION If a company buys another company outright, or accumulates enough shares to take a controlling interest, the deal is described as an acquisition. The acquiring company’s motive may be to expand the scope of its products and services, to make itself a major player in its sector, or to fend off being taken over itself. To complete the deal, the acquirer may be willing to pay a higher price per share than the price at which the stock is currently trading. That means shareholders of the target company may realize a substantial gain, so some investors are always on the lookout for companies that seem ripe for acquisition. Sometimes acquisitions are described, more bluntly, as takeovers and other times, more diplomatically, as mergers. Collectively, these activities are referred to as mergers and acquisitions, or M&A, to those in the business.

ACTIVE PARTICIPANT Person whose absence from a planned event would trigger a benefit if the event needs to be cancelled or postponed.

ACTIVELY MANAGED FUND Managers of actively managed mutual funds buy and sell investments to achieve a particular goal, such as providing a certain level of return or beating a relevant benchmark. As a result, they generally trade much more frequently than managers of passively managed funds whose goal is to mirror the performance of the index a fund tracks. While actively managed funds may provide stronger returns than index funds in some years, they typically have higher management and investment fees.

ACTIVITIES OF DAILY LIVING Bathing, preparing and eating meals, moving from room to room, getting into and out of beds or chairs, dressing, using a toilet.

ACTUAL CASH VALUE Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.

ACTUARY A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics. (Americanism: In most other countries the individual is known as “mathematician.”)

ADDITIONAL PRINCIPAL PAYMENT A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

ADJUSTABLE RATE An interest rate that changes, based on changes in a published market-rate index.

ADJUSTABLE RATE MORTGAGE (ARM) An adjustable rate mortgage is a long-term loan you use to finance a real estate purchase, typically a home. Unlike a fixed-rate mortgage, where the interest rate remains the same for the term of the loan, the interest rate on an ARM is adjusted, or changed, during its term. The initial rate on an ARM is usually lower than the rate on a fixed-rate mortgage for the same term, which means it may be easier to qualify for an ARM. You take the risk, however, that interest rates may rise, increasing the cost of your mortgage. Of course, it’s also possible that the rates may drop, decreasing your payments. The rate adjustments, which are based on changes in one of the publicly reported indexes that reflect market rates, occur at preset times, usually once a year but sometimes less often. Typically, rate changes on ARMs are capped both annually and over the term of the loan, which helps protect you in the case of a rapid or sustained increase in market rates. However, certain ARMs allow negative amortization, which means additional interest could accumulate on the outstanding balance if market rates rise higher than the cap. That interest would be due when the loan matured or if you want to prepay.

ADJUSTABLE-RATE MORTGAGE (ARM) A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.

ADJUSTED BASIS The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

ADJUSTED GROSS INCOME (AGI) Your AGI is your gross, or total, income from taxable sources minus certain deductions. Income includes salary and other employment income, interest and dividends, and long- and short-term capital gains and losses. Deductions include unreimbursed business and medical expenses, contributions to a deductible individual retirement account (IRA), and alimony you pay. You figure your AGI on page one of your federal tax return, and it serves as the basis for calculating the income tax you owe. Your modified AGI is used to establish your eligibility for certain tax or financial benefits, such as deducting your IRA contribution or qualifying for certain tax credits.

ADJUSTER A representative of the insurer who seeks to determine the extent of the insurer’s liability for loss when a claim is submitted.

ADJUSTMENT DATE The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

ADJUSTMENT PERIOD The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

ADMINISTRATOR A person appointed by a probate court to administer the estate of a person who died intestate.

ADMITTED ASSETS Assets permitted by state law to be included in an insurance company’s annual statement. These assets are an important factor when regulators measure insurance company solvency. They include mortgages, stocks, bonds and real estate.

ADVANCE-DECLINE (A-D) LINE The advance-decline line graphs the ratio of stocks that have risen in value — the advancers — to stocks that have fallen in value — the decliners — over a particular trading period. The direction and steepness of the A-D line gives you a general idea of the direction of the market. For example, a noticeable upward trend, which is created when there are more advancers than decliners, indicates a growing market. A downward slope indicates a market in retreat. At times, however, there may be no clear trend in either direction.

ADVANCER Stocks that have gained, or increased, in value over a particular period are described as advancers. If more stocks advance than decline — or lose value — over the course of a trading day, the financial press reports that advancers led decliners. When that occurs over a period of time, it’s considered an indication that the stock market is strong.

AFFINITY FRAUD Affinity fraud occurs when a dishonest person plays on your affiliation with a group — such as a house of worship, social club, support group, charity, or veterans’ group — as a way to win your confidence in order to sell you something worthless or trick you into handing over cash. The scammer may actually be a member of the group or may just pretend to be. Affinity fraud is one the most difficult scams to protect yourself against because being suspicious of colleagues can undermine the reason you belong to a group.

AFFORDABILITY ANALYSIS A detailed analysis of your ability to afford the purchase of a home. An affordability analysis takes into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that you might expect to pay.

AFTER-HOURS MARKET Securities, such as stocks and bonds, may change hands on organized markets and exchanges after regular business hours, in what is known as the after-hours market. These electronic transactions explain why a security may open for trading at a different price from the one it closed at the day before. There’s also trading in benchmark indexes such as Standard & Poor’s 500 Index (S&P 500) and the Dow Jones Industrial Average (DJIA) before US stock markets open. The level of activity and the direction the trading — up or down — is widely interpreted as an early indicator of what’s likely to happen in the market during the day.

AGENT Individual who sells and services insurance policies in either of two classifications: 1. Independent agent represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage. The agent’s commission is a percentage of each premium paid and includes a fee for servicing the insured’s policy. 2. Direct or career agent represents only one company and sells only its policies. This agent is paid on a commission basis in much the same manner as the independent agent.

AGGREGATE LIMIT Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.

AMENITY A feature of real property that enhances its attractiveness and increases the occupant’s or user’s satisfaction although the feature is not essential to the property’s use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.

AMORTIZATION The gradual repayment of a mortgage loan by installments.

AMORTIZATION The process of fully paying off indebtedness by installments of principal and earned interest over a definite time.

AMORTIZATION SCHEDULE A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

AMORTIZATION TERM The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

AMORTIZE To repay a mortgage with regular payments that cover both principal and interest.

ANNUAL ADMINISTRATIVE FEE Charge for expenses associated with administering a group employee benefit plan.

ANNUAL CREDITING CAP The maximum rate that the equity-indexed annuity can be credited in a year. If a contract has an upper limit, or cap, of 7 percent and the index linked to the annuity gained 7.2 percent, only 7 percent would be credited to the annuity.

ANNUAL MORTGAGOR STATEMENT A report sent to the mortgagor each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.

ANNUAL PERCENTAGE RATE (APR) The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

ANNUAL PERCENTAGE RATE (APR) The cost of carrying a balance on a loan expressed as an annual percentage. To calculate the amount owed in interest each month divide the APR by 12. For example, if the APR is 18% the monthly rate is 1.5%.

ANNUITIZATION Process by which you convert part or all of the money in a qualified retirement plan or nonqualified annuity contract into a stream of regular income payments, either for your lifetime or the lifetimes of you and your joint annuitant. Once you choose to annuitize, the payment schedule and the amount is generally fixed and can’t be altered.

ANNUITIZATION OPTIONS Choices in the way to annuitize. For example, life with a 10-year period certain means payouts will last a lifetime, but should the annuitant die during the first 10 years, the payments will continue to beneficiaries through the 10th year. Selection of such an option reduces the amount of the periodic payment.

ANNUITY An agreement by an insurer to make periodic payments that continue during the survival of the annuitant(s) or for a specified period.

ANNUITY An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis. APPLICATION A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security. APPRAISAL A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with home inspection. APPRAISED VALUE An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. APPRAISER A person qualified by education, training, and experience to estimate the value of real property and personal property. APPRECIATION An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation. APPROVED FOR REINSURANCE Indicates the company is approved (or authorized) to write reinsurance on risks in this state. A license to write reinsurance might not be required in these states. APPROVED OR NOT DISAPPROVED FOR SURPLUS LINES Indicates the company is approved (or not disapproved) to write excess or surplus lines in this state. ASSESSED VALUE The valuation placed on property by a public tax assessor for purposes of taxation. ASSESSMENT The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment. ASSESSMENT ROLLS The public record of taxable property. ASSESSOR A public official who establishes the value of a property for taxation purposes. ASSET Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on). ASSET Anything owned by an individual that has a cash value. This includes property, goods, savings or investments. ASSETS Assets refer to “all the available properties of every kind or possession of an insurance company that might be used to pay its debts.” There are three classifications of assets: invested assets, all other assets, and total admitted assets. Invested assets refer to things such as bonds, stocks, cash and income-producing real estate. All other assets refer to nonincome producing possessions such as the building the company occupies, office furniture, and debts owed, usually in the form of deferred and unpaid premiums. Total admitted assets refer to everything a company owns. All other plus invested assets equals total admitted assets. By law, some states don’t permit insurance companies to claim certain goods and possessions, such as deferred and unpaid premiums, in the all other assets category, declaring them “nonadmissable.” ASSIGNMENT The transfer of a mortgage from one person to another. ASSUMABLE MORTGAGE A mortgage that can be taken over (“assumed”) by the buyer when a home is sold. ASSUMPTION The transfer of the seller’s existing mortgage to the buyer. See assumable mortgage. ASSUMPTION The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt. ASSUMPTION CLAUSE A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property. ASSUMPTION FEE The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.  ATTAINED AGE Insured’s age at a particular time. For example, many term life insurance policies allow an insured to convert to permanent insurance without a physical examination at the insured’s then attained age. Upon conversion, the premium usually rises substantially to reflect the insured’s age and diminished life expectancy. ATTORNEY-IN-FACT One who holds a power of attorney from another to execute documents on behalf of the grantor of the power. AUTHORIZED UNDER FEDERAL PRODUCTS LIABILITY RISK RETENTION ACT (RISK RETENTION GROUPS) Indicates companies operating under the Federal Products Liability Risk Retention Act of 1981 and the Liability Risk Retention Act of 1986. AUTOMOBILE LIABILITY INSURANCE Coverage if an insured is legally liable for bodily injury or property damage caused by an automobile. AVERAGE DAILY BALANCE The average daily balance is a method used to calculate finance charges. It is calculated by adding the outstanding balance on each day in the billing period, and dividing that total by the number of days in the billing period. The calculation includes new purchases and payments. BAD CREDIT A term used to describe a poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. “Bad Credit” can result in being denied credit. BALANCE The total amount of money owed. It includes any unpaid balance from the previous month, new purchases, cash advances, and any charges such as an annual fee, late fee or interest. The balance should not be confused with the monthly payment (the minimum payment allowed each month), which is generally 2% – 5% for revolving credit cards. BALANCE SHEET A financial statement that shows assets, liabilities, and net worth as of a specific date. BALANCE SHEET An accounting term referring to a listing of a company’s assets, liabilities and surplus as of a specific date. BALANCE TRANSFER Moving a balance (debt) from one credit card to another. This is often done with special checks or forms, or may be offered as an option on some credit

