Find definitions to common financial words below.
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abandonment - An asset is abandoned, or removed form the estate, if the equity in it has little or no value. The collateral is usually abandoned to the party in possesion. If the party is the credit union, for example, in the case of a repossessed car, the car can be sold. If the collateral is abandoned to the member, however, the credit union cannot attempt repossession without filing a petition to lift the automatic stay.
abstract of title - A summary of the successive title deeds to a piece of property.
acceleration clause - A provision allowing the lender to ask for full payment at once, if loan installments are not paid when due.
account - A formal record of business transactions.
accounting capital - Amount of month-end capital that can be reconciled to the credit union's beginning-of-the-year capital, year-to-date income, and year-to-date net loan charge-offs. (See also capital.)
account in trust - An account established by one individual but held in trust for another.
add-on charge - A method, no longer permissible, of advertising the interest rate on installment loans that understates the true interest rate.
adjustable-rate mortgage - Mortgage agreement that stipulates predetermined adjustments of the interest rate at specified intervals (usually one, three, or five years.) Changes are governed by the movement of an index, such as Treaury bills - ARM.
adjustment period - Date when the interest rate may be changed on an adjustable-rate mortgage.
adverse action - (1) Refusal to grant credit in the amount or under terms requested; (2) termination of an account; (3) refusal to increase the amount of an exisitng credit line when the applicant requested it tin accordance with the creditor's procedures; or (4) an unfavorable change in terms that affects only some to the debtors.
affidavit - A written statement made under oath before an authorized official.
affinity cards - Credit cards marketed to a group of consumers with a common bond. The sponsoring organization typically endorses a particular financial institution's card in return for financial compensation based on use of the card.
amortize - Provision for repayment of a loan in periodic payments over a stated period of time.
annual percentage rate - Finance charge over a full year, expressed as a percentage of all costs of the loan as required by the Truth-in-Lending Act-APR.
applicant - One who applies for membership, employment, or a loan.
application for a loan - A questionnaire calling for information used to determine whether a member will be granted a loan.
appraisal - An estimate of value of property.
appraisal fee - Charge for estimating the value of collateral being offered as security.
appreciation - An increase in value.
asset - Something of value that can be used to repay debt.
asset-liability management - Matching the maturities of deposits with the length of loan commitments to keep from being adversely affected by rapid change in interest rates.
assignable - Capable of legally being transferred.
assignee - A person to whom a transfer is being made.
assignor - The maker or originator of an assignment.
assumption of mortgage - Taking on primary liability for payment of an exisiting mortgage while th seller remains secondarily liable unless specifically released by the lender.
authentication - A data security technique used to prevent the unintentional or unauthorized alteration of information.
automated clearinghouse -A computer -based facility that settles payments and deposit transactions between member financial institutions - ACH.
automated teller machine - Unmanned equipment used by a customer to obtain financial services, generally activated by a plastic card, push buttons, and a personal identification number for each user - ATM.
automatic premium loan - A loan issued automatically to pay insurance premiums not paid by the end of the grace period.
average daily balance - A method used to determine interest on a loan balance. Purchases and advances for the month are added to the balance outstanding, then credits are subtracted. The result is divided by the number of days in the month.
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backup witholding -A system whereby payments of interest and dividend earnings that are reported to the Internal Revenue Service by financial institutions are matched against the actual income reported by individuals.
balance -Amount owed, unpaid, or outstanding.
balance sheet - A condensed list of assets and liabilities showing net worth or deficit on a given date.
balloon note - The note of a loan in which the final payment is considerably higher than the other regular payments.
bank acceptance - Draft drawn on a bank and accepted by another bank.
bank credit card - A credit card issued by a financial institution, enabling the borrower to buy goods and services or obtain a cash loan from financial institutions honoring that card.
bankrupt - A debtor who is judged legally insolventand whose remaining property is administered for or distributed among his creditors.
bankruptcy - A court action declaring a person free of most debt, due to inability of the person to pay. (See also Chapter 13.)
bank wire - An electronic communication network used to transfer messages between subscribing banks.
basis point - A unit of measurement for the change in interest rates that is equal to .01%; 100 basis points = 1%. (Contrast with discount points.)
beneficiary - The person designated to receive the proceeds of a life or accident insurance policy or similar benefit of a transaction.
bond - A legal contract by which an insurance company agrees to pay, within stated limits, for financial loss caused by the default or dishonest acts of a third party.
branch - A separate but dependent part of a central organization.
bridge loan - A short-term loan made in anticipation of long-term financing.
buy down - Funds advanced by the seller, builder, etc., to reduce the morgage interest rate and the borrower's monthly mortgage payment.
