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Select the first letter of the word from the list above to
jump to appropriate section of the glossary. If the term you are
looking for starts with a digit or symbol, choose the '#' link.
- acceleration clause
- States that upon default, all of the principal
installments come due immediately.
- adjustable-rate
mortgage (ARM)
- A mortgage in which the interest changes periodically,
according to corresponding fluctuations in an index. All
ARMs are tied to indexes.
- adjustment date
- The date the interest rate changes on an adjustable-rate
mortgage.
- amortization
- The repayment of a financial obligation over a period of
time in a series of periodic installments.
- amortization schedule
- A table which shows how much of each payment will be
applied toward principal and how much toward interest
over the life of the loan. It also shows the gradual
decrease of the loan balance until it reaches zero.
- annual percentage
rate (APR)
- The yearly cost of credit. Interest Rate plus finance
charge.
- appraisal
- An opinion or estimate of value.
- appraiser
- An individual qualified by education, training, and
experience to estimate the value of real property.
- appreciation
- The increase in the value of a property due to changes in
market conditions, inflation, or other causes.
- assessed value
- The value placed on property, by the tax assessor, for
purposes of determining the property tax.
- asset
- Items of value owned by an individual.
- assignment
- The means by which a person transfers contract rights.
- assumable mortgage
- A mortgage that can be assumed by the buyer when a home
is sold. Usually, the borrower must "qualify"
in order to assume the loan.
- balloon payment
- The remaining balance, at maturity, on a loan that has
not been completely repaid through periodic payments.
- bankruptcy
- Bankruptcies are of various types, but the most common
for an individual seem to be a "Chapter 7 No
Asset" bankruptcy which relieves the borrower of
most types of debts.
- bill of sale
- A written document that transfers ownership of personal
property.
- biweekly mortgage
- A mortgage in which you make payments every two weeks
instead of once a month.
- bridge loan
- Bridge loans are obtained by those who have not yet sold
their previous property, but must close on a purchase
property. The bridge loan becomes the source of their
funds for the down payment.
- broker
- Real estate "agents" are required to work under
a "broker". An agent may be a broker as well..
In the mortgage industry, broker refers to a company or
individual that does not lend the money for the loans
themselves, but brokers loans to larger lenders or
investors. A broker is anyone who acts as an agent,
bringing two parties together for any type of transaction
and earns a fee for doing so.
- cap
- Adjustable Rate Mortgages have fluctuating interest
rates, but those fluctuations are usually limited to a
certain amount. Those limitations may apply to how much
the loan may adjust over a six month period, an annual
period, and over the life of the loan, and are referred
to as "caps." Some ARMs, although they may have
a life cap, allow the interest rate to fluctuate freely,
but require a certain minimum payment which can change
once a year. There is a limit on how much that payment
can change each year, and that limit is also referred to
as a cap.
- caveat emptor
- Means "Let the Buyer Beware".
- Certificate of
Eligibility
- A document issued by the Veterans Administration that
certifies a veteran's eligibility for a VA loan.
- Certificate
of Reasonable Value (CRV)
- Once the appraisal has been performed on a property being
bought with a VA loan, the Veterans Administration issues
a CRV.
- chain of title
- A history of the ownership affecting title to a parcel of
land.
- clear title
- A title that is free of liens or legal questions as to
ownership of the property.
- closing
- A real estate transaction is not consider
"closed" until the documents record at the
local recorders office.
- closing costs
- A lender estimates the amount of closing costs (loan
origination fees, title fees, etc.) and prepaid items
(property taxes) on the Good Faith Estimate which they
must issue to the borrower within three days of receiving
a home loan application.
- cloud on title
- Any conditions revealed by a title search that adversely
affect the title to real estate. Usually clouds on title
cannot be removed except by deed, release, or court
action.
- co-borrower
- An additional individual who is both obligated on the
loan and is on title to the property.
- collateral
- Property which has been pledged as security for a loan.
- common area assessments
- These are charges paid to the Homeowners Association by
the owners of the individual units in a condominium or
planned unit development (PUD) and are generally used to
maintain the property and common areas.
- community property
- In some states, especially the southwest, property
acquired by a married couple during their marriage is
considered to be owned jointly, except under special
circumstances. This is an outgrowth of the Spanish and
Mexican heritage of the area.