B

BAD CREDIT  A term used to describe a poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. “Bad Credit” can result in being denied credit.

BALANCE  The total amount of money owed. It includes any unpaid balance from the previous month, new purchases, cash advances, and any charges such as an annual fee, late fee or interest. The balance should not be confused with the monthly payment (the minimum payment allowed each month), which is generally 2% – 5% for revolving credit cards.

BALANCE SHEET  A financial statement that shows assets, liabilities, and net worth as of a specific date.

BALANCE SHEET  An accounting term referring to a listing of a company’s assets, liabilities and surplus as of a specific date.

BALANCE TRANSFER Moving a balance (debt) from one credit card to another. This is often done with special checks or forms, or may be offered as an option on some credit card applications. The usual reason is to shift an ongoing debt to an account with a lower interest rate.

BALLOON MORTGAGE A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

BALLOON PAYMENT The final lump sum payment that is made at the maturity date of a balloon mortgage.

BANKRUPT A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

BANKRUPTCY A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

BANKRUPTCY Bankruptcy is a legal declaration of the inability to repay debts. Bankruptcy should be viewed as a last resort. It will have a severe impact on a credit rating and will remain on a credit report for ten years. Furthermore, bankruptcy is not a solution in all cases. Federal student loans, Federal tax debt and child support are all exempt from bankruptcy protection. Bankruptcy agreements vary but there are two types of agreements that most people choose: Chapter 7 and Chapter 13.

BEACON SCORE This is your credit score that creditors look at when determining if you are credit worthy. Your Beacon Score is determined by negative entries such as late payments which would decrease your score or a positive, timely payment history on your accounts which would increase your score.

BEFORE-TAX INCOME Income before taxes are deducted.

BENEFICIARY The person designated to receive the income from a trust, estate, or a deed of trust.

BENEFIT PERIOD In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.

BEQUEATH To transfer personal property through a will.

BALLOON MORTGAGE A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

BALLOON PAYMENT The final lump sum payment that is made at the maturity date of a balloon mortgage.

BANKRUPT A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

BANKRUPTCY A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

BANKRUPTCY Bankruptcy is a legal declaration of the inability to repay debts. Bankruptcy should be viewed as a last resort. It will have a severe impact on a credit rating and will remain on a credit report for ten years. Furthermore, bankruptcy is not a solution in all cases. Federal student loans, Federal tax debt and child support are all exempt from bankruptcy protection. Bankruptcy agreements vary but there are two types of agreements that most people choose: Chapter 7 and Chapter 13.

BEACON SCORE This is your credit score that creditors look at when determining if you are credit worthy. Your Beacon Score is determined by negative entries such as late payments which would decrease your score or a positive, timely payment history on your accounts which would increase your score.

BEFORE-TAX INCOME Income before taxes are deducted.

transfer personal property through a will.BENEFICIARY The person designated to receive the income from a trust, estate, or a deed of trust.

BENEFIT PERIOD In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.

BEST’S CAPITAL ADEQUACY RELATIVITY (BCAR) This percentage measures a company’s relative capital strength compared to its industry peer composite. A company’s BCAR, which is an important component in determining the appropriateness of its rating, is calculated by dividing a company’s capital adequacy ratio by the capital adequacy ratio of the median of its industry peer composite using Best’s proprietary capital mode. Capital adequacy ratios are calculated as the net required capital necessary to support components of underwriting, asset, and credit risks in relation to economic surplus.

BETTERMENT An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.

BILL OF SALE A written document that transfers title to personal property.

BILLING CYCLE The number of days between statement dates. This is generally about 25 days.

BINDER A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

BIWEEKLY PAYMENT MORTGAGE A mortgage that requires payments to reduce the debt every two weeks – instead of the standard monthly payment schedule. The 26 or possibly 27 biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower’s bank account. The result for the borrower is a substantial savings in interest.

BLANKET INSURANCE POLICY A single policy that covers more than one piece of property (or more than one person).

BLANKET MORTGAGE The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

BONA FIDE In good faith, without fraud.

BOND An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

BREACH A violation of any legal obligation.

BRIDGE LOAN A form of second trust that is collateralized by the borrower’s present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as “swing loan.”

BROKER A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. See mortgage broker.

BROKER Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.

BROKER-AGENT Independent insurance salesperson who represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant’s coverage to maximize protection and minimize cost. This person is licensed as an agent and a broker.

BUDGET A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

BUDGET CATEGORY A category of income or expense data that you can use in a budget. You can also define your own budget categories and add them to some or all of the budgets you create. “Rent” is an example of an expense category. “Salary” is a typical income category.

BUILDING CODE Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

BUSINESS NET RETENTION This item represents the percentage of a company’s gross writings that are retained for its own account. Gross writings are the sum of direct writings and assumed writings. This measure excludes affiliated writings.

BUYDOWN A lump sum payment made to the creditor by the borrower or by a third party to reduce the amount of some or all of the consumer’s periodic payments to repay the indebtedness.

BUYDOWN ACCOUNT An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.

BUYDOWN MORTGAGE A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower’s monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

C

CALL OPTION A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

CAP A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. See lifetime payment cap, periodic payment cap, and periodic rate cap.

CAPITAL (1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities.

CAPITAL Equity of shareholders of a stock insurance company. The company’s capital and surplus are measured by the difference between its assets minus its liabilities. This value protects the interests of the company’s policyowners in the event it develops financial problems; the policyowners’ benefits are thus protected by the insurance company’s capital. Shareholders’ interest is second to that of policyowners.

CAPITAL EXPENDITURE The cost of an improvement made to extend the useful life of a property or to add to its value.

CAPITAL IMPROVEMENT Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

CAPITALIZATION OR LEVERAGE Measures the exposure of a company’s surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.

CAPTIVE AGENT Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance, and credit unions.

CASE MANAGEMENT A system of coordinating medical services to treat a patient, improve care and reduce cost. A case manager coordinates health care delivery for patients.

CASH ADVANCE LOAN a loan where a borrower gets cash advanced based on his paycheck. These loans generally up are up $500 and must be repaid on the next payday.

CASH-OUT REFINANCE A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

CASUALTY Liability or loss resulting from an accident.

CASUALTY INSURANCE That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property of others. It also includes such diverse forms as plate glass, insurance against crime, such as robbery, burglary and forgery, boiler and machinery insurance and Aviation insurance. Many casualty companies also write surety business.

CEDED REINSURANCE LEVERAGE The ratio of the reinsurance premiums ceded, plus net ceded reinsurance balances from non-US affiliates for paid losses, unpaid losses, incurred but not reported (IBNR), unearned premiums and commissions, less funds held from reinsurers, plus ceded reinsurance balances payable, to policyholders’ surplus. This ratio measures the company’s dependence upon the security provided by its reinsurers and its potential exposure to adjustment on such reinsurance.

CERTIFICATE OF DEPOSIT A document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.

CERTIFICATE OF DEPOSIT INDEX An index that is used to determine interest rate changes for certain ARM plans. It represents the weekly average of secondary market interest rates on six-month negotiable certificates of deposit. See adjustable-rate mortgage (ARM).

CERTIFICATE OF ELIGIBILITY A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

CERTIFICATE OF REASONABLE VALUE (CRV) A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

CERTIFICATE OF TITLE A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

CHAIN OF TITLE The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

CHANGE FREQUENCY The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

CHANGE IN NET PREMIUMS WRITTEN (IRIS) The annual percentage change in Net Premiums Written. A company should demonstrate its ability to support controlled business growth with quality surplus growth from strong internal capital generation.

CHANGE IN POLICYHOLDER SURPLUS (IRIS) The percentage change in policyholder surplus from the prior year-end derived from operating earnings, investment gains, net contributed capital and other miscellaneous sources. This ratio measures a company’s ability to increase policyholders’ security.

