Along with making the loan closing as easy as possible, Bay Surety Title strives to help you and your customer understand the terms used in the process.

Title Glossary of Terms

Adjustable-rate mortgage (ARM): 
A mortgage with an interest rate and payment that change periodically over the life of the loan based on changes in a specified index.

Callable debt: 
A debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.

The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.

Common stock: 
A security that represents ownership in a company but gives no legal claim to a definite dividend or to a return of capital.

Conventional mortgage: 
A mortgage loan that is not insured or guaranteed by the federal government.

Credit enhancement: 
A method to reduce credit risk by requiring collateral, letters of credit, mortgage insurance, corporate guarantees, or other agreements to provide an entity with some assurance that it will be recompensed to some degree in the event of a financial loss.

Credit loss ratio: 
The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.

Credit-related expenses: 
The sum of foreclosed property expenses plus the provision for losses.

Credit-related losses: 
The sum of foreclosed property expenses plus charge-offs.

Credit scoring: 
A process that uses recorded information about individuals and their loan requests to assess - in a quantifiable, objective, and consistent manner - their future performance regarding debt repayment.

Debt security: 
A security in which the issuing company generally agrees to repay the principal (typically, the original amount borrowed) and make interest payments according to an agreed schedule.

The failure of a borrower to comply with the terms of a note or the provisions of a mortgage.

A mortgage loan on which a payment has not been made by the due date.

A financial instrument which derives its value from an underlying security or notional amount.

The weighted-average life of the present value of all future cash flows, both principal and interest, of a security. It is used as a measure of the sensitivity of the value of a security to changes in interest rates.

Earnings per share (EPS): 
The net earnings of a corporation divided by the average number of shares of its common stock outstanding during a period. A common method of expressing a corporation's profitability.

Fixed-rate mortgage: 
A mortgage loan in which the interest rate does not change during the entire term of the loan.

The lender's postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.

The legal process by which property that is mortgaged as security for a loan may be sold to pay a defaulting borrower's loan.

Global Debt Facility: 
A debt issuance facility through which U.S. dollar and foreign currency debt securities may be offered to investors worldwide with the feature of clearing and settlement through a variety of clearing systems.

Guaranty fee: 
Compensation paid by a lender to Fannie Mae for the guarantee of timely payments of principal and interest to MBS security holders.

Interest rate swap: 
A transaction between two parties in which each agrees to exchange payments tied to different interest rates or indices for a specified period of time, generally based on a notional principal amount.

Intermediate-term mortgage: 
A mortgage loan with a contractual maturity at time of purchase equal to or less than 20 years.

Lender option commitments: 
An agreement giving a lender the option to deliver loans or securities by a certain date at agreed-upon terms.

Loan servicing: 
The tasks a lender performs to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.

Loan-to-value (LTV) ratio: 
The relationship between the dollar amount of a borrower's mortgage loan and the value of the property.

Loss mitigation: 
Activities designed to reduce either the likelihood of the corporation suffering financial losses on a loan or the final dollar value of those losses in the event of a borrower default.

Mandatory delivery commitment: 
An agreement that a lender will deliver loans or securities by a certain date at agreed-upon terms.

Medium-term notes: 
Unsecured general obligations of Fannie Mae with maturities of one day or more and with principal and interest payable in U.S. dollars.

Any change to the original terms of a mortgage.

A legal document that pledges property to a lender as security for the repayment of the loan. The term also is used to refer to the loan itself.

Mortgage-Backed Security (MBS): 
A Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.

Multifamily housing: 
A building with more than four residential rental units.

Nonperforming asset: 
An asset such as a mortgage that is not currently accruing interest or on which interest is not being paid.

Notional principal amount: 
The hypothetical amount on which interest rate swap payments are based. The notional principal amount in an interest rate swap generally is not paid or received by either party.

Preferred stock: 
Stock that takes priority over common stock with regard to dividends and liquidation rights. Preferred stockholders typically have no voting rights.

Preforeclosure sale: 
A procedure in which the borrower is allowed to sell his or her property for an amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the borrower's debt.

Real Estate Mortgage Investment Conduit (REMIC): 
A security that represents a beneficial interest in a trust having multiple classes of securities. The securities of each class entitle investors to cash flows structured differently from the payments on the underlying mortgages.