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cap - Limit on how much the interest rate or the monthly payment of a mortgage can change at each adjustment or during the life of an adjustable-rate mortgage.
capital - Sum of regular statutory resources, other reserves, and undivided earnings. (See also accounting capital.)
capital market - The market where long-term funds are traded. (Contrast with money market.)
cash discount - Price reduction offered by merchants to customers paying in cash or by check instead of by credit card.
Chapter 7 - The portion of the Bankruptcy Code that provides for liquidation. All non-exempted assets are sold and funds are disbursed to creditors holding valid claims. The debtor is then discharged from all obligations.
Chapter 11 - A business reorganization plan.
Chapter 12 - Established in the 1986 revision of the Bankruptcy Code, this is a family farm reorganization plan. It is less complicated than filing Chapter 11 but has no monetary debt ceiling as Chapter 13 does.
Chapter 13 - A section of the Federal Bankruptcy Law that allows the bankruptcy court to distribute to creditors a portion of a debtor's paycheck. Debts are not wiped out and debtors retain control of their assets. Also called wage earner plan. (See also bankruptcy.)
charge-off - To treat as a loss.
check authorization - The confirmation by a financial institution to a retail outlet that a customer's balance is adequate for particular amount.
check-hold - Procedure whereby a certain amount of a member's balance is held intact until a specific check comes through for posting.
claim - Demand for payment under insurance contract, bond, or legal judgement.
clearing - The process by which a payment order (check, share draft, etc.) moves from the initiator of the order to the final recipient.
clearinghouse - An establishment maintained by financial institutions for settling mutual claims and accounts.
closed-end credit - Credit contracts that specify the time period over which the loan or sales contract will be repaid, the total amount due, and the number of payments and due dates on which they fall.
closing costs -The expenses incurred by sellers and buyers in the transfer of real estate ownership.
collaterized mortgage obligations - A pooled mortgage loan that is identified by the issuer. CMOs are assigned series designators, which differentiate each issue and the individual classes within the series. Each class has a different coupon maturity and price - CMO.
composition - Agreement between a borrower in financial difficulty and a lender, allowing the borrower to eliminate debt by paying only a portion of the total amount owed the lender.
compound dividend - A dividend that is computed by using a base the amount that includes the dividend paid in the previous period.
compound interest - Interest that is added to the principal and itself begins to earn interest.
conditional sales contract - A document used in installment sales credit arrangements that withholds ownership title from the buyer wintil the loan has been paid in full.
conforming loan - Loan with property type and dollar amount within the criteria established by a major secondary market.
consolidation loan - Combining several debts into one loan, usually to reduce the annual percentage rate or the dollar amount of payments made each month by extending them over a longer period of time.
contractual liability - Obligation to repay all debts made in accordance with a contract.
conventional loan - Loan not insured or guaranteed by a government agency.
conventional mortgage - A mortgage, other than one insured by the Federal Housing Administration or guaranteed by the Veterans Administration.
cost of funds - Dividend and interest expense divided by average balance of total assets, or average funds cost times total fund mix.
coupon rate - The annual interest rate on a debt instrument.
credit - An arrangement to receive cash, goods, or services now and pay for them in the future.
credit bureau - An organization that gathers information about a consumer's creditworthiness, and to which a financial institution may apply for such information about a prospective borrower.
credit card - An instrument or device, whether known as a credit card, credit plate, or any other name; issued (with or without a fee) for the use of the cardholder in obtaining money, goods, services, or anything of value; and that creates a liability by the card user in favor of the issuing institution.
credit life and disability insurance - Insurance issued on the debt of borrowers to cover payment of loans in case of death or disability.
credit rating - The estimate of the amount of credit that can be extended to a borrower without undue risk, based on the borrower's past credit experience.
credit report - A report on the credit standing of a prospective borrower.
credit risk - The possibility of loss to a lender resulting from non-payment by a borrower.
credit scoring system - A quantitative, statistical evaluation method used to establish a credit applicant's creditworthiness.
credit union - A voluntary, not-for-profit cooperative association organized by a group of people having a common bond, and democratically administered to encourage thrift among its members, create a source of credit at a low rate, and provide maximum service at minimum cost.
