AL MLO key terms

A federal requirement that a lender make a reasonable, good-faith determination that a borrower can repay a mortgage before approving it, based on verified income, assets, debts, and employment.

A loan category that meets federal standards for safe underwriting, giving lenders certain legal protections. QM loans generally limit risky features and cap points and fees.

A calculation used to determine whether a loan's upfront charges stay under federal limits for Qualified Mortgage status, counting items such as origination fees, discount points, and certain closing costs.

A standardized three-page disclosure a lender must deliver within three business days of a mortgage application, showing estimated loan terms, projected payments, and closing costs.

A standardized five-page form the borrower must receive at least three business days before closing, listing final loan terms and actual closing costs so they can be compared with the Loan Estimate.

The permitted amount by which a closing cost on the Closing Disclosure may exceed the estimate on the Loan Estimate. Costs fall into zero, ten-percent, and unlimited categories.

The Real Estate Settlement Procedures Act, a federal law governing disclosure of settlement costs, escrow account practices, and restrictions on paying fees for referral of settlement business.

The RESPA rule barring giving or receiving anything of value in exchange for referring settlement service business, or for splitting fees when no actual service was performed.

An account the servicer holds to collect portions of property taxes and insurance with each monthly payment and disburse those bills when due on the borrower's behalf.

The limited surplus a servicer may keep in an escrow account to cover unexpected increases, generally no more than one-sixth of the total annual escrow disbursements.

A federal law prohibiting lenders from denying credit or varying terms based on protected characteristics such as race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.

A written notice a lender must send within 30 days when denying an application or granting credit on less favorable terms, stating the specific reasons for the decision.

A written notice sent within 30 days of an application stating what information is missing, giving the borrower a defined period to supply it before the file may be closed.

A federal law requiring covered lenders to collect and report data about mortgage applications and originations, used to detect discrimination and evaluate community credit needs.

A federal law prohibiting discrimination in the sale, rental, and financing of housing based on race, color, religion, sex, national origin, familial status, or disability.

The illegal practice of refusing or limiting credit in specific neighborhoods, often based on the racial or ethnic makeup of the area rather than on individual borrower qualifications.

A discrimination theory holding that a neutral policy or practice is unlawful when it disproportionately harms members of a protected group and is not justified by business necessity.

The broad body of law and practice ensuring borrowers receive equal access to credit and equal treatment in pricing and terms, free from unlawful discrimination.

The written legal promise by which a borrower agrees to repay a specified sum plus interest according to a set schedule, independent of the document securing the loan.

The document that pledges real property as collateral for a loan and gives the lender the right to foreclose if the borrower defaults; in some states a deed of trust is used instead.

A security instrument used in some states in place of a mortgage, in which legal title is held by a neutral trustee who can conduct a nonjudicial foreclosure if the borrower defaults.

The legal process by which a lender takes and sells property used as collateral after a borrower fails to meet the repayment terms of the loan.

A sale of a home for less than the outstanding mortgage balance, completed with the lender's agreement to release the lien and accept the proceeds as partial payoff.

A workout option in which the borrower voluntarily transfers ownership of the property to the lender to avoid foreclosure, usually in exchange for release from the debt.

The loan amount divided by the property's appraised value or purchase price, expressed as a percentage; a higher ratio generally signals greater lender risk.

The total of all mortgage liens on a property divided by its value, used when a borrower has a first and a subordinate loan such as a home equity line.

Insurance that protects the lender against loss when a borrower puts down a small down payment, typically required when the loan-to-value ratio exceeds 80 percent.

The insurance charge on FHA-insured loans, paid both upfront and annually, which protects the lender in the event the borrower defaults.

A mortgage insured by the Federal Housing Administration, featuring low down payment requirements and more flexible credit standards than many conventional loans.

A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, active-duty service members, and surviving spouses, often requiring no down payment.

The maximum amount of VA loan guaranty a veteran is eligible to use, which determines how much can be borrowed without a down payment.

A mortgage that meets the underwriting guidelines and maximum loan limit set by Fannie Mae and Freddie Mac, allowing it to be sold on the secondary market.

A mortgage not insured or guaranteed by a government agency such as the FHA or VA; it may still conform to agency guidelines or be held as a portfolio loan.

The marketplace where existing mortgages are bought and sold, allowing lenders to replenish funds for new lending and shifting long-term interest rate risk to investors.

The gradual repayment of a loan through scheduled payments that cover both accrued interest and a portion of principal, so the balance declines over the loan term.

The amount of money borrowed on a loan, excluding interest and other charges; also refers to the portion of a monthly payment that reduces the outstanding balance.

The percentage a lender charges on the outstanding loan balance, determining the cost of borrowing and the size of the monthly payment.

A broader cost-of-credit measure that expresses interest plus certain finance charges as a yearly rate, letting borrowers compare the true cost of different loan offers.

A federal law requiring clear disclosure of credit costs and terms, including the annual percentage rate and finance charge, so consumers can compare loan offers.

A borrower's right to cancel certain refinance or home equity loans within three business days of closing, without penalty, when the loan is secured by the primary residence.

An individual who takes a residential mortgage application and offers or negotiates loan terms for compensation, and who must be licensed or registered under federal rules.

A federal law establishing minimum national standards for licensing and registering mortgage loan originators, including education, testing, and criminal background requirements.

The Nationwide Multistate Licensing System, a national database used to license and track mortgage loan originators and companies across participating states.

The permanent number assigned to a mortgage loan originator through NMLS, which must appear on loan documents and business communications.

A lender's conditional commitment to lend a specific amount based on verified financial information, issued before the borrower has identified a property.

An informal estimate of how much a borrower may qualify to borrow, typically based on self-reported information and without full documentation or a credit commitment.

An independent, licensed opinion of a property's market value, ordered by the lender and used to support the loan amount and loan-to-value calculation.

A computer-based method that estimates property value using public records, market data, and statistical models, sometimes used in place of a full appraisal.

A lender's commitment to hold a specific interest rate for a borrower for a set period, often with a fee or an adjustment if the lock expires before closing.

The lender's process of evaluating a borrower's credit, income, assets, and the property to decide whether the loan meets risk and eligibility standards.

The money left over each month after subtracting housing costs, other debts, and estimated living expenses from net income, used to judge repayment capacity.

Total monthly debt payments divided by gross monthly income, expressed as a percentage; it is a central measure of a borrower's ability to handle a new payment.

An illegal payment or thing of value given to someone for referring business, such as a fee to a real estate agent for sending a buyer to a lender.

Directing a borrower toward a loan product that is less favorable or more costly than one they qualify for, often to increase the originator's compensation.

The ethical obligation to act in the borrower's best interest, placing the borrower's needs above the originator's own financial gain and disclosing conflicts of interest.

The ethical and legal duty to protect a borrower's nonpublic personal information and share it only as permitted or required, such as under privacy rules.

A federal law requiring financial institutions to safeguard customer information and give consumers privacy notices explaining how their data is shared.

A federal rule limiting how loan originators may be paid, generally prohibiting compensation tied to loan terms and barring dual compensation from borrower and lender on the same loan.

A federal law governing how consumer credit information is collected, used, and disputed, including requirements for permissible purpose before pulling a credit report.

A legally recognized reason for obtaining a consumer credit report, such as a borrower's application for credit or a lender's review of an existing account.