Financing Glossary of Terms
Our glossary of terms is provided as a quick reference, and to provide simple definitions to some of the technical terms in use in the financing business.
Search for a word you are interested in learning more about by clicking the first letter of the term.
Absorption Rate – The rate at which vacant space is either leased or sold to users in the marketplace. Absorption rate is usually expressed in square feet per year or, in the case of multifamily housing, number of units per year.
Accrual Basis of Accounting – An accounting method under which income and expenses are charged to the periods for which they are applicable, rather than when payment is made or received. In contrast, cash accounting is the method calling for income and expenses to be based on payment being made or received.
Acquisitions – The act of obtaining ownership of something. It may occur through derivative acquisition—procured from another who previously owned the thing—or though original acquisition, which is new creation such as land made when the ocean recedes.
ADC – Acquisition, Development, and Construction (package loan).
Additional Rent – Includes items for which the landlord invoices the tenant over and above the net rent. This charge typically recovers the tenant’s proportionate share of building costs such as realty taxes, operating costs, and electricity (if not metered separately). Business taxes are not included in additional rent and other items such as capital tax may or may not be added.
ADLs – Activity of Daily Living: helps define required level of care. Activities include dressing, eating, bathing, medication; transfer in and out of bed, etc.
AFH – Adult Family Home – An AFH is the smallest type of residential facility. Often a private home, it can contain one to four residents, along with caregivers who may or may not live there. Residents receive care “above the level of room and board,” which can include up to 7 hours per week of nursing care. Most AFHs specialize in a particular type of resident.
Amortization – Systematic apportionment of costs, loans principal, or other input to discrete periods of time such as months, years and so on. A fully amortized mortgage calls for constant periodic payment of principal and interest, so that the principal is fully amortized over the term of the mortgage. A partially amortized mortgage requires periodic payments of principal at selected points during the term. This balance is referred to as a balloon payment.
Ancillary Services – Any professional service provided by a facility. This may include x-rays, drug administration, or physical therapy.
Annual Percentage Rate (APR) – A term used in the Truth-in-Lending Act to represent the percentage relationship of the total finance charge to the amount of the loan. The APR reflects the cost of a mortgage loan as a yearly rate. It will be generally higher than the interest rate stated on the note because it includes, in addition to the interest rate, certain finance charges such as loan discount points and fees. APR is useful when comparing the cost of different loans.
Appraisal – An estimate of the value of property made by a qualified professional called an “appraiser”. Based on an appraiser’s knowledge experience and analysis of the property.
Appraised Value – An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. For senior housing properties, there are three approaches to determining the appraised value: cost approach, sales comparison approach, and income capitalization approach.
Arbitrage – The simultaneous buying and selling of any securities, including mortgages, mortgage-backed securities or future contracts in different markets, for the purpose of realizing a profit from differences in price.
Arrears – The situation in which mortgage interest and real estate taxes are paid at or after the end of the period for which they are levied. Late payment is also described as being in arrears.
Assets – In financial accounting, an asset is an economic resource. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset).
Assignment – The transfer of a mortgage from one person to another.
Assisted Living – Housing and care for frail seniors who need significant assistance with activities of daily living but do not require continuous skilled nursing care. Also: personal care, board and care, residential care or sheltered care. 40% market share.
Assumability – An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due on sale clause it may not be assumed by a new buyer.
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 unlike a new mortgage where closing cost and new probably higher market rate interest charges will apply.
Assumption Fee – The amount paid to a lender for the paperwork and processing of records necessary to approve and document a new debtor.
Balloon Mortgage – A loan which is amortized for a longer period than the term of the loan. Usually this refers to a thirty year amortization and a five or seven year term. At the end of the term of the loan the remaining outstanding principal on the loan is due. This final payment is known as a balloon payment.
Balloon Payment – Amount of loan principal remaining unamortized and outstanding at the end of the mortgage term.
Bankruptcy – A legal proceeding which relieves people from their obligation to pay their debts in full.
Base Rent – A set amount used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease.
Basis Points – Bps – Basis points. One hundred bps equals one percent. Convention for referring to the spread on a loan (given a base such as T-bills of LIBOR). May be represented either in 3 digit format (e.g. 215) or percentages (e.g. 2.15%). Can be defined as the minimum spread over the yield-to-maturity of the Treasury security that has the same maturity as the loan term. The loan coupon is therefore equal to the yield-to-maturity of corresponding Treasury plus the spread, payable on a monthly basis.
BC – (Also called adult care home or group home.) Residence which offers housing and personal care services for 3 to 16 residents. Services (such as meals, supervision, and transportation) are usually provided by the owner or manager. May be single family home. (Licensed as adult family home or adult group home.)
Biweekly Payment Mortgage – A plan 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 required if the loan were a standard 30-year fixed rate mortgage. The result for the borrower is a substantial savings in interest.
Blanket Mortgage – A mortgage secured by more than one property is termed as blanket mortgage. Such mortgage creates security in one document for two or more properties or parcels of real estate.
Board and Care – (Also called adult care home or group home.) Residence which offers housing and personal care services for 3 to 16 residents. Services (such as meals, supervision, and transportation) are usually provided by the owner or manager. May be single family home. (Licensed as adult family home or adult group home.)
Borrower – An entity that assumes debt.
Bridge Financing – Covers gap (potential) between construction and permanent financing.
Broker – An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Brown Fields – Abandoned industrial sites that have degraded the surrounding soil and environment due to toxic wastes. According to the Crittenden Report on Real Estate Finance there is a growing trend of sale/leasebacks for these types of properties since environmental liabilities are one of the most under-reported areas on the financial books.
Buy Down – When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low they will increase when the subsidy expires.
Cambridge Mission Statement – Combining our vast industry knowledge and capital markets expertise, we provide proven debt and Equity financing solutions to Senior Housing owners and investors.
Capital – The total amount of money or other resources owned or used to acquire future income or benefits. Capital is different from money. Money is used simply to purchase goods and services for consumption. Capital is more durable and is used to generate wealth through investment. Examples of capital include automobiles, patents, software and brand names. All of these things are inputs that can be used to create wealth. Besides being used in production, capital can be rented out for a monthly or annual fee to create wealth.
Capital itself does not exist until it is produced. Then, to create wealth, capital must be combined with labor, the work of individuals who exchange their time and skills for money. When people invest in capital by foregoing current consumption, they can enjoy greater future prosperity.
