Mortgages can be complicated. The definitions below may help you better understand some of the language used by the mortgage industry.
100% loan-to-value mortgage: A mortgage loan where the initial amount of the loan is the same as the value of the property. BlueHub SUN’s first mortgage loans by Aura Mortgage Advisors (Aura) can be up to 100% loan-to-value. A typical first mortgage from a bank is 80% loan-to-value, requiring the homeowner to either pay a 20% down payment or find a second mortgage lender who generally charges a high interest rate.
Acquisition fee: A fee charged when you buy your home back from SUN to help cover SUN’s costs incurred to purchase the home and sell it back to the client.
Appreciation: The increase in the value of a home over a period of time.
Buy-Back Product: If you have lost title to your home through foreclosure, BlueHub SUN’s buy-back product includes the repurchase of your home as well as a new fixed-rate mortgage. This is one of BlueHub SUN’s loan products for homeowners who owe more than their home is worth.
Deed-in-lieu of foreclosure: A deed-in-lieu of foreclosure is an arrangement where a homeowner turns over ownership of their home to their mortgage lender voluntarily to avoid the foreclosure sale from occurring. Deed-in-lieus can help a homeowner avoid being liable for any amount remaining on the mortgage loan.
Default: The failure to repay a debt, including interest or principal, on a mortgage loan. A default can occur when a borrower is unable to make timely payments, misses payments, or avoids or stops making payments.
Distressed market value: The value of a property when it sells below fair market value, typically because the existing owner is still in residence and must be evicted, or due to poor condition of the property.
Eviction: The court-ordered removal of an occupant from the property in which they reside.
Equity: The difference between the market value of a property and the amount of all of the loans or other unpaid taxes or liens on a property. Equity can be positive or negative; if the loans and other outstanding taxes or liens are greater than the value of the property, it is said to have negative equity.
Financial reserves: Savings available that can be put toward unexpected household expenses. BlueHub SUN homeowners have a Capital Reserve Account where they can save their money that can be used for home repairs and other expenses. Watch the “Spotlight on SUN: Preserving your investment” video to learn more.
Forbearance: When a mortgage servicer or lender allows homeowners to pay their mortgage at a lower monthly payment amount or pause payments temporarily in instances of financial hardship. These missed or reduced payments will need to be made up when the forbearance period ends.
Foreclosure: The legal process by which a lender seizes, takes the title to and sells a home or property after a borrower is unable to fulfill their repayment obligation. This process is governed by state laws.
Foreclosure complaint: A foreclosure compliant lays out the claims of the foreclosure suit. It will describe the mortgage, the promissory note, the property being foreclosed on, the default, the amount due, the defendants (i.e., homeowners) and that the lender would like to foreclose. The complaint will be formally filed in a local court.
Initial Capital Reserve Deposit: A deposit into your Capital Reserve Account, savings that can be put toward unexpected household expenses. The initial deposit is equal to approximately 1.5% of your loan amount. For example, Amy’s lender agrees to sell her foreclosed home to SUN, without the prior mortgage, for $100,000. SUN adds 25% to the price it paid for the home when selling the home back to Amy. The Initial Capital Reserve Deposit would be 1.5% of $125,000, or $1,875. Watch the “Spotlight on SUN: Preserving your investment” video to learn more about the Capital Reserve Account.
Interest rate: An annual charge, typically expressed as an annual percentage of the loan outstanding, to account for the time value of money and the level of risk that the lender has taken in making the loan. Interest rates differ for borrowers and are based on their risk profile, including their credit score or amount of equity in their property. Interest rates increase if an applicant is considered to pose more risk.
Lien: Liens are legal claims against a property by creditors that allow them to collect what they’re owed. If a homeowner doesn’t settle an obligation, then the lienholder may legally seize and dispose of the property.
Loan modification: A loan modification is any change to the original terms of your loan. Modifications can reduce or increase monthly payment amounts, as well as the total amount that a homeowner will owe in the short-term and long-terms. Modifications may extend the number of years that a homeowner has to repay their loan, reduce their interest rate and/or reduce their principal balance. Modifications might also convert missed payments into deferred principal to be paid at the end of the loan term or when the loan is paid in full.