CHAPTER 13 In a Chapter 13 agreement, the court creates a debt repayment plan that allows the filer to keep their property. In order to file Chapter 13, a person must have a source of income and promise to pay part of their income to creditors. The court allows the filer to keep any assets that have debts against them if they pay them off under terms determined by the court. A Chapter 13 filing will remain on a credit report for 10 years. With Chapter 13, there is a better chance of obtaining future loans and credit.

CHAPTER 7 In a Chapter 7 agreement, the court resolves most debts by selling assets and property so that the filer is given a fresh financial start. The court takes all assets including cars, homes, furnishings, jewelry or anything else of value. The assets are sold to pay off the debt. There are some debts that a person may wish to repay on their own instead of having the court resolve it. This is called reaffirmation. Reaffirmation is a special payment plan with the court. For example, if a car loan is reaffirmed, the person keeps the car and makes payments under new terms. Chapter 7 bankruptcy will not eliminate debts due to taxes, child support, alimony, student loans, court fines or personal injury caused by driving drunk or under the influence of drugs. A Chapter 7 filing will remain on a credit report for 10 years.

CHARTERED PROPERTY AND CASUALTY UNDERWRITER (CPCU) Professional designation earned after the successful completion of 10 national examinations given by the American Institute for Property and Liability Underwriters. Covers such areas of expertise as insurance, risk management, economics, finance, management, accounting, and law. Three years of work experience also are required in the insurance business or a related area.

CHATTEL Another name for personal property.

CLAIM A demand made by the insured, or the insured’s beneficiary, for payment of the benefits as provided by the policy.

CLASS 3-6 BONDS (% OF PHS) This test measures exposure to noninvestment grade bonds as a percentage of surplus. Generally, noninvestment grade bonds carry higher default and illiquidity risks. The designation of quality classifications that coincide with different bond ratings assigned by major credit rating agencies.

CLEAR TITLE A title that is free of liens or legal questions as to ownership of the property.

CLOSED-END CREDIT Generally, any loan or credit sale agreement in which the amounts advanced, plus any finance charges, are expected to be repaid in full over a definite time. Most real estate and automobile loans are closed- end agreements.

CLOSING A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called “settlement.”

CLOSING COST ITEM A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney’s fees. Many closing cost items are included as numbered items on the HUD-1 statement.

CLOSING COSTS Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney’s fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or realtors® often provide estimates of closing costs to prospective homebuyers.

CLOSING STATEMENT See HUD-1 statement.

CLOUD ON TITLE Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

COINSURANCE A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

COINSURANCE In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.

COINSURANCE CLAUSE A provision in a hazard insurance policy that states the amount of coverage that must be maintained — as a percentage of the total value of the property — for the insured to collect the full amount of a loss.

COLLATERAL An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

COLLATERAL Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (Also called security.)

COLLECTION The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

COLLISION INSURANCE Covers physical damage to the insured’s automobile (other than that covered under comprehensive insurance) resulting from contact with another inanimate object.

CO-MAKER A person who signs a promissory note along with the borrower. A co-maker’s signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.

COMBINED RATIO AFTER POLICYHOLDER DIVIDENDS The sum of the loss, expense and policyholder dividend ratios not reflecting investment income or income taxes. This ratio measures the company’s overall underwriting profitability, and a combined ratio of less than 100 indicates an underwriting profit.

COMMERCIAL LINES Refers to insurance for businesses, professionals and commercial establishments.

COMMISSION Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer and the marketing methods.

COMMISSION The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

COMMITMENT LETTER A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a “loan commitment.”

COMMON AREA ASSESSMENTS Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners’ association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.

COMMON AREAS Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

COMMON CARRIER A business or agency that is available to the public for transportation of persons, goods or messages. Common carriers include trucking companies, bus lines and airlines.

COMMON LAW An unwritten body of law based on general custom in England and used to an extent in the United States.

COMMUNITY HOME IMPROVEMENT MORTGAGE LOAN® An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.

COMMUNITY LAND TRUST MORTGAGE LOAN An alternative financing option that enables low- and moderate-income home buyers to purchase housing that has been improved by a nonprofit Community Land Trust and to lease the land on which the property stands.

COMMUNITY PROPERTY In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

COMMUNITY SECONDS® An alternative financing option for low- and moderate-income households under which an investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit organization. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate at all). Part of the debt may be forgiven incrementally for each year the buyer remains in the home.

COMPARABLES An abbreviation for “comparable properties”; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

COMPOUND INTEREST Interest paid on the original principal balance and on the accrued and unpaid interest.

COMPREHENSIVE INSURANCE Auto insurance coverage providing protection in the event of physical damage (other than collision) or theft of the insured car. For example, fire damage or a cracked windshield would be covered under the comprehensive section.

CONCURRENT PERIODS In hospital income protection, when a patient is confined to a hospital due to more than one injury and/or illness at the same time, benefits are paid as if the total disability resulted from only one cause.

CONDEMNATION The determination that a building is not fit for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain.

CONDITIONAL RESERVES This item represents the aggregate of various reserves which, for technical reasons, are treated by companies as liabilities. Such reserves, which are similar to free resources or surplus, include unauthorized reinsurance, excess of statutory loss reserves over statement reserves, dividends to policyholders undeclared and other similar reserves established voluntarily or in compliance with statutory regulations.

CONDITIONALITIES Extra requirements other than repayment (such as ‘structural adjustment’ policies) demanded by the lender before new loans are granted.

CONDOMINIUM A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

CONDOMINIUM CONVERSION Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

CONDOMINIUM HOTEL A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.

CONSTRUCTION LOAN A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

CONSUMER REPORTING AGENCY (OR BUREAU) An organization that prepares reports that are used by lenders to determine a potential borrower’s credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

CONTINGENCY A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

CONTRACT An oral or written agreement to do or not to do a certain thing.

CONVENTIONAL MORTGAGE A mortgage that is not insured or guaranteed by the federal government. Contrast with government mortgage.

CONVERTIBILITY CLAUSE A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

CONVERTIBLE Term life insurance coverage that can be converted into permanent insurance regardless of an insured’s physical condition and without a medical examination. The individual cannot be denied coverage or charged an additional premium for any health problems.

CONVERTIBLE ARM An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

COOPERATIVE (CO-OP) A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

COOPERATIVE CORPORATION A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.

COOPERATIVE MORTGAGES Mortgages related to a cooperative project. This usually refers to the multifamily mortgage covering the entire project but occasionally describes the share loans on the individual units.

COOPERATIVE PROJECT A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.

COPAYMENT A predetermined, flat fee an individual pays for healthcare services, in addition to what insurance covers. For example, some HMOs require a $10 copayment for each office visit, regardless of the type or level of services provided during the visit. Copayments are not usually specified by percentages.

CORPORATE RELOCATION Arrangements under which an employer moves an employee to another area as part of the employer’s normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

COSIGNER Another person who signs for a loan and assumes equal liability for it.

COST OF FUNDS INDEX (COFI) An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See adjustable-rate mortgage (ARM ).

COST-OF-LIVING ADJUSTMENT (COLA) Automatic adjustment applied to Social Security retirement payments when the consumer price index increases at a rate of at least 3%, the first quarter of one year to the first quarter of the next year.

COVENANT A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

COVERAGE The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.

COVERAGE AREA The geographic region covered by travel insurance.

CREDIT An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

CREDIT The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.

CREDIT CARD Any card, plate, or coupon book that may be used repeatedly to borrow money or buy goods and services on credit.

CREDIT HISTORY A record of how a person has borrowed and repaid debts.

CREDIT HISTORY A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

CREDIT LIFE INSURANCE A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.

CREDIT REPORT A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness. See merged credit report.

CREDIT REPOSITORY An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

CREDIT SCORING SYSTEM A statistical system used to determine whether or not to grant credit by assigning numerical scores to various characteristics related to creditworthiness.

CREDITABLE COVERAGE Term means that benefits provided by other drug plans are at least as good as those provided by the new Medicare Part D program. This may be important to people eligible for Medicare Part D but who do not sign up at their first opportunity because if the other plans provide creditable coverage, plan members can later convert to Medicare Part D without paying higher premiums than those in effect during their open enrollment period.

CREDITOR A person to whom money is owed.

CREDITWORTHINESS A creditor’s measure of a consumer’s past and future ability and willingness to repay debts.

CURRENT LIQUIDITY (IRIS) The sum of cash, unaffiliated invested assets and encumbrances on other properties to net liabilities plus ceded reinsurance balances payable, expressed as a percent. This ratio measures the proportion of liabilities covered by unencumbered cash and unaffiliated investments. If this ratio is less than 100, the company’s solvency is dependent on the collectibility or marketability of premium balances and investments in affiliates. This ratio assumes the collectibility of all amounts recoverable from reinsurers on paid and unpaid losses and unearned premiums.

D

DEATH BENEFIT The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.

DEBT An amount owed to another. See installment loan and revolving liability.

DEBT SERVICE Total payments due on loans (repayments plus interest).

DEDUCTIBLE Amount of loss that the insured pays before the insurance kicks in.

DEED The legal document conveying title to a property.

DEED OF TRUST The document used in some states instead of a mortgage; title is conveyed to a trustee.

DEED-IN-LIEU A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a “voluntary conveyance.”

DEFAULT Failure to meet the terms of a credit agreement.

DEFAULT Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

DELINQUENCY Failure to make mortgage payments when mortgage payments are due.

DEPARTMENT OF VETERANS AFFAIRS (VA) An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

DEPOSIT A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan. See earnest money deposit.