Capital has value because of property rights. Individuals or companies can claim ownership to their capital and use it as they please. They can also transfer ownership of their capital to another individual or corporation and keep the sale proceeds. Government regulations limit how capital can be used and diminish its value; the tradeoff is supposed to be some benefit to society. For example, when you sell a stock that has increased in value since you purchased it, you must pay tax on the capital gains. Those taxes are used for public purposes, such as national defense.
Caps (interest) – Consumer safeguards which limit the amount of change to the interest rate for an adjustable rate mortgage.
Caps (payment) – Consumer safeguards which limit the amount of change to the monthly payments for an adjustable rate mortgage.
Cash flow – 1. A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities – financing, operations or investing – although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance.
2. An accounting statement called the “statement of cash flows”, which shows the amount of cash generated and used by a company in a given period. It is calculated by adding noncash charges (such as depreciation) to net income after taxes. Cash flow can be attributed to a specific project, or to a business as a whole. Cash flow can be used as an indication of a company’s financial strength.
The statement of a business’s cash flows is often used by analysts to gauge financial performance. Companies with ample cash on hand are able to invest the cash back into the business in order to generate more cash and profit.
Capitalization – The division of the money invested in a corporation between equity and debt. It is said that depending on where the company falls in the spectrum between low-debt/high-equity to high-debt/low-equity, this is a reflection of the investment personality for that company. A company with high debt is said to be risky because of its high fixed obligations and a company with low debt may lack growth potential.
Capitalization Rate – Rate used to discount future income to estimate present value. Net operating income divided by total investment. Also “free and clear return.”
Cash Out – When a borrower refinances their existing mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as “cash out refinance.”
Caveat Emptor – A Latin phrase and legal concept meaning, “Let the buyer beware.” It implies a responsibility investors have to perform due diligence to understand all aspects of an investment before committing to a transaction.
CBRF – Community-Based Residential Facility – A CBRF is usually a medium-sized facility, although some can be quite large. With a minimum of 5 beds, these facilities provide care beyond room and board, including up to 3 hours per week of nursing care. CBRFs often specialize by resident type, particularly with residents who have Alzheimer’s or dementia.
CCRC’s – Continuing-Care Retirement Communities: allow relatively healthy seniors to move in and provide more services as they age and their health weakens. Per Coopers & Lybrand, the median size is 258 units.
CEO – Chief Executive Office – the highest-ranking corporate officer (executive) or administrator in charge of total management of an organization. An individual appointed as a CEO of a corporation, company, organization, or agency typically reports to the board of directors.
Certificates of Deposit (CD) – Certificates of Deposit (CDs) offer a fixed rate of return and are generally insured by the Federal Deposit Insurance Corporation (FDIC) for up to $100,000 per institution. CDs can be issued by various depository institutions including commercial banks, savings banks, and federal savings and loans.
CFO – Chief Financial Officer- is a corporate officer primarily responsible for managing the financial risks of the corporation. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management.
CIO – Chief Investment Officer
Closing – The meeting between the buyer seller and lender or their agents where the property and funds legally change hands also called settlement. Closing costs usually include an origination fee discount points appraisal fee title search and insurance survey taxes deed recording fee credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.
Closing Costs – Expenses over and above the price of the property that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee property taxes charges for title insurance and escrow costs appraisal fees etc. Closing costs will vary according to the area country and the lenders used.
CMBS – Commercial Mortgaged Backed Securities
CMS – Centers for Medicare and Medicaid Services
COFI – An adjustable-rate mortgage with a rate that adjusts based on a cost-of-funds index often the 11th District Cost of Funds.
Collateral – Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.
Commitment Fee (Loan) – Any fee paid by a potential borrower to a lender for the lender’s promise to lend money at a specified rate and within a given time.
CON – Certificate of Need. Pro forma authorizing additional licensed beds at a LTC facility.
Conduit Lender – A debt instrument that combines features of mortgage pass-through securities and corporate bonds. Created as part of the 1986 Tax Reform Act in order to overcome some of the problems of the Collateralized Mortgage Obligation (CMO) – another securitized mortgage instrument – created in response to investors’ need to reinvest the return of principal that they received as a result of unanticipated prepayment. Traded on Wall Street as securities formally known as REMICs; Real Estate Mortgage Investment Conduit.
Congregate Care – Similar to independent living facilities except that they utilize a home health-care service provided by in-house staff or an outside agency.
Consolidate – To replace multiple loans with a single loan, which often has a lower monthly payment and a longer repayment period.
Construction Loan – A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he or she progresses.
Contractual Allowance – The difference in which a hospital or senior care facility bills for services rendered and the amount actually paid by third party payers (i.e. Medicare/Medicaid & Insurance Companies) under contractual agreements.
Conventional Loan – A conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA) and the Department of Veterans Affairs (VA).
Convertible – Change of debt to equity.
Convertible Adjustable Rate Mortgage (ARM) – An adjustable rate mortgage that, if certain conditions are met, can be converted to a fixed-rate mortgage.
COO – Chief Operating Officer – can be one of the highest-ranking executives in an organization and comprises part of the “C-Suite”. The COO is responsible for the daily operation of the company, and routinely reports to the highest ranking executive, usually the Chief Executive Officer (CEO). The COO may also carry the title of President which makes him or her a clear second in command at the firm, especially if the highest ranking executive is the Chairman and CEO.
Correspondent Relationship – A business relationship in which a large lender agrees to purchase loans or to consider loan requests for a mortgage banker.
Credit Rating – A rating given to a person or company that establishes creditworthiness based upon present financial condition, experience and past credit history.
Debenture – A long-term debt certificate, paying interest, secured by the general credit of the issuer rather than a specific piece of property as is the case with a mortgage bond.
Debt – Money owed on a loan.
Debt Placement – The process a broker goes through to find a loan for a client.
Debt To Equity Ratio – Total project debt divided by total project equity. Unless specifically included in project debt or equity, operating losses for start up or newly acquired properties are excluded.
Decertification – A remedy imposed by the State, after the facility has been terminated from the Medicare/Medicaid programs – usually as a last resort. The facility must move all residents and a re-licensure before admitting residents again.
Deed of Trust – A legal document transferring the title of a property from borrower to a trustee. Deed of Trust is used instead of mortgages in some states.
Default – The inability to meet obligations under an investment agreement.
Default Interest Rate – The interest rate stipulated by certain mortgage documents which is triggered by a breach or nonperformance of the terms of a note, the covenants of a mortgage or the terms of other loan documents.