Repayment plan: 
An agreement between a lender and a borrower who is delinquent on his or her mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.

Return on average common equity: 
Net income available to common stockholders, as a percentage of average common stockholders' equity.

Reverse mortgage: 
A financial tool which provides seniors with funds from the equity in their homes. Generally, no payments are made on a reverse mortgage until the borrower moves or the property is sold. The final repayment obligation is designed to not exceed the proceeds from the sale of the home.

Risk-based capital: 
The amount of capital necessary to absorb losses throughout a hypothetical ten-year period marked by severely adverse circumstances.

Secondary mortgage market: 
The market in which residential mortgages or mortgage securities are bought and sold.

A financial instrument showing ownership of equity (such as common stock), indebtedness (such as a debt security), a group of mortgages (such as MBS), or potential ownership (such as an option).

Serious delinquency: 
A single-family mortgage that is 90 days or more past due, or a multifamily mortgage that is two months or more past due.

Short Sale:
A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.

Stockholders' equity: 
The sum of proceeds from the issuance of stock and retained earnings less amounts paid to repurchase common shares.

Stripped MBS (SMBS): 
Securities created by "stripping" or separating the principal and interest payments from the underlying pool of mortgages into two classes of securities, with each receiving a different proportion of the principal and interest payments.

Transfer agent: 
A bank or trust company charged with keeping a record of a company's stockholders and canceling and issuing certificates as shares are bought and sold.

The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's ability and willingness to repay the debt and the value of the property. 

Closing Disclosure

Closing Cost Descriptions

We recommend that you carefully compare closing costs between lenders before selecting a loan. This task is complicated by the fact that different lenders and brokers use different names for the same item. All lenders and brokers are required to provide you with a Closing Disclosure detailing the services you may be required to get and pay for in connection with your loan.

This Closing Disclosure will give you a way to compare loans and see what your closing costs would be. Below you will find a list of terms that describe the different fees, which may be associated with the services previously mentioned.

Broker Fees
  • Sales/Broker's Commission: 
    If you use a real estate agent or broker to buy a house, the seller (not you) of the house will usually pay a fee to the real estate agent/broker. This commission is usually a percentage of the sales price.
Lender Fees
  • Loan Origination Fee 
    A fee to cover the lender’s costs for obtaining financing and administrative costs, most often expressed as a percentage of the loan amount (1% = 1 point). Can be a flat fee and can be paid by sellers and third parties.
  • Loan Discount Fee Discount Points 
    Often called "points", is a one-time charge to you from the lender to lower the interest rate on your loan. Generally, the more points you pay, the lower your rate. Each point is 1% of the loan amount. For example, if you have a loan amount of $100,000, one point would cost you $1000. Sometimes you will see offers with negative points. Negative points refer to money paid to you that can be used to offset your other closing costs. You will usually see a higher interest rate with negative points.
  • Appraisal Fee 
    The appraisal fee covers the cost of evaluating your home to estimate the fair market value. The appraised value of your home is used to calculate LTV. See LTV for more information.
  • Credit Report Fee 
    This fee covers the cost of obtaining a credit report, which shows how you have handled other credit transactions. The lender uses this report in conjunction with information you submitted with your Q-form regarding your income, outstanding bills, and income to determine whether you are an acceptable credit risk, how much the lender can loan you and at what interest rate.
  • Lender Inspection Fee 
    This covers inspections by the lender or outside inspector of your house/property. Most often associated with new construction.
  • Mortgage Insurance Application Fee 
    You may be charged this fee to process an application for Mortgage Insurance (MI) if needed.
  • Assumption Fee 
    The assumption fee is a charge to you, if you take over the existing mortgage on the house you are purchasing. For example, if you are buying an existing house from someone you may have the option to take over the mortgage that the seller is paying.
  • Mortgage Broker Fee 
    If you use a broker to get a loan, any fees charged by the broker are listed here.
  • Underwriting Fee 
    A cost to cover the final analysis and approval of the mortgage; often the lender's cost to the investor who will subsequently purchase the loan.
  • Tax Service Fee 
    A fee paid to set up a service which identifies the payment due date of local taxes for the servicer of the loan.
  • Processing Fee 
    A fee charged by the lender to cover costs associated with the processing and closing of a mortgage loan.
  • Application Fee 
    A fee to reimburse the lender for internal costs associated with initiating the application process.
  • Flood Certification Fee 
    Since your property is collateral for your loan, the lender wants to be sure whether the property is or is not in a flood zone. This fee covers obtaining a report from the Federal Emergency Management Agency (FEMA) that indicates whether or not your property is in a flood zone. If it is located in a flood zone, you will need to get flood insurance. Most homeowner insurance policies do not cover flood damage. The Flood Certification Fee only covers the report and not the insurance if needed.
Lender Pre-paid Items
  • Interest 
    Lenders require you to pay the interest due on your mortgage from the closing date to the first day of the following month. The interest due is calculated using the loan's interest rate, the loan amount and the number of days until your first payment. For example, if you close on the 11th of March, you will pay 21 days interest (3/11-3/31) assuming your first payment is May 1st. Mortgage interest is always collected in arrears therefore you will pay the April interest in the May payment using the example above.
  • Mortgage Insurance 
    Premium Lenders usually require Private mortgage insurance (PMI) when your LTV (loan amount divided by property value) is greater than 80%. The insurance protects the lender in case of loan default.
  • Hazard Insurance Premium
    Premium Since the property is collateral for the loan, you will be required to insure your house. At closing, you must pay the first year's premium or prove that you already have coverage (if refinancing). Homeowner's insurance covers you against damage from fire, wind, and other natural hazards. Flood damage is usually not covered by a Homeowner's Insurance Policy.