CUNA Mortgage Corp. - The movement owned mortgage banking company that supplies mortgage funds to credit unions and their members by pooling credit union mortgages nationwide and selling them in the secondary mortgage market.
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dealer reserve - Percentage of a car loan returned to the dealer for placing the loan.
debit card - A plastic card issued by financial institutions that effects immediate debiting of the customer's deposit account. Because no billing process is involved, it tends to reduce float. (Contrast with credit card.)
debtor - One who owes something to another person, an organization, or an institution.
debt ratio - A borrower's total monthly outstanding obligation divided by gross monthly income.
decedent account - Name given to an account after the account holder has died.
deed - A formal, written agreement transferring title of a real property from one person to another.
default - Failure to meet the terms of a credit agreement.
deferred compensation - The post- ponement of distribution of a portion of current income until a later date.
deficit - The amount by which total losses exceed total income.
delayed down - Automobile dealer finances a car down payment for a specified period of time unknown to the financial institution buying the contract.
delinquent - A loan that is past due and for which no satisfactory arrangement has been made.
direct deposit of payroll - Movement of net-pay funds (usually electronically) from the account of the employer to an account of an employee at a designated institution. When used in conjunction with an automated clearinghouse, the net pay can be credited to any account in any participating financial institution electronically - DDP.
discount - Difference between an automobile sticker price (set to absorb a trade-in) and a cash deal with no trade.
discount brokerage - A brokerage organization that executes orders to buy and sell securities at commission rates sharply lower than those charged by a full-service brker.
discount rate - The interest rate charged by Federal Reserve Banks to eligible depository institutions that borrow funds for short periods.
discount window - The Federal Reserve facility that extends credit directly to eligible depository institutions.
discretionary income - What remains of disposable income, after essential living costs are paid.
disposable income - Take-home pay or net pay.
dividend - A share of earnings distributed to shareholders of a credit union.
down payment - A cash sum required at the outset of a credit transaction, which together with the outstanding loan balance compose the total cost.
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earning assets - Sum of loans and investments.
earning-asset yield - Interest income form loans and investments divided by the average balance of earning assets.
effective gross income - A borrower's verified continuing income.
Electronic Funds Transfer Act - Title IX of the Consumer Credit Protection Act establishing the basic rights, liabilities, and responsibilities of consumers using electronic money transfer services and of financial institutions offering those services - EFTA.
endorse - To write one's signature on the back of a payment mechanism as evidence of legal transfer of ownership.
equity - The amount of money property is worth above and beyond the amount owed on it.
escrow - Funds to be paid by a second party to a third party for expenses on property held by the first party; for example, funds held by a financial institution - often collected together with monthly mortgage payments - to meet tax bills and insurance premiums.
estate loan - A loan made to purchase shares in the credit union.
extension - Agreement with the lender to allow the borrower, who may be having financial difficulties, to make smaller payments on an outstanding debt ove a longer period of time.
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Fair Credit Billing Act - An amendment to Regulation Z designed to help credit card holders and other users of open-end credit protect themselves against billing error abuses.
Fair Credit Reporting Act - The federal law designed to ensure fair and accurate reporting of information regarding consumers.
fair market value - Value arrived at by bargaining between informal buyers and sellers.
federal credit union - A credit union chartered, examined, and supervised by the federal government through the National Credit Union Administration - FCU.
Federal Deposit Insurance Corp. - The government agency established in 1933 to insure deposits in Federal Reserve member banks and other qualified banks - FDIC.
Federal Home Loan Bank Board - A federal agency established in 1932 to charter and supervise federal savings and loan associations, and to manage the Federal Savings and Loan Insurance Corp.