Default Ratio – The occupancy level at which the effective gross income from an income producing property is insufficient to pay operating expenses and debt service, thus creating the risk of default. The ratio is calculated by dividing the effective gross income into operating expenses plus debt service.
Defeasance – A provision in a mortgage which allows the debtor to reclaim property that has been foreclosed, if certain conditions are met.
Deferred Interest – When a mortgage is written with a monthly payment that is less than required to satisfy the note rate the unpaid interest is deferred by adding it to the loan balance.
Delinquency – Failure to make payments on time. This can lead to foreclosure.
Demand Letter – Correspondence sent to the borrower indicating that unless the loan is made current within a certain time frame, the lender can, by virtue of a default, declare the entire principal balance outstanding, as well as all interest due under the note, to be due and payable.
Depreciation – A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.
Diagnosis-Related Grouping (DRG) – Medicare uses these numbered groups to determine the rate it pays hospitals for patients at their diagnosed level of care.
DOC – Date of Compliance – Date the facility is considered to have corrected all deficiencies cited during the survey.
DPNA – Denial of Payment/No Admissions – regulatory status of a Medicaid or Medicare certified operator when they have been found to not be in compliance with regulations.
DSC – Debt Service Coverage (also Debt Coverage Ratio). Net operating income divided by the required debt service defined as annual interest principal and other payments such as servicing fees.
Due Diligence Review – An examination by a purchaser of a servicing portfolio. Generally, the reviewer will look at credit quality and underwriting of the loan collateral underlying the servicing rights, correctness and completeness if the loan documents, the seller’s servicing practices and methodologies, and the accuracy of the portfolio offering documents. As used here, a re-underwriting of the loan in line with borrower’s request to determine the feasibility of the request by lender.
DUS – Delegated Underwriting and Servicing. A Fannie Mae program for delegating origination, underwriting, closing and servicing responsibilities to selected DUS lenders, which allows them to act quickly in arranging financing for borrowers.
Earnest Money – Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
EBIT – Earnings before interest tax.
EBITDA – Earnings before interest, taxes, depreciation and amortization. A company’s net earnings with the previously listed expenses added back in to create a measure which an analyst uses to measure how well management is operating the business irregardless of external factors.
EBITDAR – Earnings before interest tax depreciation amortization and rent. The EBITDAR number is used for valuation of properties through an appropriate capitalization rate.
EBITDARM – Earnings before interest tax depreciation amortization rent and management fees.
ECHO (Elder Cottage Housing Opportunities) – A small, temporary home installed on the same site as a single-family residence, usually that of an adult child or other relative. ECHO units allow seniors to remain close to family members and receive the support they need while retaining a great deal of independence.
Equity – Ownership capital in property that is not borrowed funds.
Equity Kicker – The right (or option) to acquire ownership equity in a project where a loan is involved.
Escrow – An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.
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 part of a mortgagor hazard insurance mortgage insurance lease payments and other items as they become due.
Facility Coverage Ratio – NOI / Annual Lease payments.
Fannie Mae DUS Lender – A lender designated by Fannie Mae who originates, underwrites, closes and services Fannie Mae-approved multifamily mortgage loans.
Federal Home Loan Mortgage Corporation – FHLMC or Freddie Mac. Created by Congress in 1970 to develop the private secondary mortgage market. It was originally designed to buy mortgages from S&Ls. The S&Ls had not found FNMA particularly helpful because they primarily made conventional loans, and FNMA was authorized to purchase conventional loans until 1970. FHLMC currently buys government-underwritten and conventional loans from all types of lenders. Operationally, FHLMC and FNMA are quite similar.
Federal Housing Administration (FHA) – A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association – FNMA or Fannie Mae. Organized in 1938 to serve as a secondary market for FHA-insured mortgages. FNMA became a semiprivate organization in 1968. It was authorized to sell one-third of capital stock to private owners and to have two-thirds of its board of directors elected by private owners of the company. FNMA was obligated to help attain the national goal of safe and decent housing for low- and moderate-income families. In 1970, FNMA was authorized to purchase conventional mortgages. The agency obtains its funds by selling securities (traded on the New York Stock Exchange) in the private capital markets, by selling mortgage securities, by obtaining commitment fees for loan purchases, by earning interest on its mortgage portfolio and other investments, and by selling government-guaranteed notes and bonds.
Fee Simple – Title deed with freehold rights of unlimited duration (as opposed to life estate title which lasts for the lifetime of a specified person).
FHA Loan – A loan made through an approved lender and insured by the Federal Housing Administration. While there are limits to the size of FHA loans, they are intended to finance moderately-priced homes.
FHA Mortgage Insurance – Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount paid in monthly installments. The lower the down payment the more years the fee must be paid.
Finder’s Fee – A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.
Firm Commitment – A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.
First Mortgage – The primary lien against a property.
First and Refunding Mortgage Bonds – Those bonds issued to pay off others that are near due; the refunding bonds are secured by a property first mortgage as soon as the prior bonds are paid off.
Fixed Installment – The monthly payment due on a mortgage loan including payment of both principal and interest.
Fixed Rate Loan – Loan whose rate does not change over the term of the loan.
Floating Accrual – Arrangement for partial deferment of payment due on a loan in the event that cash flow cannot support debt service on a loan. Monies paid towards the loan service the interest only; the deferral is applied to the principal as additional debt.
Floating Rate – A variable interest rate charged for the use of borrowed money. It is determined by charging a specific percentage above a fluctuating base rate, usually the prime rate of major commercial banks.
Floor Area Ratio – The ratio of the bulk area of a building to the land on which it is situated. Calculated by dividing total square footage in the building by the square footage of land area.
Floor Loan – Amount of money a lender will provide as a basis for a loan until such time as cash flow on a property will justify an increase. The maximum amount would be the ceiling.
Foreclose – Legal action that will liquidate property held as security for a debt in the event of a default in payments by the debtor.
Forward Commitment – Commitment to find a loan at some point in the future, usually once certain contingencies have been met.
Fully Assumable – An assumable loan is one that the lender will allow a new buyer of the property to legally assume the mortgage from the seller of the property. The lender normally charges a fee for this transaction. A lender will require that a borrower meet its credit guidelines to determine if they will allow the assumption.Funding – Refinancing a debt on or before its maturity. Putting money into investments or another type of reserve fund, to provide for future pension or welfare plans. To provide funds for a project.
