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Glossary – Mortgages and MBS

Mortgages and Mortgage-Backed Security Terms:

  • APR (Annual Percentage Rate): The annual interest rate on a loan, including any additional fees or charges.
  • Collateral: Property or assets that are pledged as security for a loan.
  • Credit score: A numerical score used to represent an individual’s creditworthiness. It is based on factors such as credit history, payment history, and outstanding debt.
  • CPR (Constant Prepayment Rate): Aa measure of the rate at which borrowers prepay their mortgages. It is expressed as a percentage of the total outstanding balance of the loans in the portfolio and is typically measured on a monthly basis. CPR is a constant rate, meaning it does not take into account any changes in interest rates or other market conditions.
  • DTI (Debt-to-Income) ratio: The ratio of a borrower’s monthly debt payments to their monthly gross income.
  • Default: The failure to make payments on a loan or other financial obligation as agreed.
  • Delinquency: The failure to make payments on a loan or other financial obligation in a timely manner.
  • Foreclosure: The legal process by which a lender reclaims a property from a borrower who has defaulted on their mortgage.
  • Interest rate: The percentage of a loan’s unpaid balance that is charged as interest.
  • LTV (Loan-to-Value) ratio: The ratio of the loan amount to the value of the property used as collateral.

  • Mortgage-backed securities (MBS): Financial instruments that are backed by a pool of residential mortgages. Investors in MBS receive regular payments from the cash flow generated by the underlying mortgages.
  • Prepayment: The early repayment of a loan, often by refinancing or selling the property.
  • Residential mortgages: A type of loan used to finance the purchase of a single-family home or other residential property.
  • Servicing: The management of a mortgage loan, including the collection of payments, the handling of delinquencies and defaults, and the foreclosure process.
  • Underwriting: The process of evaluating a loan application to determine the risk of default and the appropriate interest rate.
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