- comparable sales
- Recent sales of similar properties in nearby areas and
used to help determine the market value of a property.
Also referred to as "comps."
- condominium
- A type of ownership in real property where all of the
owners own the property, common areas and buildings
together, with the exception of the interior of the unit
to which they have title. Often mistakenly referred to as
a type of construction or development, it actually refers
to the type of ownership.
- condominium conversion
- Changing the ownership of an existing building (usually a
rental project) to the condominium form of ownership.
- construction loan
- A short-term, interim loan for financing the cost of
construction. The lender makes payments to the builder at
periodic intervals as the work progresses.
- contingency
- A condition that must be met before a contract is legally
binding.
- contract
- An oral or written agreement to do or not to do a certain
thing.
- conventional mortgage
- Refers to home loans other than government loans (VA and
FHA).
- convertible ARM
- An adjustable-rate mortgage that allows the borrower to
change the ARM to a fixed-rate mortgage within a specific
time.
- cooperative (co-op)
- A type of multiple ownership in which the residents of a
multiunit housing complex own shares in the cooperative
corporation that owns the property, giving each resident
the right to occupy a specific apartment or unit.
- cost of funds index
(COFI)
- One of the indexes that is used to determine interest
rate changes for certain adjustable-rate mortgages. It
represents the weighted-average cost of savings,
borrowings, and advances of the financial institutions
such as banks and savings & loans, in the 11th
District of the Federal Home Loan Bank.
- credit history
- A record of an individual's repayment of debt. Credit
histories are reviewed my mortgage lenders as one of the
underwriting criteria in determining credit risk.
- creditor
- A person to whom money is owed.
- credit report
- A report of an individual's credit history prepared by a
credit bureau and used by a lender in determining a loan
applicant's creditworthiness.
- credit repository
- An organization that gathers, records, updates, and
stores financial and public records information about the
payment records of individuals who are being considered
for credit.
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- deed
- The legal document conveying title to a property.
- deed-in-lieu
- Short for "deed in lieu of foreclosure," this
conveys title to the lender when the borrower is in
default and wants to avoid foreclosure. The lender may or
may not cease foreclosure activities if a borrower asks
to provide a deed-in-lieu. Regardless of whether the
lender accepts the deed-in-lieu, the avoidance and
non-repayment of debt will most likely show on a credit
history. What a deed-in-lieu may prevent is having the
documents preparatory to a foreclosure being recorded and
become a matter of public record.
- deed of trust
- Some states, like California, do not record mortgages.
Instead, they record a deed of trust which is essentially
the same thing.
- default
- Failure to make the mortgage payment within a specified
period of time. For first mortgages or first trust deeds,
if a payment has still not been made within 30 days of
the due date, the loan is considered to be in default.
- delinquency
- For most mortgages, payments are due on the first day of
the month. Even though they may not charge a "late
fee" for a number of days, the payment is still
considered to be late and the loan delinquent. When a
loan payment is more than 30 days late, most lenders
report the late payment to one or more credit bureaus.
- 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.
- discount points
- In the mortgage industry, this term is usually used in
only in reference to government loans, meaning FHA and VA
loans. Discount points refer to any "points"
paid in addition to the one percent loan origination fee.
A "point" is one percent of the loan amount.
- down payment
- The part of the purchase price of a property that the
buyer pays in cash and does not finance with a mortgage.
- due-on-sale provision
- A provision in a mortgage that allows the lender to
demand repayment in full if the borrower sells the
property that serves as security for the mortgage.
- earnest money deposit
- A deposit made by the potential home buyer to show that
he or she is serious about buying the house.
- easement
- A right of way giving persons other than the owner access
to or over a property.
- effective age
- An appraiser's estimate of the physical condition of a
building. The actual age of a building may be shorter or
longer than its effective age.
- eminent domain
- The right of a government to take private property for
public use upon payment of its fair market value. Eminent
domain is the basis for condemnation proceedings.
- encroachment
- An improvement that intrudes illegally on neighboring
property.
- encumbrance
- Anything that affects or limits the fee simple title to a
property, such as mortgages, leases, easements, or
restrictions.