Galileo Process™ – This is the relationship building component of The Signature Experience™.
Gap Financing – An interim loan given to finance the difference between the floor loan and the maximum permanent loan as committed. Also called “bridge financing.”
Government National Mortgage Assn. – GNMA or Ginnie Mae. Guarantees mortgages. GNMA became the secondary market government agency to help housing programs that promote equity. GNMA was authorized to guarantee mortgage-backed securities issued by approved issuers (e.g., mortgage bankers). GNMA mortgage-backed securities are virtually risk-free and trade at relatively low yields.
Grantor – A person who establishes the trust. Also may be called a settlor or trustor.
Gross Scheduled Income – Total income from investment property before deducting expenses (assuming 100% occupancy).
Ground Lease – Developer obtains use of land in return for periodic rent payments; he “borrows the value of the land.” Usually long enough to recover cost of improvements and ROI. Afterwards the land reverts to the owner.
Guaranty – A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
Guarantee Mortgage – A mortgage that is guaranteed by a third party.
Haircut – The difference between the market value of a mortgage and the amount of money a lender will advance against it.
Hazard Insurance – A form of insurance in which the insurance company protects the insured from specified losses such as fire windstorm and the like.
Healthcare – Any form of care encompassing health administration. See also Ancillary Services.
Highest and Best Use – The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible and results in the highest value. The four criteria for the highest and best use are legal permissibility, physical possibility, financial feasibility, and maximum profitability.
Home Health Care – Medical and nursing services are provided in a person’s home by a licensed provider.
Hospice Care – Long-term care provided exclusively for those with terminal illnesses.
HUD – Department of Housing and Urban Development. Provides construction and long-term capital to LTC’s, Section 8 properties, etc. Second largest capital source for senior housing after commercial banks.
HUD 223(a)7 – Program used to refinance existing HUD-insured mortgages. This program is especially beneficial to borrowers who were insured 10-20 years ago when interest rates were at their peak. These borrowers can now profit from the currently low interest rates. Applicable to any loan that is not subject to lockout provisions. This refinancing option pays for all transaction costs including prepayment penalties, points, title, and legal.
IADL – Instrumental Activities of Daily Living – Describes more complex, combined mental/physical functions. IADL limitations usually describe some level of cognitive impairment. The major areas of IADL assistance include meal preparation, shopping, telephone use, and housework and money management.
IDR – Informal Dispute Resolution – an opportunity for the facility to request deletion of a deficiency. It may offer evidence why the deficiency should not be cited.
IJ – Immediate Jeopardy – An immediate and serious threat that is defined as having a high probability that serious harm or injury to residents could occur at any time, or already has occurred and may well occur again if residents are not protected effectively from the harm, or the threat is removed.
Immediate – Funds available immediate (as opposed to forward).
Impound Account – A reserve account for collecting monies due in the future; e.g. tax escrow.
Independent Retirement/Living – Facilities which house residents who are independent and ambulatory but desire companionship with their own age group. These residents also desire services such as cooked meals, housekeeping, linen service, planned activities and transportation. 10% market share.
Index – A published interest rate, such as the prime rate, LIBOR, T-Bill rate or the 11th District COFI. Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. On ARMs, a predetermined margin is added to the index to compute the interest rate adjustment.
Indexed Rate – The sum of the published index plus the margin. For example if the index is 4% and the margin is 2.75% the indexed rate would be 6.75%. Often lenders charge less than the indexed rate the first year of an adjustable rate mortgage.
Ingress – The right to enter over a parcel of land not owned by you but not to occupy the land. Usually used as part of the term “ingress and egress” and interchangeably with “access”.
Installment – The regular periodic payment that a borrower agrees to make to a lender.
Insured Mortgage – A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).
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.
Interest Only – An interest-only loan is a loan in which, for a set term, the borrower pays only the interest on the principal balance, with the principal balance unchanged. At the end of the interest-only term the borrower may enter an interest-only mortgage, pay the principal, or (with some lenders) convert the loan to a principal and interest payment (or amortized) loan at his/her option.
Interest Rate Buydown Plan – An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage.
Interest Rate Cap – A limit on interest rate increases and/or decreases during each interest rate adjustment (adjustment period cap) or over the term (life cap) of the mortgage.
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 Rate Swap – Transaction in which two parties agree to pay each other’s debt payments or to receive payments from each other’s securities over time. Cash is exchanged in designated amounts at prescribed intervals and results in more favorable borrowing terms for both parties.
Interest Reserve – A holdback of loan proceeds by a lender to be utilized to pay interest as it accrues on a loan.
Interim Loan – Financing, which is subordinated to construction and LTD. It is in the form of a “second” or subordinate mortgage, which may be exchanged with an owner in consideration of land use for development.
Intermediate Care – Intermediate care is nursing home care for residents needing assistance with activities of daily living, but without significant nursing requirements.
Internal Rate of Return – The rate of return that would make the present value of future cash flows plus the final market value of an investment or business opportunity equal the current market price of the investment or opportunity. IRR is the discount rate that equates the cost of an investment with the present value of the cash generated by that investment.
Investor – A money source for a lender.
IRR – Internal Rate of Return – The rate of return that would make the present value of future cash flows plus the final market value of an investment or business opportunity equal the current market price of the investment or opportunity. IRR is the discount rate that equates the cost of an investment with the present value of the cash generated by that investment.
Joint and Several Note – Refers to mortgagors’ liability. A term of recourse.
Joint Venture – An agreement by two or more individuals or entities to engage in a single project or undertaking. Joint ventures are used in real estate as a means of raising capital and spreading risk.
Junior Mortgage – In mortgage financing, a debt secured by a mortgage on real property that is beneath one or more other mortgages in priority, when settling lender’s claim in the event of a default by the borrower.
Kicker – Loan arrangement in which borrowers are required to pay a specified amount or percentage of income or cash flow in addition to normal debt service. Borrowers pay a specified amount or percent of gross income in addition to rent.
Land Acquisition Loan – A loan made for the purpose of purchasing land only, not improvements on or to the land, Also called an “acquisition loan.”
Landlord’s Rights and Responsibilities – On a lease contract, a list of rights and responsibilities the landlord holds to its tenants (i.e., the landlord has the right to evict you for not paying rent, or the landlord must inform you two weeks in advance before having an exterminator come in).
Late Charge – The penalty a borrower must pay when a payment is made a stated number of days after the due date.