Federal Home Loan Mortgage Corp. - A government agency that purchases mortgages form thrift institutions to increase the supply of housing funds - Freddie Mac.
Federal Housing Authority - Federal government division that insures residential mortgage loans made by private lenders - FHA.
Federal National Mortgage Association - An independent agency that purchases mortgages from banks and sells them to investors in order to create a fund for mortgage lending - Fannie Mae.
Federal Reserve Board - The seven member governing body of the Federal Reserve System - FRB.
FIFO - First-in, first-out method of calculating interest on savings accounts, whereby earnings are computed on the balance of the savings accountat the beginning of the period, plus additions received minus withdrawals from the first balance.
finance charge - The total amount of interest that will be paid on a loan when the loan is repaid according to schedule - FC.
financing costs - Dividends and interest expense paid on funds.
first mortgage - Real estate loan that creates a primary lien against real property and has first priority over all other liens.
float - Funds credited to one account, but because of the time involved in the clearing process, have not been deducted from the account that it was written against.
floor limit - The maximum amount of credit available to a customer for a purchase without the need for credit authorization. (See also zero floor limit.)
foreclosure - A legal procedure that deprives a mortgage holder of his interest in a property, usually by sale of that property.
Fully amortizing loan - Loan with payments that allow the principal and interest due to be paid in equal installments during the remaining term of the loan.
funds transfer - Data that change the monetary assets of an individual or business.
futures - Short for futures contract, which is an agreement to make or take delivery of a commodity at aspecified future time and price.
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GAAP - Generally accepted accounting principles.
gap - The difference between the amount of assets and the amount of liabilities that are likely to have rate changes up to a point in time in the future.
grace period - A period in time after a due date not subject to late charges or cancellation penalties.
gross income - Total earnings prior to deductions for taxes, health insurance, employee benefits plans, etc.
gross spread - Yield on assets minus costs of funds.
guarantor - A person or organization that promises to answer for the debt or default of another.
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home banking - A form of electronic funds transfer carried out form the customer's home via computer or home phone linkage with a financial institution.
home equity loans - A loan secured by the value of a house, minus exisiting mortgage debt. The loan can be provided as a straight payout loan with a fixed repayment schedule, or as an open-ened line of credit with a minimum monthly payment.
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index - Regularly published statistical measure of widely accepted rates that change periodically, such as Treasury bill interest rates, industrial production, etc.
indirect leasing - Lease offered through a dealer by a credit union that preapproves the member's credit and authorizes the dealer to complete the transaction with the member. (See also direct leasing.)
individual member central credit union - A credit union that provides credit union services to individuals with the goal of providing total financial services. The unique aspect of individual centrals pertains not to the services they provide but to the common bonds they serve, including officers of other credit unions, and select employee groups.
insolvency - The inability of a person to repay all current obligations due at any given time.
installment credit - Consumer credit that is to be repaid in regular amounts over a specified period of time.
interest - The charge for a financial loan, usually a percentage of the amount loaned.
investment - Anything acquired for the purpose of producing income or a profit, or in credit unions, surplus cash deposited in other organizations to draw interest or dividends.
investment yield - Annualized ratio of investment income divided by the average balance of investments.
involuntary lien - A lien imposed against property without the consent of an owner.
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joint account - A credit arrangement for two or more persons, enabling all to use an account and assume liability to repay.
judgment lien - A lien on a debtor's property resulting from a court decree.
jumbo loan - Loan amount on a residential property that exceeds the limits allowed by Freddie Mac or Fannie Mae.
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Keogh account - a tax-sheltered savings plan for self-employed individuals, authorized by the Self-Employed Individuals Tax Retirement Act.
Keogh plan - a program that enables self-employed individuals to defer payment of taxes on a percentage of their income until retirement.
kiting - Making use of fictitious balances by drawing against uncollected funds. Or depositing and drawing checks between accounts at two or more banks and thereby taking advantage of the float.