Loss mitigation application: A loss mitigation application is a form that homeowners can request from their mortgage servicer if they are delinquent, in default or facing foreclosure. It details personal information about them, including their income, expenses, individuals in their household and details of their financial hardship. Mortgage servicers are required by Federal law to work with a homeowner during the application process or put them in contact with a loss mitigation specialist who represents the servicer.
Moral hazard: Occurs where a party to a contract may have the opportunity to gain from acting contrary to the principles laid out by the agreement, such as by intentionally defaulting on a mortgage in order to gain a reduction of principal balance.
Mortgage loan: Individuals use mortgages to buy real estate without paying the entire purchase price upfront, since most individuals cannot afford to pay cash for a property. Over a specified number of years, the borrower repays the loan, plus interest, until they own the property free and clear. The homeowner promises collateral to the mortgage lender in the event that they stop making payments. In the case of a mortgage, the collateral is the home. If you stop making payments on your mortgage, your lender can take possession of your home, in a process known as foreclosure.
Mortgage principal: The amount of a mortgage loan borrowed that will need to be repaid in addition to interest charged.
Mortgage servicer: Mortgage servicers are responsible for the ongoing administration of mortgage loans. This includes taking and processing payments, tracking loan balances and interest paid, generating tax forms, assisting with homeowner insurance claims, initiating foreclosure if the homeowner defaults and performing loss mitigation to prevent foreclosure.
Refinance: The payoff of a mortgage balance (generally including principal, interest, outstanding taxes, late fees and liens) with a new mortgage. BlueHub SUN offers a refinance product for homeowners facing foreclosure who have substantial equity in their homes. Borrowers who refinance out of their Aura mortgage and into a conventional mortgage loan as soon as possible save on interest payments and further stabilize their finances.
Shared Appreciation Mortgage: A mortgage that requires a borrower or purchaser of a home to share a percentage of the appreciation of a property’s value with the mortgage provider. BlueHub SUN clients who use our buy-back loan product have a shared appreciation mortgage. After a BlueHub SUN loan is made by Aura, borrowers will share a portion of the home’s appreciation with NSP, Aura’s affiliate running the BlueHub SUN program. The shared appreciation mortgage amount is based on the percentage of savings negotiated by NSP on the outstanding balance of the defaulted-upon, preexisting mortgage loan. Payment will be due to NSP when the borrower repays their mortgage loan to Aura or when the final payment is made on the Aura mortgage loan. The shared appreciation mortgage is not a loan. NSP’s shared appreciation mortgage is an interest that BlueHub SUN has in your property that must be repaid. It is contingent on whether the property appreciates. If the property doesn’t appreciate or goes down in value, then the shared appreciation mortgage has no value. Watch the “Spotlight on SUN: Sharing the value” video to learn more. Note: Shared appreciation mortgages are not available to residents of Maryland.
Short sale: A short sale is when a homeowner sells their home for less than they owe on their mortgage loan. All the proceeds of the sale go to the mortgage lender. The lender normally forgives the difference but may require the borrower to pay it, typically by filing a deficiency judgment against the homeowner.
Title: A record of all ownership, debt or other interests in a property. The record is filed with the registry of deeds in the county in which the property is located.
Underwater mortgage: A mortgage with a total payoff balance that exceeds the property’s market value. For instance, if a home’s market value is $300,000 but the homeowner’s mortgage is for $400,000, the mortgage is said to be $100,000 underwater.
Underwriting: The verification of a mortgage applicant’s income, credit history, assets, debt and property details in order to assess the applicant’s ability to make regular ongoing payments for a mortgage loan. All of BlueHub SUN’s loans are manually underwritten. We cannot use the automated underwriting systems that most underwriters in the conventional mortgage market use because we specialize in working with families in foreclosure, and those families are generally disqualified under those automated systems. Watch the “Spotlight on SUN: Getting started” video to learn more.
Contact us with any questions about BlueHub SUN:
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