LC’s – Life Companies
Lease Analysis – Analyzes leasing scenarios for all types of real estate, determines appropriate lease payments, and also looks at properties’ expenses.
Lease Commission – Arrangement where an owner of a property compensates a broker with a percentage of the gross lease rents.
Lease Executed – The status of the lease when all parties involved have signed and the lease comes into effect.
Lease Option – Agreement, specified in the lease, which provides the tenant the option to renew the lease for a given period of time upon the expiration of the initial lease. Most lease options include the landlord’s right to increase the rent upon renewal.
Lease Out For Signature – The lease is pending on the agreement and signature of one or more of the parties involved.
Lease-Up – This is the time period during which a newly opened facility is accepting new residents. The facility is considered fully stabilized when it reaches market occupancy and remains at that level of occupancy.
Lessee – One who rents property from another. In the case of real estate, the lessee is also known as the tenant.
Lessor – The landlord under a lease.
Letter of Credit – Letter authorizing a person or company to draw on a bank, or stating that the bank will honor their credit up to the stated amount.
Letter of Intent (LOI) – An agreement that describes in detail a corporation’s intention to execute a corporate action. The letter of intent is created by the corporation with its management and legal council, among others, and outlines the details of the action.
Leveraged – Use of debt capital in anticipation of higher return on equity investment.
Liabilities – A person’s financial obligations. Liabilities include long term and short term debt.
LIBOR – London Interbank Offered Rate. Another base for adjustable (floating) rate loans.
Licensure – Regulated by Federal/State Mandates. The granting or regulation of licenses, as for professionals. Example: “licensure for respiratory therapists”, “licensure for Skilled Nursing Facility”.
Lien – Claim against property whereby the property is security for a debt. The holder of the lien is entitled to have the property sold to satisfy the debt.
Lien Waiver – A release signed by a party to agree that they are prohibited from making claims on a specified property. For example, after the sale of a second mortgage, the selling party signs a lien waiver.
Life Safety Inspection – Property inspection usually by Fire Marshall determining the property’s ability to safely house people.
LIHTC – Low Income Housing Tax Credits. Federal program with incentive for developers to build low-income housing (often in partnership with not-for-profit entities).
Lis Pendens – Legal notice that a lawsuit is pending. Also called a notice of action.
Loan – A sum of borrowed money (principal) that is generally repaid with interest.
Loan Constant – The portion of the original loan amount represented by the periodic, equal debt service payments. The decimal factor that is applied to the original mortgage or deed-of-trust amount to find the level-payment, full-amortized mortgage debt service, payable each equal time period. This payment factor, usually quoted in decimal-fraction form, covers the repayment of principal and payment of interest each mortgage-payment period. There are many combinations of interest rate, loan term to maturity, and frequency of loan payment per year that may be represented by a single loan constant.
Loan Request – Amount of debt financing requested.
Loan Submission – A package of documents regarding a specific property, delivered to a prospective lender to obtain financing.
Loan Term – The length of time the borrower has to repay debt.
Loan to Value Ratio – Amount of money a lender will loan on property divided by the value of the property. Typically ranges between .70 to .75.
Lock In – You can lock in specific rates and points to protect you against the interest rate changing during the time between applying for a loan and closing on it.
Lockout Period – The time period after a mortgage is issued in which monthly payments may not exceed the monthly principal and interest payment amount that was determined at closing. HUD requires a lockout provision of five years, while FNMA requires one year.
LTAC – Long term acute care (LTAC) hospitals – Care for patients with a critical injury or illness who require intensive, round-the-clock attention for an extended period of time (usually about 20-30 days). LTACH patients typically need ventilators or other life support medical assistance. Unlike general acute care hospitals, which focus on stabilizing a patient’s medical condition, and nursing homes, which are not equipped to provide intensive medical care, LTACs specialize in providing both critical care and therapy services to patients with medically complex conditions, such as Pulmonary or Cardiac disease; Pressure wounds; Post-op complications (infection, stroke, bleeding); or Renal disease including dialysis.
LTC – Long Term Care.
LTV – Loan to Value Ratio – Amount of money a lender will loan on property divided by the value of the property. Typically ranges between .70 to .75.
Management Expense – The amount paid for property management (or the estimated amount if the building is owner-managed).
Margin – The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Market Value – The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
Maturity – The date on which the principal balance of a loan becomes due and payable.
Maximizer Experience™ – This is the component of The Signature Experience™ where Cambridge finds the best solution for your needs and the best terms and conditions for your loan.
MBS – Mortgage backed securities.
MDS – Minimum Data Set – A document used by the facility to assess the resident’s current health status.
Medicaid – A federal-state matching entitlement program which covers the health expenses of the needy. Generally, it covers the full spectrum of health services including hospitals, physician’s services, clinics, lab tests, prescription drugs, LTC, etc. Generally, prospective beneficiaries must first “spend down” nearly all their liquid assets on LTC before qualifying for the program. Medicaid reimbursement rates average 20% lower than private pay rates.
Medi-Cal – Medicaid, California.
Medicare – A federal health insurance program for those over 64 and the severely disabled. Part A is a hospital insurance program provided automatically for those over 65 and disabled for 24 months or more. It is funded from mandatory payroll deductions from employers and employees. In principle it covers nursing home care to the degree that nursing home care substitutes for hospital care.
Medigap Insurance – Private health insurance policies that supplement Medicare coverage, covering health care costs above those covered by Medicare Part A or Part B. Does not provide benefits for long term care, covering primarily hospital and doctor bills.
Mezzanine Financing – A type of equity loan, which is used when the borrower does not have enough equity to complete a project. Although it is an equity loan, the mezzanine financing is structured like debt and has higher interest rate than first mortgage interest rate and often either a lookback internal rate of return or an equity particpation.
Mini-Perm – Similar to bridge loan.
Mission Statement – Combining our vast industry knowledge and capital markets expertise, we provide proven debt and Equity financing solutions to Senior Housing owners and investors.
Mixed Use Project – A real estate project where two or more uses of land is mixed together. (Ex: an independent living facility that has commercial space on the ground level)
Monthly Fixed Installment – The 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 and doesn’t cover all of the interest. The loan balance therefore increases instead of decreasing.
Mortgage – A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Banker – An individual, firm, or corporation that originates, sells and/or services loans secured by mortgages on real property.