DEPRECIATION A decline in the value of property; the opposite of appreciation.

DEVELOPED TO NET PREMIUMS EARNED The ratio of developed premiums through the year to net premiums earned. If premium growth was relatively steady, and the mix of business by line didn’t materially change, this ratio measures whether or not a company’s loss reserves are keeping pace with premium growth.

DEVELOPMENT TO POLICYHOLDER SURPLUS (IRIS) The ratio measures reserve deficiency or redundancy in relation to policyholder surplus. This ratio reflects the degree to which year-end surplus was either overstated (+) or understated (-) in each of the past several years, if original reserves had been restated to reflect subsequent development through year end.

DIRECT PREMIUMS WRITTEN The aggregate amount of recorded originated premiums, other than reinsurance, written during the year, whether collected or not, at the close of the year, plus retrospective audit premium collections, after deducting all return premiums.

DIRECT WRITER An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.

DISCHARGE A legal terms meaning a court has erased your debt(s) not to be confused with a “charge off” or “write off” which is an accounting term which does not erase debts.

DISCOUNT An amount deducted from the regular price for those who purchase with cash instead of credit.

DISCOUNT POINTS See point.

DISEASE MANAGEMENT A system of coordinated health-care interventions and communications for patients with certain illnesses.

DIVIDEND The return of part of the policy’s premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation.

DOWER The rights of a widow in the property of her husband at his death.

DOWN PAYMENT The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

DUE-ON-SALE PROVISION A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

DUE-ON-TRANSFER PROVISION This terminology is usually used for second mortgages. See due-on-sale provision.

E

EARNED PREMIUM The amount of the premium that as been paid for in advance that has been “earned” by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.

EARNEST MONEY DEPOSIT A deposit made by the potential home buyer to show that he or she is serious about buying the house.

EASEMENT A right of way giving persons other than the owner access to or over a property.

EFFECTIVE AGE An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

EFFECTIVE GROSS INCOME Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

ELIMINATION PERIOD The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as “waiting period.”

EMINENT DOMAIN The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

EMPLOYER-ASSISTED HOUSING A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.

EMPLOYERS LIABILITY INSURANCE Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers’ compensation law.

ENCROACHMENT An improvement that intrudes illegally on another’s property.

ENCUMBRANCE Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

ENCUMBRANCE A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.

ENDORSER A person who signs ownership interest over to another party. Contrast with co-maker.

EQUAL CREDIT OPPORTUNITY ACT (ECOA) A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

EQUITY A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

ESCROW An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

ESCROW ACCOUNT The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.

ESCROW ANALYSIS The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

ESCROW COLLECTIONS Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.

ESCROW DISBURSEMENTS The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

ESCROW PAYMENT The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as “impounds” or “reserves” in some states.

ESTATE The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

EVICTION The lawful expulsion of an occupant from real property.

EXAMINATION OF TITLE The report on the title of a property from the public records or an abstract of the title.

EXCLUSIONS Items or conditions that are not covered by the general insurance contract.

EXCLUSIVE LISTING A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.

EXECUTOR A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. “Executrix” is the feminine form.

EXPENSE RATIO The ratio of underwriting expenses (including commissions) to net premiums written. This ratio measures the company’s operational efficiency in underwriting its book of business.

EXPOSURE Measure of vulnerability to loss, usually expressed in dollars or units.

EXTENDED REPLACEMENT COST This option extends replacement cost loss settlement to personal property and to outdoor antennas, carpeting, domestic appliances, cloth awnings, and outdoor equipment, subject to limitations on certain kinds of personal property; includes inflation protection coverage.

F

FAIR CREDIT REPORTING ACT A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

FAIR MARKET VALUE The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

FANNIE 97® A financing option for a fixed-rate mortgage that offers home buyers a 3 percent down payment loan with either a 25- or 30-year term. The mortgage features a loan-to-value (LTV) percentage of 97 percent, and is designed to expand homeownership opportunities for people with modest incomes. Borrowers must take a pre-purchase home-buyer education session to qualify for a Fannie 97 mortgage.

FANNIE MAE Fannie Mae is a New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation’s largest source of financing for home mortgages. Over the past 30 years, Fannie Mae has provided nearly $2.5 trillion of mortgage financing for over 30 million families.

FANNIE MAE’S COMMUNITY HOME BUYER’S PROGRAMSM An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income familys buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

FEDERAL HOUSING ADMINISTRATION (FHA) An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

FEE SIMPLE The greatest possible interest a person can have in real estate.

FEE SIMPLE ESTATE An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA COINSURED MORTGAGE A mortgage (under FHA Section 244) for which the Federal Housing Administration (FHA) and the originating lender share the risk of loss in the event of the mortgagor’s default.

FHA MORTGAGE A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

FILE-AND-USE RATING LAWS State-based laws which permit insurers to adopt new rates without the prior approval of the insurance department. Usually insurers submit their new rates with supporting statistical data.

FINANCE CHARGE The total dollar amount paid to get credit.

FINANCING ENTITY Provides money for purchases.

FINDER’S FEE A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

FIRM COMMITMENT A lender’s agreement to make a loan to a specific borrower on a specific property.

FIRST MORTGAGE A mortgage that is the primary lien against a property.

FIXED INSTALLMENT The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.

FIXED RATE A traditional approach to determining the finance charge payable on an extension of credit. A predetermined and certain rate of interest is applied to the principal.

FIXED-RATE MORTGAGE (FRM) A mortgage in which the interest rate does not change during the entire term of the loan.

FIXTURE Personal property that becomes real property when attached in a permanent manner to real estate.

FLOATER A separate policy available to cover the value of goods beyond the coverage of a standard renters insurance policy including movable property such as jewelry or sports equipment.

FLOOD INSURANCE Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

FORECLOSURE The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mrotgage debt.

FORFEITURE The loss of money, property, rights, or privileges due to a breach of legal obligation.

FULLY AMORTIZED ARM An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

FUTURE PURCHASE OPTION Life and health insurance provisions that guarantee the insured the right to buy additional coverage without proving insurability. Also known as “guaranteed insurability option.”

G

GENERAL ACCOUNT All premiums are paid into an insurer’s general account. Thus, buyers are subject to credit-risk exposure to the insurance company, which is low but not zero.

GENERAL LIABILITY INSURANCE Insurance designed to protect business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured’s premises or operations, products sold by the insured, operations completed by the insured, and contractual liability.

GOVERNMENT MORTGAGE A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Contrast with conventional mortgage.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.

GRACE PERIOD The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time. In Universal Life policies, it typically provides for coverage to remain in force for 60 days following the date cash value becomes insufficient to support the payment of monthly insurance costs.

GRADUATED PAYMENT Repayment terms calling for gradual increases in the payments on a closed-end obligation. A graduated payment loan usually involves negative amortization.

GRANTEE The person to whom an interest in real property is conveyed.

GRANTOR The person conveying an interest in real property.

GROSS LEVERAGE The sum of net leverage and ceded reinsurance leverage. This ratio measures a company’s gross exposure to pricing errors in its current book of business, to errors of estimating its liabilities, and exposure to its reinsurers.

GROUND RENT The amount of money that is paid for the use of land when title to a property is held as a leasehold estate rather than as a fee simple estate.

GROUP HOME A single-family residential structure designed or adapted for occupancy by unrelated developmentally disabled persons. The structure provides long-term housing and support services that are residential in nature.

GROWING-EQUITY MORTGAGE (GEM) A fixed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased amount of the monthly payment applied directly toward reducing the remaining balance of the mortgage.

GUARANTEE MORTGAGE A mortgage that is guaranteed by a third party.

GUARANTEED INSURABILITY OPTION See future purchase option.

GUARANTEED ISSUE RIGHT The right to purchase insurance without physical examination; the present and past physical condition of the applicants are not considered.

GUARANTEED LOAN Also known as a government mortgage.

GUARANTEED RENEWABLE A policy provision in many products which guarantees the policyowner the right to renew coverage at every policy anniversary date. The company does not have the right to cancel coverage except for nonpayment of premiums by the policyowner; however, the company can raise rates if they choose.

GUARANTY ASSOCIATION An organization of life insurance companies within a state responsible for covering the financial obligations of a member company that becomes insolvent.

H

HAZARD A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.

HAZARD INSURANCE Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.

HAZARDOUS ACTIVITY Bungee jumping, scuba diving, horse riding and other activities not generally covered by standard insurance policies. For insurers that do provide cover for such activities, it is unlikely they will cover liability and personal accident, which should be provided by the company hosting the activity.

HEALTH MAINTENANCE ORGANIZATION (HMO) Prepaid group health insurance plan that entitles members to services of participating physicians, hospitals and clinics. Emphasis is on preventative medicine, and members must use contracted health-care providers.

HEALTH REIMBURSEMENT ARRANGEMENT Owners of high-deductible health plans who are not qualified for a health savings account can use an HRA.

HEALTH SAVINGS ACCOUNT Plan that allows you to contribute pre-tax money to be used for qualified medical expenses. HSAs, which are portable, must be linked to a high-deductible health insurance policy.

HOME EQUITY CONVERSION MORTGAGE (HECM) A special type of mortgage that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property. Sometimes called a reverse mortgage.

HOME EQUITY LINE OF CREDIT A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower’s equity in a property.

HOME INSPECTION A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.

HOMEKEEPERSM Fannie Mae’s adjustable-rate conventional reverse mortgage, which allows older homeowners to borrow against the value of their homes and receive the proceeds according to the payment option they select. The amount available is based on the number of borrowers and their ages and the adjusted property value. Anyone 62 years or older who either owns his or her own home free and clear or has very low mortgage debt is eligible.