- Equal
Credit Opportunity Act (ECOA)
- A federal law that requires lenders and other creditors
to make credit equally available without discrimination
based on race, color, religion, national origin, age,
sex, marital status, or receipt of income from public
assistance programs.
- equity
- A homeowner's financial interest in a property. Equity is
the difference between the fair market value of the
property and the amount still owed on its mortgage and
other liens.
- escrow
- An item of value, money, or documents deposited with a
third party to be delivered upon the fulfillment of a
condition. For example, the earnest money deposit is put
into escrow until delivered to the seller when the
transaction is closed.
- escrow account
- Money is held in your impound account (escrow account)
for the payment of items like property taxes and
homeowner's insurance when they come due.
- escrow analysis
- Once each year your lender will perform an "escrow
analysis" to make sure they are collecting the
correct amount of money for the anticipated expenditures.
- escrow disbursements
- The use of escrow funds to pay real estate taxes, hazard
insurance, mortgage insurance, and other property
expenses as they become due.
- estate
- The ownership interest of an individual in real property.
The sum total of all the real property and personal
property owned by an individual at time of death.
- eviction
- The lawful expulsion of an occupant from real property.
- examination of title
- The report on the title of a property from the public
records or an abstract of the title.
- exclusive listing
- A written contract that gives a licensed real estate
agent the exclusive right to sell a property for a
specified time.
- executor
- A person named in a will to administer an estate. The
court will appoint an administrator if no executor is
named. "Executrix" is the feminine form.
- Fair Credit Reporting
Act
- A consumer protection law that regulates the disclosure
of consumer credit reports by consumer/credit reporting
agencies and establishes procedures for correcting
mistakes on one's credit record.
- fair market value
- The highest price that a buyer, willing but not compelled
to buy, would pay, and the lowest a seller, willing but
not compelled to sell, would accept.
- Fannie Mae (FNMA)
- The Federal National Mortgage Association, which is a
congressionally chartered, shareholder-owned company that
is the nation's largest supplier of home mortgage funds.
For a discussion of the roles of Fannie Mae, Freddie Mac
(FHLMC), and Ginnie Mae (GNMA), see the Library.
- Fannie
Mae's Community Home Buyer's Program
- An income-based community lending model, under which
mortgage insurers and Fannie Mae offer flexible
underwriting guidelines to increase a low- or
moderate-income family's buying power and to decrease the
total amount of cash needed to purchase a home. Borrowers
who participate in this model are required to attend
pre-purchase home-buyer education sessions.
- Federal
Housing Administration (FHA)
- An agency of the U.S. Department of Housing and Urban
Development (HUD). Its main activity is the insuring of
residential mortgage loans made by private lenders. The
FHA sets standards for construction and underwriting but
does not lend money or plan or construct housing.
- fee simple
- The greatest possible interest a person can have in real
estate.
- fee simple estate
- An unconditional, unlimited estate of inheritance that
represents the greatest estate and most extensive
interest in land that can be enjoyed. It is of perpetual
duration. When the real estate is in a condominium
project, the unit owner is the exclusive owner only of
the air space within his or her portion of the building
(the unit) and is an owner in common with respect to the
land and other common portions of the property.
- FHA mortgage
- A mortgage that is insured by the Federal Housing
Administration (FHA). Along with VA loans, an FHA loan
will often be referred to as a government loan.
- firm commitment
- A lender's agreement to make a loan to a specific
borrower on a specific property.
- first mortgage
- The mortgage that is in first place among any loans
recorded against a property. Usually refers to the date
in which loans are recorded, but there are exceptions.
- fixed-rate mortgage
- A mortgage in which the interest rate does not change
during the entire term of the loan.
- fixture
- Personal property that becomes real property when
attached in a permanent manner to real estate.
- flood insurance
- Insurance that compensates for physical property damage
resulting from flooding. It is required for properties
located in federally designated flood areas.
- foreclosure
- The legal process by which a borrower in default under a
mortgage is deprived of his or her interest in the
mortgaged property. This usually involves a forced sale
of the property at public auction with the proceeds of
the sale being applied to the mortgage debt.