Mortgage Brokers – A firm or individual who, for a commission, matches borrowers and lenders. A mortgage broker takes applications and sometimes processes loans, but generally does not use its own funds for closing.
Mortgage Commitments – An agreement between lender and borrower detailing the terms of a mortgage loan, such as interest rate, loan type, term and amount.
Mortgage Costs – Those outlays of money required by a lender who has an interest in real estate used as security for his loaned money (i.e. interest & principal payments, maintenance costs, property taxes and insurance.)
Mortgage Insurance Premium (MIP) – Percentage of outstanding balance that is paid each year of the mortgage term.
Mortgagor – The person who has borrowed money and pledged his/her real property as security for the (mortgagee).
Mortgagee – The person or business making a loan that is secured by the real property of the person (mortgagor) who owes him/her/it money.
Mother Hubbard Clause – A provision in a mortgage that allows the lender, in the event of a default, to foreclose not only that mortgage, but also any other mortgages that may have been executed by the borrower and which are held by the lender.
Multifamily Accelerated Processing (MAP) – Method of applying for HUD insurance that requires HUD to respond within 60 days. It currently is only applicable to loans on existing properties.
Negative Amortization – When your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The home buyer ends up owing more than the original amount of the loan.
Net Effective Income – The borrower’s gross income minus federal income tax.
Net Lease – A lease requiring the tenant to pay, in addition to a fixed rental, the expenses of the property leased, such as taxes, insurance, maintenance, etc.
Net Operating Income – Income generated by all facility revenues minus total facility operating expenses, defined as labor, benefits, property taxes, insurance, raw food, utilities, management fees and other operating expenses. NOI excludes debt service, depreciation, amortization, income taxes, partnership expenses, capital expenditures and reserves above normal repair and maintenance.
Non Assumption Clause – A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
Non Disclosure Agreement (NDA) – NDAs arise when two companies are about to do business together. The parties are often restricted from releasing information regarding any business processes of the counter-party that are integral to the company’s operations. The confidential relationship often will refer to information that is to be shared between the parties but should not be made available to the general public.
Non-recourse Loan – Type of loan which prohibits the lender from attempting to recover against the borrower (personally) if the security value for the loan falls below the amount required to repay the loan.
Note – A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Nursing Home – Property providing licensed long-term (3 weeks on average) healthcare. The general “nursing home” term is usually applicable to skilled and intermediate nursing facilities.
Operating Expense Ratio – The ratio between total cash operating expenses and effective gross income from the property. Effective gross income is gross income less estimated vacancy and bad-debt expense.
Operating Expense Stop By Lessor – Expense covered by tenant in excess of what is covered by lessor. Add onto base lease.
Origination Fee – The fee charged by a lender to prepare loan documents make credit checks inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
Owner Financing – A property purchase transaction in which the party selling the property provides all or part of the financing.
Part A (Hospital Insurance) – Component of Medicare covering: a) routine and b) ancillary care. Medicare Part A Ancillary services are cost-based, and the profit source is overhead. This includes capital, administration, plant, housekeeping, and other general services.
Part B (Medical Insurance) – Helps pay for doctors’ services, outpatient care, and other services that are not covered by Part A insurance.
Participating Mortgage – Mortgagee does not have an equity interest, but has a contractual right to participate in cash flow, sales, or refinancing proceeds beyond a certain value.
Patient Days – A measurement of the utilization of institutional care programs, such as nursing homes and assisted living facilities. Patient days are calculated by multiplying each person cared for by the number of days they were cared for in the month, and combining the totals. Licensed patient days would be the total of each licensed bed times the number of days in the month. Actual patient days would be the total of each resident cared for times the number of days of care each received.
Payment Change Date – The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally the payment change date occurs in the month immediately after the adjustment date.
Percentage Leases – Percentage rent clauses gear the amount of rent paid to the operating success of the commercial venture. These clauses may be based on a percentage of the gross receipts, gross margin, or net profit. Many leases provide for a base rental to be paid until such time as the percentage rent is greater. In essence, the base rental is absorbed into the percentage rent. The amount by which the percentage rent exceeds the base rental is known as overage.
Percentage Rental – Percentage rent clauses gear the amount of rent paid to the operating success of the commercial venture. The clauses may be based on a percentage of the gross receipts, gross margin, or net profit. Many leases provide for a base rental to be paid until such time as the percentage rent is greater. In essence, the base rental is absorbed into the percentage rent. The amount by which the percentage rent exceeds the base rental is known as the overage. Percentage rental arrangements are usually found in retail stores and strip malls.
Periodic Payment Cap – A limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic Rate Cap – 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.
Permanent Loan – Mortgage after pay-off of acquisition, development and construction. Most perms are typically underwritten to a maximum 75% LTV.
PF – Pension fund. Is a significant source of institutional funds for real estate financing.
Pivotal Process™ – This is the component of The Signature Solution™ which provides direction for the broker, owner, lender or investor. It is the process by which Cambridge determines the best solution for your capital needs.
POC – Plan of Correction – Facility must submit to the regulatory agency a written plan of action to correct deficiencies cited during a survey.
Point – One-percent, that is, percentage point; used in connection with a discount from or a share of a principal amount deducted at the time funds are advanced. Points may represent payment for services rendered in connection with a loan or they may represent additional interest to the lender payable in advance.
Portfolio Sized Deals – A transaction involving more than one property.
Power of Attorney – A legal document authorizing one person to act on behalf of another.
Prepaid Expenses – Necessary to create an escrow account or to adjust the seller’s existing escrow account. Can include taxes, hazard insurance, private mortgage insurance, and special assessments.
Prepayment – Payment of the mortgage/loan after the lock out period but prior to due date.
Prepayment Penalty – A prepayment penalty is a provision of your contract with the lender that states that in the event you pay off the loan EARLY, you will pay a penalty. Penalties are usually expressed as a percent of the outstanding balance at time of prepayment, or a specified number of months of interest. Usually, prepayment penalties typically decline or disappear with the passage of time.
Primary Mortgage Market – Lenders such as savings and loan associations commercial banks and mortgage companies who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to the secondary mortgage markets such as FNMA or GNMA.
Prime Rate – The interest rate (or discount rate) which a commercial bank charges for short term loans to borrowers with highest credit ratings; the minimum obtainable interest rate in commercial banking at a participating point in time; often the basis for “floating rates.”
Principal Capital – Money, typically equity, that is the firm’s own to invest. The capital does not come from another firm.