HOMEOWNERS’ ASSOCIATION A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

HOMEOWNER’S INSURANCE An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

HOMEOWNER’S WARRANTY (HOW) A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.

HOMESTYLE® MORTGAGE LOAN A mortgage that enables eligible borrowers to obtain financing to remodel, repair, and upgrade their existing homes or homes that they are purchasing. The financing takes the form of a conventional second mortgage or a Federal Housing Administration (FHA) Section 203(k) first mortgage.

HOUSING EXPENSE RATIO The percentage of gross monthly income that goes toward paying housing expenses.

HUD MEDIAN INCOME Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 STATEMENT A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the “closing statement” or “settlement sheet.”

HURRICANE DEDUCTIBLE Amount you must pay out-of-pocket before hurricane insurance will kick in. Many insurers in hurricane-prone states are selling homeowners insurance policies with percentage deductibles for storm damage, instead of the traditional dollar deductibles used for claims such as fire and theft. Percentage deductibles vary from one percent of a home’s insured value to 15 percent, depending on many factors that differ by state and insurer.

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IMPAIRED INSURER An insurer which is in financial difficulty to the point where its ability to meet financial obligations or regulatory requirements is in question.

INCOME PROPERTY Real estate developed or improved to produce income.

INCOME TAXES Incurred income taxes (including income taxes on capital gains) reported in each annual statement for that year.

INDEMNITY Restoration to the victim of a loss by payment, repair or replacement.

INDEPENDENT INSURANCE AGENTS & BROKERS OF AMERICA (IIABA) Formerly the Independent Insurance Agents of America (IIAA), this is a member organization of independent agents and brokers monitoring and affecting industry issues. Numerous state associations are affiliated with the IIABA.

INDEX A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM.. This interest rate is subject to any caps that are associated with the mortgage.

IN-FILE CREDIT REPORT An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.

INFLATION An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.

INFLATION PROTECTION An optional property coverage endorsement offered by some insurers that increases the policy’s limits of insurance during the policy term to keep pace with inflation.

INITIAL INTEREST RATE The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as “start rate” or “teaser.”

INSTALLMENT The regular periodic payment that a borrower agrees to make to a lender.

INSTALLMENT LOAN Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.

INSURABLE INTEREST Interest in property such that loss or destruction of the property could cause a financial loss.

INSURABLE TITLE A property title that a title insurance company agrees to insure against defects and disputes.

INSURANCE A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

INSURANCE ADJUSTER A representative of the insurer who seeks to determine the extent of the insurer’s liability for loss when a claim is submitted. Independent insurance adjusters are hired by insurance companies on an “as needed” basis and might work for several insurance companies at the same time. Independent adjusters charge insurance companies both by the hour and by miles traveled. Public adjusters work for the insured in the settlement of claims and receive a percentage of the claim as their fee. A.M. Best’s Directory of Recommended Insurance Attorneys and Adjusters lists independent adjusters only.

INSURANCE ATTORNEYS An attorney who practices the law as it relates to insurance matters. Attorneys might be solo practitioners or work as part of a law firm. Insurance companies who retain attorneys to defend them against law suits might hire staff attorneys to work for them in-house or they might retain attorneys on an as-needed basis. A.M. Best’s Directory of Recommended Attorneys and Adjusters lists insurance defense attorneys who concentrate their practice in insurance defense such as coverage issues, bad faith, malpractice, products liability, and workers’ compensation.

INSURANCE BINDER A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

INSURANCE INSTITUTE OF AMERICA (IIA) An organization which develops programs and conducts national examinations in general insurance, risk management, management, adjusting, underwriting, auditing and loss control management.

INSURANCE REGULATORY INFORMATION SYSTEM (IRIS) Introduced by the National Association of Insurance Commissioners in 1974 to identify insurance companies that might require further regulatory review.

INSURED MORTGAGE A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.

INTEREST The fee charged for borrowing money.

INTEREST ACCRUAL RATE The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.

INTEREST RATE The rate of interest in effect for the monthly payment due.

INTEREST RATE BUYDOWN PLAN An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage. During the specified period, the mortgagor’s effective interest rate is “bought down” below the actual interest rate.

INTEREST RATE CEILING For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

INTEREST RATE FLOOR For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

INTEREST-CREDITING METHODS There are at least 35 interest-crediting methods that insurers use. They usually involve some combination of point-to-point, annual reset, yield spread, averaging, or high water mark.

INVESTMENT INCOME The return received by insurers from their investment portfolios including interest, dividends and realized capital gains on stocks. It doesn’t include the value of any stocks or bonds that the company currently owns.

INVESTMENT PROPERTY A property that is not occupied by the owner.

INVESTMENTS IN AFFILIATES Bonds, stocks, collateral loans, short-term investments in affiliated and real estate properties occupied by the company.

IRA (INDIVIDUAL RETIREMENT ACCOUNT) A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

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JOINT TENANCY A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

JUDGMENT A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor.

JUDGMENT LIEN A lien on the property of a debtor resulting from the decree of a court.

JUDICIAL FORECLOSURE A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

JUMBO LOAN A loan that exceeds Fannie Mae’s legislated mortgage amount limits. Also called a nonconforming loan.

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LADDERING Purchasing bond investments that mature at different time intervals.

LAPSE RATIO The ratio of the number of life insurance policies that lapsed within a given period to the number in force at the beginning of that period.

LATE CHARGE The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

LEASE A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

LEASEHOLD ESTATE A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

LEASE-PURCHASE MORTGAGE LOAN An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month’s rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a downpayment will accumulate.

LEAST EXPENSIVE ALTERNATIVE TREATMENT The amount an insurance company will pay based on its determination of cost for a particular procedure.

LEGAL DESCRIPTION A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

LEVERAGE OR CAPITALIZATION Measures the exposure of a company’s surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.

LIABILITIES A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

LIABILITY Legal responsibility to repay debt.

LIABILITY Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.

LIABILITY INSURANCE Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.

LIABILITY INSURANCE Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party.

LICENSED Indicates the company is incorporated (or chartered) in another state but is a licensed (admitted) insurer for this state to write specific lines of business for which it qualifies.

LICENSED FOR REINSURANCE ONLY Indicates the company is a licensed (admitted) insurer to write reinsurance on risks in this state.

LIEN A legal claim against a property that must be paid off when the property is sold.

LIEN a notice a creditor attaches to your property that tells the world that you owe the creditor money. You cannot sell the property without paying off the creditor because the lien makes the “title” (history of ownership) cloudy and a new owner won’t buy under those conditions.

LIFETIME PAYMENT CAP For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See cap.

LIFETIME RATE CAP For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.

LIFETIME RESERVE DAYS Sixty additional days Medicare pays for when you are hospitalized for more than 90 days in a benefit period. These days can only be used once during your lifetime. For each lifetime reserve day, Medicare pays all covered costs except for a daily coinsurance amount.

LINE OF CREDIT An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. See home equity line of credit.

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

LIQUIDITY Liquidity is the ability of an individual or business to quickly convert assets into cash without incurring a considerable loss. There are two kinds of liquidity: quick and current. Quick liquidity refers to funds,cash, short-term investments, and government bonds and possessions which can immediately be converted into cash in the case of an emergency. Current liquidity refers to current liquidity plus possessions such as real estate which cannot be immediately liquidated, but eventually can be sold and converted into cash. Quick liquidity is a subset of current liquidity. This reflects the financial stability of a company and thus their rating.

LIVING BENEFITS This feature allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Also known as “accelerated death benefits.”

LLOYDS Generally refers to Lloyds of London, England, an institution within which individual underwriters accept or reject the risks offered to them. The Lloyds Corp. provides the support facility for their activities.

LLOYDS ORGANIZATIONS These organizations are voluntary unincorporated associations of individuals. Each individual assumes a specified portion of the liability under each policy issued. The underwriters operate through a common attorney in-fact appointed for this purpose by the underwriters. The laws of most states contain some provisions governing the formation and operation of such organizations, but these laws dont generally provide as strict a supervision and control as the laws dealing with incorporated stock and mutual insurance companies.

LOAN A sum of borrowed money (principal) that is generally repaid with interest.

LOAN COMMITMENT See commitment letter.

LOAN ORIGINATION The process by which a mortgage lender brings into existence a mortgage secured by real property.

LOAN-TO-VALUE (LTV) PERCENTAGE The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.

LOCK-IN A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

LOCK-IN PERIOD The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.

LOSS ADJUSTMENT EXPENSES Expenses incurred to investigate and settle losses.

LOSS AND LOSS Adjustment Reserves to Policyholder Surplus Ratio – The higher the multiple of loss reserves to surplus, the more a company’s solvency is dependent upon having and maintaining reserve adequacy.

LOSS CONTROL All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and noninsurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self insuring, and other techniques that minimize the risks of a business, individual, or organization.

LOSS RATIO The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company’s underlying profitability, or loss experience, on its total book of business.

LOSS RESERVE The estimated liability, as it would appear in an insurer’s financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out on that claim.

LOSSES AND LOSS Adjustment Expenses – This represents the total reserves for unpaid losses and loss-adjustment expenses, including reserves for any incurred but not reported losses, and supplemental reserves established by the company. It is the total for all lines of business and all accident years.

LOSSES INCURRED (PURE LOSSES) Net paid losses during the current year plus the change in loss reserves since the prior year end.

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MARGIN For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.