- Government
National Mortgage Association (Ginnie Mae)
- A government-owned corporation within the U.S. Department
of Housing and Urban Development (HUD). Created by
Congress on September 1, 1968, GNMA performs the same
role as Fannie Mae and Freddie Mac in providing funds to
lenders for making home loans. The difference is that
Ginnie Mae provides funds for government loans (FHA and
VA)
- grantee
- The person to whom an interest in real property is
conveyed.
- grantor
- The person conveying an interest in real property.
- home equity line of
credit
- A mortgage loan, usually in second position, that allows
the borrower to obtain cash drawn against the equity of
his home, up to a predetermined amount.
- home inspection
- A thorough inspection by a professional that evaluates
the structural and mechanical condition of a property. A
satisfactory home inspection is often included as a
contingency by the purchaser.
- homeowners' association
- A nonprofit association that manages the common areas of
a planned unit development (PUD) or condominium project.
In a condominium project, it has no ownership interest in
the common elements. In a PUD project, it holds title to
the common elements.
- homeowner's insurance
- An insurance policy that combines personal liability
insurance and hazard insurance coverage for a dwelling
and its contents.
- homeowner's warranty
- A type of insurance often purchased by home buyers that
will cover repairs to certain items, such as heating or
air conditioning, should they break down within the
coverage period. The buyer often requests the seller to
pay for this coverage as a condition of the sale, but
either party can pay.
- HUD-1 settlement
statement
- A document that provides an itemized listing of the funds
that were paid at closing.
- joint tenancy
- A form of ownership or taking title to property which
means each party owns the whole property and that
ownership is not separate. In the event of the death of
one party, the survivor owns the property in its
entirety.
- judgment
- A decision made by a court of law. In judgments that
require the repayment of a debt, the court may place a
lien against the debtor's real property as collateral for
the judgment's creditor.
- judicial foreclosure
- A type of foreclosure proceeding used in some states that
is handled as a civil lawsuit and conducted entirely
under the auspices of a court. Other states use
non-judicial foreclosure.
- (empty)
- late charge
- The penalty a borrower must pay when a payment is made a
stated number of days. On a first trust deed or mortgage,
this is usually fifteen days.
- lease
- A written agreement between the property owner and a
tenant that stipulates the payment and conditions under
which the tenant may possess the real estate for a
specified period of time.
- leasehold estate
- A way of holding title to a property wherein the
mortgagor does not actually own the property but rather
has a recorded long-term lease on it.
- lease option
- An alternative financing option that allows home buyers
to lease a home with an option to buy. Each month's rent
payment may consist of not only the rent, but an
additional amount which can be applied toward the down
payment on an already specified price.
- legal description
- A property description, recognized by law, that is
sufficient to locate and identify the property without
oral testimony.
- lender
- A term which can refer to the institution making the loan
or to the individual representing the firm. For example,
loan officers are often referred to as
"lenders."
- liabilities
- A person's financial obligations. Liabilities include
long-term and short-term debt, as well as any other
amounts that are owed to others.
- liability insurance
- Insurance coverage that offers protection against claims
alleging that a property owner's negligence or
inappropriate action resulted in bodily injury or
property damage to another party. It is usually part of a
homeowner's insurance policy.
- lien
- A legal claim against a property that must be paid off
when the property is sold. A mortgage or first trust deed
is considered a lien.
- life cap
- For an adjustable-rate mortgage (ARM), a limit on the
amount that the interest rate can increase or decrease
over the life of the mortgage.
- line of credit
- An agreement by a commercial bank or other financial
institution to extend credit up to a certain amount for a
certain time to a specified borrower.
- liquid asset
- A cash asset or an asset that is easily converted into
cash.
- loan origination
- How a lender refers to the process of obtaining new
loans.
- loan-to-value (LTV)
- The percentage relationship between the amount of the
loan and the appraised value or sales price (whichever is
lower).
- lock-in
- An agreement in which the lender guarantees a specified
interest rate for a certain amount of time at a certain
cost.
- lock-in period
- The time period during which the lender has guaranteed an
interest rate to a borrower.
- maturity
- The date on which the principal balance of a loan, bond,
or other financial instrument becomes due and payable.
- modification
- Occasionally, a lender will agree to modify the terms of
your mortgage without requiring you t refinance. If any
changes are made, it is called a modification.