Pro Forma – A financial report or projection adjusted for a change in the operating environment. An example would be where a new company estimates next year numbers by allowing for more stabilized revenue and without costs associated to the initiation of business.
Processing/Origination Fees – Lenders often require a fee to process the loan that they are making and said fee is payable at closing.
Professional Liability Insurance – Protects the facility against possible losses from a lawsuit related to alleged mistreatment of residents.
Promotion Fund – Money set aside for advertising and marketing.
Proprietary Earning – Income generated from a property can be divided into two categories: income generated from the real estate and income generated from the business. The proprietary income represents the business portion.
Purchase and Sale agreement – Once the inspection is completed, the buyer and seller will execute a Purchase and Sale Agreement. Why do the parties need to sign a whole new document when they have already signed a binding offer? This is generally the point in the process where it looks as though there is a more solid deal in place. The buyer has been pre-approved for a mortgage and is satisfied with the results of their home inspection. The offer set out the basic terms of the parties’ agreement, but now it is time to sign a more complete & detailed form of agreement.
Rate Lock – A commitment issued by a lender to a borrower or another mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
RCL – Routine Cost Limit. It is a regionally imposed costing ceiling established for Part A Medicare reimbursement.
Real Estate Agent – A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Real Estate Developer – Acquires under-used property and converts it to a higher and better use, or, more simply, creates value in the land. This process involves at least and understanding of, if not the actual application of, skills in the areas of land use law, design, planning, finance, construction, and marketing.
Real Estate Settlement Procedures Act (RESPA) – A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
Real Estate Tax Stop – Expense covered by tenant in excess of what is covered by lessor. Add onto base lease.
Real Estate Taxes – Real Estate taxes are primary source of funds for the local governments. Therefore any unpaid taxes constitute a claim against the real estate, taking priority over any private liens such as mortgages. So if the taxes are not paid, government has the right to foreclose against the property.
Recission – The cancellation of a contract. With respect to mortgage refinancing the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Recording Fees – Money paid to the lender for recording a home sale with the local authorities thereby making it part of the public records.
Recourse (Full) – When a note is used and the borrowers have personal liability. It is a borrowing with an unconditional guaranty. Should the borrower become delinquent under a full recourse loan, he or she must accept full responsibility for the loan.
Recourse (Without) – When a note is used and the borrowers do not have personal liability. It is a borrowing with no guaranty. Should the borrower become delinquent without recourse, he or she has no responsibility for the loan.
REDCM – Real Estate Debt Capital Market.
Refinance – The replacement of an existing mortgage on a property with a new mortgage. The primary reason is to reduce costs by receiving lower interest rates. Another reason may include changing a mortgage with adjustable rates to a mortgage with a fixed rate loan. Additionally, borrowers may choose to refinance in order to change the terms of the loan and the payment scheme.
REMIC – Real Estate Mortgage Investment Conduit (See Conduit).
Resource Utilization Group (RUG) Ratings – Determines Medicare reimbursement rates for nursing homes. Made up of 44 RUG groups, residents are placed into one or more of these groups after a CMI (Case Mix Index) assessment. These scores are based on RN, LPN, NA, and therapy time.
Revolving Line of Credit – A line of credit where the customer pays a commitment fee and can take and repay funds at will. It is usually used for operating purposes, fluctuating each month depending on revenues and expenditures.
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.
Sandwich Lease – When a lessee sublets to another party. Original lessees are still subject to terms of original lease and also to terms of lease with their tenants.
Satisfaction of Mortgage – The document issued by the mortgagee when the mortgage loan is paid in full. Also called a “release of mortgage”.
Second Mortgage – Any mortgage agreement that is subordinated to a prior mortgage. The secondary market is made up of investors who buy and sell mortgages originated by a third party.
Secondary Mortgage Market – Secondary mortgage market institutions typically issue forward commitments. They include: Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, government National Mortgage Association, and private secondary mortgage market firms.
Securitization – An attempt to provide liquidity to real estate markets, which had previously been viewed as an illiquid asset holding. Congress created the REIT as an investment vehicle for this purpose to allow “pass through” tax treatment for trusts. REIMC’s also serve this purpose.
Security – Collateral offered by a debtor to a lender to secure a loan; called collateral security.
Seller Carry Back – An agreement in which the owner of a property provides financing often in combination with an assumable mortgage. See owner financing.
Seller-servicer – A term used by Fannie Mae and Freddie Mac for a mortgage banker or other entity that has met the requirements necessary to sell and service mortgages for Fannie Mae or Freddie Mac.
Senior Housing – Broadly, a confluence of two industries: skilled nursing and rental housing for the elderly. Today the senior housing industry can be divided into three categories, defined by the services offered: Independent/Congregate Living, Assisted Living, and Skilled Nursing.
Servicer – An organization that collects principal and interest payments from borrowers and manages borrower escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Servicing – All the steps and operations a lender performs to keep a loan in good standing such as collection of payments payment of taxes insurance property inspections and the like.
Servicing Fee/Servicing Rate – The fee earned by a servicer for administering a loan for an investor, usually expressed as a percentage of the unpaid principal balance of the loan and deducted from the monthly mortgage payment.
Servicing Spread – That portion of the interest rate added by the lender to cover the cost of administering the mortgage asset.
Signature Experience™ – This is Cambridge’s unique empowerment system for brokers, owners, lenders, and investors of the senior housing and healthcare industry. It focuses on developing relationships, finding ideal capital solutions and closing and funding debt and equity transactions for owners and borrowers.
Signature Solution™ – This is the component of The Signature Experience™ which closes the deal!
Simple Interest – Interest which is computed only on the principle balance.
Skilled Nursing Facilities (SNFs) – Skilled nursing facilities are traditional nursing facilities that provide 24-hour medical nursing care for people with serious illnesses or disabilities. These facilities are state-licensed and care is provided by registered nurses, licensed practical nurses, and certified nurse aids.
Soft Costs – Architectural, engineering and legal fees associated with building construction, as distinguished from land and other costs.
Spread – The difference between the rate at which money can be borrowed and the rate at which it is loaned. Also, the difference between the ask and bid prices on a security.
Square Footage – The floor area of a building; square footage is usually calculated using the outside dimensions of a building, so the “usable” square footage is less than the given square footage.
Standby Commitment – Used by borrowers (in development) as a tool to get downstream financing. For example, long-term financing commitment used to secure construction loan.
Standby Fee – The sum required by a lender to provide a standby commitment. The fee is forfeited if the loan is not closed within a specific time.