MASTER ASSOCIATION A homeowners’ association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a “second-level” association that handles matters affecting the entire development, while the “first-level” associations handle matters affecting their particular portions of the project.

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

MAXIMUM FINANCING A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.

MEDICAL LOSS RATIO Total health benefits divided by total premium.

MEMBER MONTH Total number of health plan participants who are members for each month.

MERGED CREDIT REPORT A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.

MODIFICATION The act of changing any of the terms of the mortgage.

MONEY MARKET ACCOUNT A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

MONEY MARKET FUND A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.

MONTHLY FIXED INSTALLMENT That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction.

MONTHLY PAYMENT MORTGAGE A mortgage that requires payments to reduce the debt once a month.

MORTALITY AND EXPENSE RISK FEES A charge that covers such annuity contract guarantees as death benefits.

MORTGAGE A legal document that pledges a property to the lender as security for payment of a debt.

MORTGAGE BANKER A company that originates mortgages exclusively for resale in the secondary mortgage market.

MORTGAGE BROKER An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.

MORTGAGE INSURANCE A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. See private mortgage insurance (MI).

MORTGAGE INSURANCE POLICY In life and health insurance, a policy covering a mortgagor with benefits intended to pay off the balance due on a mortgage upon the insureds death, or to meet the payments due on a mortgage in case of the insureds death or disability.

MORTGAGE INSURANCE PREMIUM (MIP) The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

MORTGAGE LIFE INSURANCE A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

MORTGAGEE The lender in a mortgage agreement.

MORTGAGOR The borrower in a mortgage agreement.

MULTIDWELLING UNITS Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

MULTIFAMILY MORTGAGE A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

MUTUAL INSURANCE COMPANIES Companies with no capital stock, and owned by policyholders. The earnings of the company over and above the payments of the losses, operating expenses and reserves are the property of the policyholders. There are two types of mutual insurance companies. A nonassessable mutual charges a fixed premium and the policyholders cannot be assessed further. Legal reserves and surplus are maintained to provide payment of all claims. Assessable mutuals are companies that charge an initial fixed premium and, if that isnt sufficient, might assess policyholders to meet losses in excess of the premiums that have been charged.

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NAMED PERILS Perils specifically covered on insured property.

NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC) Association of state insurance commissioners whose purpose is to promote uniformity of insurance regulation, monitor insurance solvency and develop model laws for passage by state legislatures.

NEGATIVE AMORTIZATION A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create “negative” amortization.

NEGATIVE AMORTIZATION Repayment schedule calling for periodic payments that are insufficient to fully amortize the loan. Earned but unpaid interest is added to the principal, increasing the debt. Eventually, payments must be rescheduled to fully pay off the debt. phentermine xenical

NET CASH FLOW The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners’ association dues, leasehold payments, and subordinate financing payments.

NET INCOME The total after-tax earnings generated from operations and realized capital gains as reported in the company’s NAIC annual statement on page 4, line 16.

NET INVESTMENT INCOME This item represents investment income earned during the year less investment expenses and depreciation on real estate. Investment expenses are the expenses related to generating investment income and capital gains but exclude income taxes.

NET LEVERAGE The sum of a company’s net premium written to policyholder surplus and net liabilities to policyholder surplus. This ratio measures the combination of a company’s net exposure to pricing errors in its current book of business and errors of estimation in its net liabilities after reinsurance, in relation to policyholder surplus.

NET LIABILITIES TO POLICYHOLDER SURPLUS Net liabilities expressed as a ratio to policyholder surplus. Net liabilities equal total liabilities less conditional reserves, plus encumbrances on real estate, less the smaller of receivables from or payable to affiliates. This ratio measures company’s exposures to errors of estimation in its loss reserves and all other liabilities. Loss-reserve leverage is generally the key component of net liability leverage. The higher the loss-reserve leverage the more critical a company’s solvency depends upon maintaining reserve adequacy.

NET PREMIUM The amount of premium minus the agent’s commission. Also, the premium necessary to cover only anticipated losses, before loading to cover other expenses.

NET PREMIUMS EARNED The adjustment of net premiums written for the increase or decrease of the company’s liability for unearned premiums during the year. When an insurance company’s business increases from year to year, the earned premiums will usually be less than the written premiums. With the increased volume, the premiums are considered fully paid at the inception of the policy so that, at the end of a calendar period, the company must set up premiums representing the unexpired terms of the policies. On a decreasing volume, the reverse is true.

NET PREMIUMS WRITTEN Represents gross premium written, direct and reinsurance assumed, less reinsurance ceded.

NET PREMIUMS WRITTEN TO POLICYHOLDER SURPLUS (IRIS) This ratio measures a company’s net retained premiums written after reinsurance assumed and ceded, in relation to its surplus. This ratio measures the company’s exposure to pricing errors in its current book of business.

NET UNDERWRITING INCOME Net premiums earned less incurred losses, loss-adjustment expenses, underwriting expenses incurred, and dividends to policyholders.

NET WORTH The value of all of a person’s assets, including cash, minus all liabilities.

NO CASH-OUT REFINANCE A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower’s use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).

NONCANCELLABLE Contract terms, including costs that can never be changed.

NONLIQUID ASSET An asset that cannot easily be converted into cash.

NON-RECOURSE MORTGAGE A home loan in which the borrower can never owe more than the home’s value at the time the loan is repaid.

NONSTANDARD AUTO (HIGH RISK AUTO OR SUBSTANDARD AUTO) Insurance for motorists who have poor driving records or have been canceled or refused insurance. The premium is much higher than standard auto due to the additional risks.

NOTE A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during 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 a default has occurred and that legal action may be taken.

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OCCURRENCE An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesnt have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected not intended by the insured.

OPEN-END CREDIT A line of credit that may be used repeatedly up to a certain limit also called a charge account or revolving credit.

OPEN-END LEASE A lease that may involve a balloon payment based on the value of the property when it is returned. (Also called finance lease.)

OPERATING CASH FLOW Measures the funds generated from insurance operations, which includes the change in cash and invested assets attributed to underwriting activities, net investment income and federal income taxes. This measure excludes stockholder dividends, capital contributions, unrealized capital gains/losses and various noninsurance related transactions with affiliates. This test measures a company’s ability to meet current obligations through the internal generation of funds from insurance operations. Negative balances might indicate unprofitable underwriting results or low yielding assets.

OPERATING RATIO (IRIS) Combined ratio less the net investment income ratio (net investment income to net premiums earned). The operating ratio measures a company’s overall operational profitability from underwriting and investment activities. This ratio doesn’t reflect other operating income/expenses, capital gains or income taxes. An operating ratio of more than 100 indicates a company is unable to generate profits from its underwriting and investment activities.

ORIGINAL PRINCIPAL BALANCE The total amount of principal owed on a mortgage before any payments are made.

ORIGINATION FEE A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

OTHER INCOME/EXPENSES This item represents miscellaneous sources of operating income or expenses that principally relate to premium finance income or charges for uncollectible premium and reinsurance business.

OUT-OF-POCKET LIMIT A predetermined amount of money that an individual must pay before insurance will pay 100% for an individual’s health-care expenses.

OVERALL LIQUIDITY RATIO Total admitted assets divided by total liabilities less conditional reserves. This ratio indicates a company’s ability to cover net liabilities with total assets. This ratio doesn’t address the quality and marketability of premium balances, affiliated investments and other uninvested assets.

OVERDRAFT CHECKING ACCOUNT A checking account associated with a line of credit that allows a person to write checks for more than the actual balance in the account, with a finance charge on the overdraft.

OWN OCCUPATION Insurance contract provision that allows policyholders to collect benefits if they can no longer work in their own occupation.

OWNER FINANCING A property purchase transaction in which the property seller provides all or part of the financing.

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PAID-UP ADDITIONAL INSURANCE An option that allows the policyholder to use policy dividends and/or additional premiums to buy additional insurance on the same plan as the basic policy and at a face amount determined by the insured’s attained age.

PARTIAL PAYMENT A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.

PARTICIPATION RATE – IN EQUITY indexed annuities, a participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80%, which means the annuity would only be credited with 80% of the gain experienced by the index.

PAYDAY LOAN a loan where a borrower gets cash advanced based on his paycheck. These loans generally up are up $500 and must be repaid on the next payday.

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

PERIL The cause of a possible loss.

PERIODIC PAYMENT CAP For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period. See cap.

PERIODIC RATE CAP For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be. See cap.

PERSONAL INJURY PROTECTION Pays basic expenses for an insured and his or her family in states with no-fault auto insurance. No-fault laws generally require drivers to carry both liability insurance and personal injury protection coverage to pay for basic needs of the insured, such as medical expenses, in the event of an accident.

PERSONAL LINES Insurance for individuals and families, such as private-passenger auto and homeowners insurance.

PERSONAL PROPERTY Any property that is not real property.

PITI See principal, interest, taxes, and insurance (PITI).

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.

PLANNED UNIT DEVELOPMENT See PUD.

POINT A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.

POINT-OF-SERVICE PLAN Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.

POINTS Finance charges paid by the borrower at the beginning of a loan in addition to monthly interest; each point equals one percent of the loan amount.

POLICY The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attached thereto and made a part thereof.

POLICY OR SALES ILLUSTRATION Material used by an agent and insurer to show how a policy may perform under a variety of conditions and over a number of years.

POLICYHOLDER DIVIDEND RATIO The ratio of dividends to policyholders related to net premiums earned.

POLICYHOLDER SURPLUS The sum of paid in capital, paid in and contributed surplus, and net earned surplus, including voluntary contingency reserves. It also is the difference between total admitted assets and total liabilities.