- mortgage
- A legal document that pledges a property to the lender as
security for payment of a debt. Instead of mortgages,
some states use First Trust Deeds.
- mortgage broker
- A mortgage company that originates loans, then places
those loans with a variety of other lending institutions.
- mortgagee
- The lender in a mortgage agreement.
- mortgage insurance (MI)
- Insurance that covers the lender against losses incurred
as a result of a default on a home loan.
- mortgage
life and disability insurance
- A type of term life insurance often bought by borrowers.
The amount of coverage decreases as the principal balance
declines. Some policies also cover the borrower in the
event of disability.
- mortgagor
- The borrower in a mortgage agreement.
- negative amortization
- Some adjustable rate mortgages allow the interest rate to
fluctuate independently of a required minimum payment. If
a borrower makes the minimum payment it may not cover all
of the interest that would normally be due at the current
interest rate.
- note
- A legal document that obligates a borrower to repay a
mortgage loan at a stated interest rate during a
specified period of time.
- notice of default
- A formal written notice to a borrower that a default has
occurred and that legal action may be taken.
- original principal
balance
- The total amount of principal owed on a mortgage before
any payments are made.
- origination fee
- On a government loan the loan origination fee is one
percent of the loan amount, but additional points may be
charged which are called "discount points." One
point equals one percent of the loan amount. On a
conventional loan, the loan origination fee refers to the
total number of points a borrower pays.
- owner financing
- A property purchase transaction in which the property
seller provides all or part of the financing.
- periodic payment cap
- For an adjustable-rate mortgage where the interest rate
and the minimum payment amount fluctuate independently of
one another, this is a limit on the amount that payments
can increase or decrease during any one adjustment
period.
- periodic rate cap
- For an adjustable-rate mortgage, 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.
- PITI
- This stands for principal, interest, taxes and insurance.
If you have an "impounded" loan, then your
monthly payment to the lender includes all of these and
probably includes mortgage insurance as well. If you do
not have an impounded account, then the lender still
calculates this amount and uses it as part of determining
your debt-to-income ratio.
- PITI reserves
- A cash amount that a borrower must have on hand after
making a down payment and paying all closing costs for
the purchase of a home. The principal, interest, taxes,
and insurance (PITI) reserves must equal the amount that
the borrower would have to pay for PITI for a predefined
number of months.
- planned unit
development (PUD)
- A type of ownership where individuals actually own the
building or unit they live in, but common areas are owned
jointly with the other members of the development or
association. Contrast with condominium, where an
individual actually owns the airspace of his unit, but
the buildings and common areas are owned jointly with the
others in the development or association.
- point
- A point is 1 percent of the amount of the mortgage.
- power of attorney
- A legal document that authorizes another person to act on
one's behalf. A power of attorney can grant complete
authority or can be limited to certain acts and/or
certain periods of time.
- prepayment penalty
- A fee that may be charged to a borrower who pays
off a loan before it is due.
- principal
- The amount borrowed or remaining unpaid. The part of the
monthly payment that reduces the remaining balance of a
mortgage.
- principal balance
- The outstanding balance of principal on a mortgage. The
principal balance does not include interest or any other
charges. See remaining balance.
- principal,
interest, taxes, and insurance (PITI)
- The four components of a monthly mortgage payment on
impounded loans. Principal refers to the part of the
monthly payment that reduces the remaining balance of the
mortgage. Interest is the fee charged for borrowing
money. Taxes and insurance refer to the amounts that are
paid into an escrow account each month for property taxes
and mortgage and hazard insurance.
- promissory note
- A written promise to repay a specified amount over a
specified period of time.
- public auction
- A meeting in an announced public location to sell
property to repay a mortgage that is in default.
- Planned Unit
Development (PUD)
- A project or subdivision that includes common property
that is owned and maintained by a homeowners' association
for the benefit and use of the individual PUD unit
owners.
- purchase agreement
- A written contract signed by the buyer and seller stating
the terms and conditions under which a property will be
sold.
- purchase money
transaction
- The acquisition of property through the payment of money
or its equivalent.