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.
Structural Reserve – The required amount for borrowers to hold in an escrow account to pay for future capital improvements.
Sub-Acute Nursing – Short-term, intensive transitional care. Can be provided in a dedicated nursing facility or in a wing of a long term care facility or acute care hospital. Also, post-acute is in a “mini-hospital” setting.
Subleasing – Sale of part of lessee’s rights to a second party.
Subservicer – Lender that performs the ongoing servicing activities for the mortgage or pool under an agreement with the contractually responsible servicer.
Surplus Cash Note – Under HUD-insured mortgage guidelines this term applies to debt that is accepted by HUD as secondary financing of a mortgaged property. The note is a liability of the real estate owning entity that is the HUD-approved borrower. The note cannot exceed the amount of equity interest in the property. A default on the note cannot endanger the HUD-insured project. Payment on the debt service of the note cannot exceed the income after paying expenses and one month’s interest on the HUD-insured mortgage.
Survey – A measurement of land prepared by a registered land surveyor showing the location of the land with reference to known points its dimensions and the location and dimensions of any buildings.
Syndicate (Syndicated Loan) – Mortgages, or other loans, which are supported by more than one lender. This arrangement helps spread the risk of a loan.
T and L – Thrift and Loans. Savings and loan associations, mutual savings banks. Must invest at least 60% of their savings deposits in housing and housing-related loans and securities. Regulated and chartered by the U.S. Treasury Department Office of Thrift Supervision.
Takeout – When the developer wishes to acquire a construction and development loan, the construction lender usually wants to see the developer’s permanent-loan “take-out” commitment. This commitment assures the construction lender that the loan will be paid. After builder/developer submits plans and studies for presentation to permanent lenders (banks, S&L’s, etc.), the lender will issue a takeout or “forward commitment.” Builders are not obligated to “take down” (use) the funds committed.
Taking (Partial) – The taking of an owner’s property under the laws of eminent domain.
Tenancy-In-Common (TIC) – As opposed to joint tenancy, when there are two or more individuals own title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.
Term to Maturity – Related to amortization. A loan may have a term of 7 years, but an amortization over 20 years. Loans can be straight-term with a balloon payment, partially amortized, or fully amortized. The difference between these is how principal and interest are apportioned on the periodic payment.
Title – A document that gives evidence of an individual’s ownership of property.
Title Insurance – A policy usually issued by a title insurance company which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property and is often borne by the purchaser and/or seller. Policies are also available to protect the lender’s interests.
Title Report – Title is ownership and ownership is bundle of rights. A title report will show who holds the title and if there are any exceptions to free and clear status. (e.g. Mortgage, tax liens, insurance liens etc). Examining and insuring the title is very important. Free and clear title is the ideal.
Title Search – An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
Total Expense Ratio – Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
Transfer of Physical Assets (TPA) – Full Transfer of Physical Assets (TPA) is a property sales transaction involving the assumption of a HUD-insured loan. Transactions which do not involve a complete change in ownership may be eligible for a Modified TPA.
Treasuries – Government bonds, for example T-bills. Used as a basis for adjustable (floating rate) loans.
Triple Net Rent (NNN) – Rent stipulated in a lease in which the tenant agrees to pay a share of the landlord’s operating expenses or real estate taxes for the building proportionate to the amount of space it occupies.
Underwriting Criteria – In mortgage banking, the analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report and of the borrower’s ability and willingness to repay the loan.
Underwritten Loan – Loans that are guaranteed in terms of financial support. The federal government finances real estate both through direct loans and grants and as a guarantor and/or insurer of mortgages held by private institutions. By creating and sponsoring the secondary mortgage market, the feds established underwriting protocol through FHA, GNMA, et al., which provided a relatively homogeneous asset underlying the securities.
Universal Worker – Multi-disciplined employee that handles tasks of more than one department. Particularly used in smaller properties with few staff members.
Unleveraged – No debt capital. Reduces risk for a company; however, it does not allow a company to take advantage of future opportunities as it would with debt financing.
Unsecured – In terms of debt, unsecured notes refer to those that are not backed by specific assets. This form of financing is particularly attractive to REIT’s because it does not encumber specific properties. Unsecured notes also enable REIT’s to tap longer term financing than might be available from other lending sources.
Usury – Interest charged in excess of the legal rate established by law.
Variable Rate Mortgage – Mortgage agreement that allows for adjustment of the interest rate in keeping with a fluctuating market and terms agreed upon in the note.
Warehouse Facility – Commercial banks provide short-term funds to mortgage companies to enable them to originate mortgage loans and hold them until they can be sold to large financial institutions. When mortgage companies put up loans as security for bank financing the loans are “stored” for a relatively short period of time.
Warehouse Lender – A short-term lender for mortgage bankers. Using the note as collateral, the warehouse lender provides interim financing until the mortgage is sold to a permanent investor.
Warranty Deed – A deed conveying to the grantee title to the property free and clear of all encumbrances, except those specifically set forth in the document. From buyers’ standpoint, this is the most desirable form of deed. Provides warranties against encumbrances, covenants for quiet enjoyment, etc.
Without Recourse – Without the lender having any right to seek payment or seize assets in the event of nonpayment from anyone other than the party (such as a special-purpose entity) specified in the debt contract.
Workout – An alternative action to foreclosure for the benefit of the lender and the borrower. Includes loan modification, short sales and various forms of forbearance. Also called “restructure.”
Wraparound Loan – A type of junior mortgage, which is “wrapped around” an existing mortgage. The new mortgagee asks the mortgagor to submit the mortgage payment for both the prior and the wraparound mortgage. The new mortgagee pays the prior mortgagee the contracted debt service and keeps the remaining portion of the total payment as a return on the wraparound mortgage investment.
Yield Maintenance – In the event of prepayment of a loan, the yield maintenance terms establish the cost of the penalty in terms of spread (basis points). It entails an NPV calculation to assess what the anticipated return on the debt would have been. Usually there is a lock-out period when the loan cannot be cancelled, say five years, after that time the yield terms provide a rate for calculating the net present values of the future cash flow. If the loan is 10 years and there is a 5-year lock out on a loan with 300 bps, and the borrower wishes to retire the debt at year 6, then a discount rate of 3% is used over a period of 4 years.
Yield to Maturity – The lender’s percentage of annual return on actual funds loaned, assuming that the loan will be paid in full at maturity.