POWER OF ATTORNEY A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

PREARRANGED REFINANCING AGREEMENT A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in the costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.

PRE-EXISTING CONDITION A coverage limitation included in many health policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.

PREFERRED AUTO Auto coverage for drivers who have never had an accident and operates vehicles according to law. Drivers are not a risk for any insurance company that writes auto insurance, and no insurance company would be afraid to take them on as risk.

PREFERRED PROVIDER ORGANIZATION Network of medical providers who charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.

PREFORECLOSURE SALE A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount that is owed to the investor.

PREMIUM The price of insurance protection for a specified risk for a specified period of time.

PREMIUM BALANCES Premiums and agents’ balances in course of collection; premiums, agents’ balances and installments booked but deferred and not yet due; bills receivable, taken for premiums and accrued retrospective premiums.

PREMIUM EARNED The amount of the premium that as been paid for in advance that has been “earned” by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.

PREMIUM TO SURPLUS RATIO This ratio is designed to measure the ability of the insurer to absorb above-average losses and the insurer’s financial strength. The ratio is computed by dividing net premiums written by surplus. An insurance company’s surplus is the amount by which assets exceed liabilities. The ratio is computed by dividing net premiums written by surplus. For example, a company with $2 in net premiums written for every $1 of surplus has a 2-to-1 premium to surplus ratio. The lower the ratio, the greater the company’s financial strength. State regulators have established a premium-to-surplus ratio of no higher than 3-to-1 as a guideline.

PREMIUM UNEARNED That part of the premium applicable to the unexpired part of the policy period.

PREPAYMENT Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner’s decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

PREPAYMENT PENALTY A fee that may be charged to a borrower who pays off a loan before it is due.

PRE-QUALIFICATION The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

PRETAX OPERATING INCOME Pretax operating earnings before any capital gains generated from underwriting, investment and other miscellaneous operating sources.

PRETAX RETURN ON REVENUE A measure of a company’s operating profitability and is calculated by dividing pretax operating earnings by net premiums earned.

PRIME RATE The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

PRINCIPAL The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

PRINCIPAL Amount of the loan.

PRINCIPAL BALANCE The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.

PRINCIPAL, INTEREST, TAXES, AND INSURANCE (PITI) The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

PRIVATE MORTGAGE INSURANCE (MI) Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

PRIVATE-PASSENGER AUTO INSURANCE POLICYHOLDER RISK PROFILE This refers to the risk profile of auto insurance policyholders and can be divided into three categories: standard, nonstandard and preferred. In the eyes of an insurance company, it is the type of business (or the quality of driver) that the company has chosen to taken on.

PROFIT A measure of the competence and ability of management to provide viable insurance products at competitive prices and maintain a financially strong company for both policyholders and stockholders.

PROMISSORY NOTE A written promise to repay a specified amount over a specified period of time.

PROTECTED CELL COMPANY (PCC) A PCC is a single legal entity that operates segregated accounts, or cells, each of which is legally protected from the liabilities of the company’s other accounts. An individual client’s account is insulated from the gains and losses of other accounts, such that the PCC sponsor and each client are protected against liquidation activities by creditors in the event of insolvency of another client.

PUBLIC AUCTION A meeting in an announced public location to sell property to repay a mortgage that is in default.

PUD – PLANNED UNIT DEVELOPMENT A project or subdivision that includes common property that is owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owners.

PURCHASE AND SALE AGREEMENT A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

PURCHASE MONEY TRANSACTION The acquisition of property through the payment of money or its equivalent.

Q

QUALIFIED HIGH-DEDUCTIBLE HEALTH PLAN A health plan with lower premiums that covers health-care expenses only after the insured has paid each year a large amount out of pocket or from another source. To qualify as a health plan coupled with a Health Savings Account, the Internal Revenue Code requires the deductible to be at least $1,000 for an individual and $2,000 for a family. High-deductible plans are also known as catastrophic plans.

QUALIFIED VERSUS NON-QUALIFIED POLICIES Qualified plans are those employee benefit plans that meet Internal Revenue Service requirements as stated in IRS Code Section 401a. When a plan is approved, contributions made by the employer are tax deductible expenses.

QUALIFYING EVENT An occurrence that triggers an insured’s protection.

QUALIFYING RATIOS Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

QUICK ASSETS Assets that are quickly convertible into cash.

QUICK LIQUIDITY RATIO Quick assets divided by net liabilities plus ceded reinsurance balances payable. Quick assets are defined as the sum of cash, unaffiliated short-term investments, unaffiliated bonds maturing within one year, government bonds maturing within five years, and 80% of unaffiliated common stocks. These assets can be quickly converted into cash in the case of an emergency.

QUITCLAIM DEED A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

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RADON A radioactive gas found in some homes that in sufficient concentrations can cause health problems.

RATE LOCK A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time. See lock-in.

RATE-IMPROVEMENT MORTGAGE A fixed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate (without refinancing) during the early years of the mortgage term.

REAL ESTATE AGENT A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

REAL PROPERTY Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

REALTOR® A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors®.

RECIPROCAL INSURANCE EXCHANGE An unincorporated groups of individuals, firms or corporations, commonly termed subscribers, who mutually insure one another, each separately assuming his or her share of each risk. Its chief administrator is an attorney-in-fact.

RECISSION The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.

RECORDER The public official who keeps records of transactions that affect real property in the area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”

RECORDING The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

RE-ENTRY-RE-ENTRY The allowance for level-premium term policyowners to qualify for another level-premium period, generally with new evidence of insurability.

REFINANCE TRANSACTION The process of paying off one loan with the proceeds from a new loan using the same property as security.

REHABILITATION MORTGAGE A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.

REINSURANCE In effect, insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn’t fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.

REINSURANCE CEDED The unit of insurance transferred to a reinsurer by a ceding company.

REINSURANCE RECOVERABLES TO POLICYHOLDER SURPLUS Measures a company’s dependence upon its reinsurers and the potential exposure to adjustments on such reinsurance. Its determined from the total ceded reinsurance recoverables due from non-U.S. affiliates for paid losses, unpaid losses, losses incurred but not reported (IBNR), unearned premiums and commissions less funds held from reinsurers expressed as a percent of policyholder surplus.

REMAINING BALANCE The amount of principal that has not yet been repaid. See principal balance.

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

RENEGOTIABLE RATE A type of variable rate involving a renewable short- term “balloon” note. The interest rate on the loan is generally fixed during the term of the note, but when the balloon comes due, the lender may refinance it at a higher rate. In order for the loan to be fully amortized, periodic refinancing may be necessary.

RENEWAL The automatic re-establishment of in-force status effected by the payment of another premium.

RENT LOSS INSURANCE Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

RENT WITH OPTION TO BUY See lease-purchase mortgage loan.

REPAYMENT PLAN An arrangement made to repay delinquent installments or advances. Lenders’ formal repayment plans are called “relief provisions.”

REPLACEMENT COST The dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

REPLACEMENT RESERVE FUND A fund set aside for replacement of common property in a condominium, PUD, or cooperative project — particularly that which has a short life expectancy, such as carpeting, furniture, etc.

RESCHEDULE Revised timetable for loan repayments, usually granting longer repayment periods and often involving new loans to pay old ones

RESERVE An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.

RESIDUAL BENEFIT In disability insurance, a benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists. This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.

RETURN ON POLICYHOLDER SURPLUS (RETURN ON EQUITY) The sum of after-tax net income and unrealized capital gains, to the mean of prior and current year-end policyholder surplus, expressed as a percent. This ratio measures a company’s overall after-tax profitability from underwriting and investment activity.

REVOLVING LIABILITY A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.

RIGHT OF FIRST REFUSAL A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

RIGHT OF INGRESS OR EGRESS The right to enter or leave designated premises.

RIGHT OF SURVIVORSHIP In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

RISK CLASS Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical underwriting classifications are preferred, standard and substandard, smoking and nonsmoking, male and female.

RISK MANAGEMENT Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.

RISK RETENTION GROUPS Liability insurance companies owned by their policyholders. Membership is limited to people in the same business or activity, which exposes them to similar liability risks. The purpose is to assume and spread liability exposure to group members and to provide an alternative risk financing mechanism for liability. These entities are formed under the Liability Risk Retention Act of 1986. Under law, risk retention groups are precluded from writing certain coverages, most notably property lines and workers’ compensation. They predominately write medical malpractice, general liability, professional liability, products liability and excess liability coverages. They can be formed as a mutual or stock company, or a reciprocal.

RURAL HOUSING SERVICE (RHS) An agency within the Department of Agriculture, which operates principally under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.

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SALE-LEASEBACK A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.

SECOND MORTGAGE A mortgage that has a lien position subordinate to the first mortgage.

SECONDARY MARKET The secondary market is populated by buyers willing to pay what they determine to be fair market value.

SECONDARY MORTGAGE MARKET The buying and selling of existing mortgages.

SECTION 1035 EXCHANGE This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity policy without creating a taxable event.

SECTION 7702 Part of the Internal Revenue Code that defines the conditions a life policy must satisfy to qualify as a life insurance contract, which has tax advantages.

SECURED LOAN A loan that is backed by collateral.

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

SECURITY INTEREST The creditor’s right to take property or a portion of property offered as security.

SELLER TAKE-BACK An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See owner financing.