- qualifying ratios
- Calculations that are used in determining whether a
borrower can qualify for a mortgage. There are two
ratios. The "top" or "front" ratio is
a calculation of the borrower's monthly housing costs
(principle, taxes, insurance, mortgage insurance,
homeowner's association fees) as a percentage of monthly
income. The "back" or "bottom" ratio
includes housing costs as well as all other monthly debt.
- quitclaim deed
- A deed that transfers without warranty whatever interest
or title a grantor may have at the time the conveyance is
made.
- rate lock
- A commitment issued by a lender to a borrower or other
mortgage originator guaranteeing a specified interest
rate for a specified period of time at a specific cost.
- Real
Estate Settlement Procedures Act (RESPA)
- A consumer protection law that requires lenders to give
borrowers advance notice of closing costs.
- real property
- Land and appurtenances, including anything of a permanent
nature such as structures, trees, minerals, and the
interest, benefits, and inherent rights thereof.
- recording
- The noting in the registrar's office of the details of a
properly executed legal document, such as a deed, a
mortgage note, a satisfaction of mortgage, or an
extension of mortgage, thereby making it a part of the
public record.
- refinance transaction
- The process of paying off one loan with the proceeds from
a new loan using the same property as security.
- rent loss insurance
- Insurance that protects a landlord against loss of rent
or rental value due to fire or other casualty that
renders the leased premises unavailable for use and as a
result of which the tenant is excused from paying rent.
- replacement reserve
fund
- A fund set aside for replacement of common property in a
condominium, PUD, or cooperative project -- particularly
that which has a short life expectancy, such as
carpeting, furniture, etc.
- right of first refusal
- A provision in an agreement that requires the owner of a
property to give another party the first opportunity to
purchase or lease the property before he or she offers it
for sale or lease to others.
- right of ingress or
egress
- The right to enter or leave designated premises.
- right of survivorship
- In joint tenancy, the right of survivors to acquire the
interest of a deceased joint tenant.
- 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.
- second mortgage
- A mortgage that has a lien position subordinate to the
first mortgage.
- secondary market
- The buying and selling of existing mortgages, usually as
part of a "pool" of mortgages.
- secured loan
- A loan that is backed by collateral.
- security
- The property that will be pledged as collateral for a
loan.
- seller carry-back
- An agreement in which the owner of a property provides
financing, often in combination with an assumable
mortgage.
- servicer
- An organization that collects principal and interest
payments from borrowers and manages borrowers' escrow
accounts. The servicer often services mortgages that have
been purchased by an investor in the secondary mortgage
market.
- servicing
- The collection of mortgage payments from borrowers and
related responsibilities of a loan servicer.
- settlement statement
- See HUD1 Settlement Statement
- subdivision
- A housing development that is created by dividing a tract
of land into individual lots for sale or lease.
- subordinate financing
- Any mortgage or other lien that has a priority that is
lower than that of the first mortgage.
- survey
- A drawing or map showing the precise legal boundaries of
a property, the location of improvements, easements,
rights of way, encroachments, and other physical
features.
- sweat equity
- Contribution to the construction or rehabilitation of a
property in the form of labor or services rather than
cash.
- third-party origination
- A process by which a lender uses another party to
completely or partially originate, process, underwrite,
close, fund, or package the mortgages it plans to deliver
to the secondary mortgage market.
- title
- A legal document evidencing a person's right to or
ownership of a property.
- title company
- A company that specializes in examining and insuring
titles to real estate.
- title insurance
- Insurance that protects the lender (lender's policy) or
the buyer (owner's policy) against loss arising from
disputes over ownership of a property.
- title search
- A check of the title records to ensure that the seller is
the legal owner of the property and that there are no
liens or other claims outstanding.
- Truth-in-Lending
- A federal law that requires lenders to fully disclose, in
writing, the terms and conditions of a mortgage,
including the annual percentage rate (APR) and other
charges.
- trustee
- A fiduciary who holds or controls property for the
benefit of another.
- VA mortgage
- A mortgage that is guaranteed by the Department of
Veterans Affairs (VA).
- Veterans
Administration (VA)
- An agency of the federal government that guarantees
residential mortgages made to eligible veterans of the
military services. The guarantee protects the lender
against loss and thus encourages lenders to make
mortgages to veterans.