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late charge - A percentage of the payment due that is charged for being late or paying after a predetermined grace period.
late payment - A payment on which an additional charge may be imposed, since it was made after the due date.
leasehold agreement - An agreement entered into by the credit union for office facilities that are rented or occupied, usually on sponsoring company premises.
lessee - One who rents real or personal property from a lessor for a fee, called rent.
lessor - One who owns real or personal property that is leased.
leveraged buy out - Gaining controlling interest in a company using mostly borrowed money.
licensed lender - a consumer finance office authorized to operate in the state in which it is located.
lien - a claim that one person has upon property of another person, as security for debt.
life savings insurance - an insurance program that provides an eligible credit union member with life insurance based on the amount of savings deposited, usually up to a specific limit.
line of credit - The dollar amount a lender is making available to a borrower, which may or may not be borrowed.
liquidity - In credit union terms, that portion of total assets not held in fixed assets and not loaned to members. These are the funds for which the credit union must make investment decisions.
liquidity reserves - Reserves held by an institution to guarantee the availability of funds to meet expected claims against it as members' drafts are presented for payment.
loan-to-value ratio - Relationship between the amount of the mortgage loan and the value of the property, expressed as a percent - LTV.
loan yield - Annualized ratio of loan income divided by the average balance of loans.
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market value - The highest price that real property will bring in a competitive and open market under all conditions requisite to a fair sale.
merchant discount - The fee paid by merchants to banks, in the form of a negotiated percentage of the transaction amount, in return for processing credit or debit card transactions.
minimum balance account - An account that requires the holder to maintain a specified balance in the account for at least an entire dividend period.
monetary reserves - Reserves required by the Federal Reserve to be held against various types of deposit accounts as a tool of monetary policy.
money market - The market for buying and selling short-term loanable funds, in the form of securities, loans, gold and foreign exchange. (Contrast with capital market.)
mortgage - A legal instrument by which a borrower gives a creditor a lien on property as security for a loan; the lien created by the instrument.
mortgage loan commitment - Written statement by lender to grant a specific loan amount, at a given rate, for a certain term, secured by a specific property, if the real property transaction is closed before the expiration date.
mortgage payment ratio - Total monthly mortgage payment (including escrow payments) divided by gross monthly income.
mutual fund - Fund operated by an investment company that raises money from stockholders, invests it in stocks, bonds, options, etc., and buys back its shares at current net asset value.
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negative amortization - An increase in the unpaid principal of a variable- rate loan caused when the loan payment is insufficient to pay the interest due on the contract. Usually occurs when the interest rate is increased early in the contract and the pajments are fixed.
negotiable - Capable of being legally transferred from one person to another.
net interest income - Interest income minus financing cost.
net loss - The deficit remaining when operating expenses exceed total income for a given period.
net operating expenses - Operating expenses minus non-interest (fee) income.
net operating income - Net interest income minus net operating expenses. Reflects operating profitability before extraordinary gains and losses, loan-loss provisions, reserve transfers, and interest refunds.
non-earning assets - All assets other than loans and investments.
non-interest income - Sources of operating income other than interest income form loans and investments.
non-negotiable - Not capable of being legally transferred from one person to another.
note - A written document that is a recognized legal evidence of debt, promising payment of a specified sum of money on a certain date. (Also called promissory note.)
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obligation - A debt.
operating expenses - All expenses except dividends and interest, non-operating losses, loan-loss provisions, and reserve transfers.
operating margin - Gross spread minus operating expenses and mandatory reserve transfers.
origination - Purpose of the prepara-tion, evalutaion, and submission of a proposed mortgage loan package.
origination fee - Fee charged for the work involved in loan origination, usually 1% to 1.5% of the original principal of the loan.
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participation loan - A loan made by more than one financial institution and served by one of the group, called the lend leader.
payday loan - A single payment signature loan made by a member until the member's next payday.
payment - Total sum of money borrowed, plus all finance charges, divided by the number of months in the term of the loan. (See also scheduled payment.)
payroll deduction - An agreement entered into between employer and employee that allows the employer to deduct a given amount from the employee's salary to be transferred to the credit union or other organization.
payroll deposit - A system that enables firms to pay their employees, without writing payroll checks, by direct deposit of funds to the employee's account.
personal identification number - A unique number assigned to each customer for utiliziing EFT devices - PIN.
personal loan - A direct loan that may be secured or unsecured.
personal property- Any possession other than land or buildings.
points - A loan discount, which is a one-time charge, used to adjust the yield on the loan to what market conditions demand. Each point equals 1% of the principal amount.
private mortgage insurance - Protection for the mortgage lender against mortgage default.