SELLER’S POINTS A lump sum paid by the seller to the buyer’s creditor to reduce the cost of the loan to the buyer. This payment is either required by the creditor or volunteered by the seller, usually in a loan to buy real estate. Generally, one point equals one percent of the loan amount. phentermine diet pills

SEPARATE ACCOUNT A separate account is an investment option that is maintained separately from an insurer’s general account. Investment risk associated with separate-account investments is born by the contract owner.

SERVICE CHARGE A component of some finance charges, such as the fee for triggering an overdraft checking account into use.

SERVICER An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

SERVICING The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

SETTLEMENT See closing.

SETTLEMENT SHEET See HUD-1 statement.

SOLVENCY Having sufficient assets i.e. capital, surplus, reserves–and being able to satisfy financial requirements–investments, annual reports, examinations–to be eligible to transact insurance business and meet liabilities.

SPECIAL DEPOSIT ACCOUNT An account that is established for rehabilitation mortgages to hold the funds needed for the rehabilitation work so they can be disbursed from time to time as particular portions of the work are completed.

STANDARD AUTO Auto insurance for average drivers with relatively few accidents during lifetime.

STANDARD PAYMENT CALCULATION The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

STATE OF DOMICILE The state in which the company is incorporated or chartered. The company also is licensed (admitted) under the state’s insurance statutes for those lines of business for which it qualifies.

STATEMENT The monthly bill from a credit card issuer that describes and summarizes the activity on an account. A statement includes the outstanding balance, purchases, payments, credits, finance charges and other transactions for the month. also see phentermine prescriptions

STATEMENT DATE The date on which a statement is generated, and the month’s finance charges (interest) are added to the balance.

STATUTORY RESERVE A reserve, either specific or general, required by law.

STEP-RATE MORTGAGE A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.

STOCK INSURANCE COMPANY An incorporated insurer with capital contributed by stockholders, to whom earnings are distributed as dividends on their shares.

STOP LOSS Any provision in a policy designed to cut off an insurer’s losses at a given point.

SUBACCOUNT CHARGE The fee to manage a subaccount, which is an investment option in variable products that is separate from the general account.

SUBDIVISION A housing development that is created by dividing a tract of land into individual lots for sale or lease.

SUBORDINATE FINANCING Any mortgage or other lien that has a priority that is lower than that of the first mortgage.

SUBROGATION The right of an insurer who has taken over another’s loss also to take over the other person’s right to pursue remedies against a third party.

SUBSIDIZED SECOND MORTGAGE An alternative financing option known as the Community Seconds® mortgage for low- and moderate-income households. An investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit corporation. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate). Part of the debt may be forgiven incrementally for each year the buyer remains in the home.

SUCCESSIVE PERIODS In hospital income protection, when confinements in a hospital are due to the same or related causes and are separated by less than a contractually stipulated period of time, they are considered part of the same period of confinement.

SURCHARGE An extra charge imposed on those who purchase with a credit card instead of cash. (Currently, surcharges for credit card purchases are prohibited.)

SURRENDER CHARGE Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.

SURRENDER PERIOD A set amount of time during which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%.

SURVEY A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

SWEAT EQUITY Contribution to the construction or rehabilitation of a property in the form of labour or services rather than cash.

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TENANCY BY THE ENTIRETY A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. Contrast with tenancy in common.

TENANCY IN COMMON A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenacy.

TENANT-STOCKHOLDER The obligee for a cooperative share loan, who is both a stockholder in a cooperative corporation and a tenant of the unit under a proprietary lease or occupancy agreement.

TERM LIFE INSURANCE Life insurance that provides protection for a specified period of time. Common policy periods are one year, five years, 10 years or until the insured reaches age 65 or 70. The policy doesn’t build up any of the nonforfeiture values associated with whole life policies.

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. See mortgage broker.

TITLE A legal document evidencing a person’s right to or ownership of a property.

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

TITLE INSURANCE Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.

TITLE SEARCH A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

TORT A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.

TOTAL ADMITTED ASSETS This item is the sum of all admitted assets, and are valued in accordance with state laws and regulations, as reported by the company in its financial statements filed with state insurance regulatory authorities. This item is reported net as to encumbrances on real estate (the amount of any encumbrances on real estate is deducted from the value of the real estate) and net as to amounts recoverable from reinsurers (which are deducted from the corresponding liabilities for unpaid losses and unearned premiums).

TOTAL ANNUAL LOAN COST The projected annual average cost of a reverse mortgage including all itemized costs.

TOTAL EXPENSE RATIO Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts.

TOTAL LOSS A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.

TRADE EQUITY Equity that results from a property purchaser giving his or her existing property (or an asset other than real estate) as trade as all or part of the down payment for the property that is being purchased.

TRANSFER OF OWNERSHIP Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device. In cases in which an inter vivos revocable trust is the borrower, lenders also consider any transfer of a beneficial interest in the trust to be a transfer of ownership.

TRANSFER TAX State or local tax payable when title passes from one owner to another.

TREASURY INDEX An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. See adjustable-rate mortgage (ARM).

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

TRUTH-IN-LENDING A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

TWO- TO FOUR-FAMILY PROPERTY A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.

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

U

UMBRELLA POLICY Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.

UNAFFILIATED INVESTMENTS These investments represent total unaffiliated investments as reported in the exhibit of admitted assets. It is cash, bonds, stocks, mortgages, real estate and accrued interest, excluding investment in affiliates and real estate properties occupied by the company.

UNDERWRITER The individual trained in evaluating risks and determining rates and coverages for them. Also, an insurer.

UNDERWRITING The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.

UNDERWRITING The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.

UNDERWRITING EXPENSE RATIO This represents the percentage of a company’s net premiums written that went toward underwriting expenses, such as commissions to agents and brokers, state and municipal taxes, salaries, employee benefits and other operating costs. The ratio is computed by dividing underwriting expenses by net premiums written. The ratio is computed by dividing underwriting expenses by net premiums written. A company with an underwriting expense ratio of 31.3% is spending more than 31 cents of every dollar of net premiums written to pay underwriting costs. It should be noted that different lines of business have intrinsically differing expense ratios. For example, boiler and machinery insurance, which requires a corps of skilled inspectors, is a high expense ratio line. On the other hand, expense ratios are usually low on group health insurance.

UNDERWRITING EXPENSES INCURRED Expenses, including net commissions, salaries and advertising costs, which are attributable to the production of net premiums written.

UNDERWRITING GUIDE Details the underwriting practices of an insurance company and provides specific guidance as to how underwriters should analyze all of the various types of applicants they might encounter. Also called an underwriting manual, underwriting guidelines, or manual of underwriting policy.

UNEARNED PREMIUMS That part of the premium applicable to the unexpired part of the policy period.

UNINSURED MOTORIST COVERAGE Endorsement to a personal automobile policy that covers an insured collision with a driver who does not have liability insurance.

UNIVERSAL LIFE INSURANCE A combination flexible premium, adjustable life insurance policy.

UNSECURED LOAN A loan that is not backed by collateral.

USUAL, CUSTOMARY AND REASONABLE FEES An amount customarily charged for or covered for similar services and supplies which are medically necessary, recommended by a doctor or required for treatment.

UTILIZATION How much a covered group uses a particular health plan or program.

V

VA MORTGAGE A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.

VALUATION A calculation of the policy reserve in life insurance. Also, a mathematical analysis of the financial condition of a pension plan.

VALUATION RESERVE A reserve against the contingency that the valuation of assets, particularly investments, might be higher than what can be actually realized or that a liability may turn out to be greater than the valuation placed on it.

VARIABLE ANNUITIZATION The act of converting a variable annuity from the accumulation phase to the payout phase.

VARIABLE LIFE INSURANCE A form of life insurance whose face value fluctuates depending upon the value of the dollar, securities or other equity products supporting the policy at the time payment is due.

VARIABLE RATE A variable rate agreement, as distinguished from a fixed rate agreement, calls for an interest rate that may fluctuate over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments or the length of the loan term. Limits are often placed on the degree to which the interest rate or the payments can vary. VARIABLE UNIVERSAL LIFE INSURANCE A combination of the features of variable life insurance and universal life insurance under the same contract. Benefits are variable based on the value of underlying equity investments, and premiums and benefits are adjustable at the option of the policyholder. VESTED Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn. VIATICAL SETTLEMENT PROVIDER Someone who serves as a sales agent, but does not actually purchase policies. VIATOR The terminally ill person who sells his or her life insurance policy. VOLUNTARY RESERVE An allocation of surplus not required by law. Insurers often accumulate such reserves to strengthen their financial structure.

W

WAITING PERIOD See “elimination period.”

WAIVER OF PREMIUM A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect as long as the ensured is disabled.

WHAT-IF ANALYSIS An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.

WHAT-IF SCENARIO A change in the amounts that is used as the basis of an affordability analysis. A what-if scenario can include changes to monthly income, debts, or down payment funds or to the qualifying ratios or down payment expenses that are used in the analysis. You can use a what-if scenario to explore different ways to improve your ability to afford a house.

WHOLE LIFE INSURANCE Life insurance which might be kept in force for a person’s whole life and which pays a benefit upon the person’s death, whenever that might be. WRAPAROUND MORTGAGE A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee.

X

Y

YIELD ON INVESTED ASSETS (IRIS)  Annual net investment income after expenses, divided by the mean of cash and net invested assets. This ratio measures the average return on a company’s invested assets. This ratio is before capital gains/losses and income taxes. Annual net investment income after expenses, divided by the mean of cash and net invested assets. This ratio measures the average return on a company’s invested assets. This ratio is before capital gains/losses and income taxes.

Z