Escrow Account Deposits 

An escrow account is an account used when the lender will be paying your homeowner’s insurance and property taxes on your behalf. You prepay the amounts and the lender pays the costs as they come due. You will probably have to pay an initial amount to start the reserve account.

  • Hazard Insurance (Homeowners Ins.)
    This fee represents the amount the lender withholds to ensure you pay your homeowner's insurance on time. Typically, the lender will require you to pay two months of premiums at closing, and then the remaining payments are included in your monthly payments.
  • Mortgage Insurance 
    If you need private mortgage insurance (PMI), you may be required to prepay those premiums. Remember to reference canceling mortgage insurance to see when you can stop paying it.
  • City Property Tax 
    If your property is in a jurisdiction where city taxes apply, you will be required to pay a portion of the taxes at closing.
  • Flood Insurance
    This fee represents the amount the lender withholds to ensure you pay your homeowner's insurance on time. Typically, the lender will require you to pay two months of premiums at closing, and then the remaining payments are included in your monthly payments.
  • County Property Tax 
    The amount of property tax you owe can vary dramatically by county and the date you purchase your home.

Title Charges

  • Settlement or Services/Title Insurance 
    This fee pays for the services of the escrow holder or settlement service that handles all the financial transfers and payments associated with the closing process. The title company sets these fees. Title fees may include title search, title examination and title insurance.
  • 1105 - Document Abstract Preparation Fee 
  • Title Insurance Lender's Coverage 
    Protects the lender against loss due to problems or defects in connection with the title. The face amount of coverage is usually the amount of the mortgage loan.
  • Owner's Title Insurance 
    This fee is for the title insurance policy that protects the owner against loss due to liens, judgments, disputes over ownership of the property. The owner's policy remains in full force and effect for as long as the owner owns the property.
Government Fees
  • Recording Fee 
    After you close, your deed and/or mortgage are recorded with the county where the property resides.
  • City/County Tax/ Doc. Stamps 
    You may be charged tax on your deed or mortgage by the city and county the property resides in.
  • - State Tax/ Doc. Stamps 
    You may also be charged tax on your deed and/or mortgage by the state the property resides in.
Additional Settlement Charges
  • Survey Fee 
    Your lender may require a surveyor to conduct a survey of your property. A survey determines the exact location of the home and the lot line, as well as, easements and rights of way. This also protects you to ensure you have record of your property boundaries and size.
  • Pest Inspection Fee 
    This fee covers the cost of inspections for termites and other pest infestation.
  • Inspection Fee 
    Some properties may be required to have an inspection.

This information is adapted from "U.S. HUD"

Doing a Refinance?

Our offices are available for loan closings.  Call Bay Surety Title to learn about our convenient loan closings.

Have Questions?

Check our Frequently Asked Questions (FAQ) page to see if your question about Title Services is answered there. If not, feel free to contact us and ask.