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qualitative research - Use of personal interviews and focus groups to obtain needed information.
quorum - The number of persons, members represented, or directors who may legally transact business of a meeting called for that purpose.
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refinance - Revise, renew, or reorganize existing debt by incurring a new debt that incorporates or pays off existing debt.
refund - A portion of a finance charge returned ot the borrower for paying off a loan before maturity. (See interest rebate.)
residential loan - Loan made on a property with one to four living units.
reverse mortgage - A mortgage instrument that allows an elderly person to live off the equity of a fully paid for house - REM.
revolving account - Line of credit that may be used repeatedly up to a certain specified limit.
Risk assets - loans.
ROM - (See read only memory.)
routing and transit number - A de-vice to facilitate the handling and routing of transit items through banks. The number appears in the MICR bank (the leftmost eight digits) and as a fraction in the upper right -hand corner. As an example:
a b c .
1:02 13 0947
a) Federal Reserve district
b) Branch and availability within Federal Reserve
c) Bank within Federal Reserve Branch
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S & L - Savings and loan association.
secondary mortgage market - A market where both single-family and multi-family conventional loans may be purchased or sold over the counter by financial institutions, as well as where proir commitments for mortgage loans may be obtained.
second mortgage - A mortgage on real estate that already has a first mortgage.
secured note - A note containing a provision that, upon default, certain pledged property may be claimed by the lender as payment of a debt.
servicing - Duties of a mortgage lender as a loan correspondent as specified in a servicing agreement.
settlement - The striking of a balance between two or more parties having mutual dealings with one another, and the payment of the debit balance by the debtor to the creditor.
short-term debt - Loans of five years or less.
skimming - An unauthorized method of duplicating the magnetically encoded data on plastic identification cards.
Stanford Loan Program - A student loan program that enables participating lenders to offer federally guaranteed higher education loans with interest subsidies and generous repayment terms. Replaces the Guaranteed Student Loan Program.
Student Loan Marketing Association - A government agency that purchases student loans made either by financial or educational institutions - Sallie Mae.
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term - Length of time designated for total repayment of loan.
termination clause - Ability to notify a member that an IRA will be paid out in a given amount of time unless an IRA transfer is requested.
title - Legal ownership.
title insurance- Contract that agrees to pay the insured for loss caused by defects of title to real estate.
Treasury bonds - Long-term U.S. Treasury securities having maturities of more than 10 years and minimum denominations of $1,000
Treasury securities - Interest-bearing obligations of the U.S. government issued by the Treasury as a means of borrowing money to meet government expenditures covered by tax revenues.
trust account - A savings account established and placed under the control of one or more persons, for the benefit of another person.
Truth-in-Lending Act - The section of the Consumer Credit Protection Act that provides for a complete and conspicuous disclosure of credit charges in dollars and cents and as an annual percentage rate - TIL.
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underwrite - to assume financial responsibility for; to insure.
unsecured note - A loan granted on the basis of a borrower's credit-worthiness and signature; not secured by collateral.
usury - Charging more for the use of money than allowed by law
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variable-rate loans - Either open-end or closed-end loans having interest rates that vary with a credit union's cost of funds or a money market index - VRL.
verification of deposit - Information on deposited or loan accounts signed by the borrower and the lender and sent to the financial institution requesting confirmation.
vesting - The right of an employee who is covered by a contributory or non-contributory retirement plan to acquire the employer's contribution to that plan.
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wage assignment - An agreement permitting a lender to collect a certain portion of a borrower's salary from the borrower's employer if payment is not made as specified in the credit contract.
waiver - The voluntary relinquishment of a right in property or to a claim against another's property.
whole life insurance - A loan of insurance for the whole of life, payable at death.
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zero floor limit - A credit limit indicating that no credit is available to a customer without credit authorization. (See also floor limit.)
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