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Glossary
Automated
underwriting
or
automated
underwriting
service:
A
service
that
enables
lenders
to
obtain
a
risk
classification
without
traditional
manual
underwriting.
Freddie
Mac’s
service,
Loan
Prospector,
is
statistically
based
on
the
performance
of
past
loans;
others
are
rules
based.
Collateral
assessment:
An
estimate
of
a
property’s
value,
used
to
evaluate
its
adequacy
to
serve
as
security
for
a
mortgage.
Compensating
factors:
Strengths
in
the
borrower’s
application
or
credit
report
that
offset
weaknesses.
Conventional
mortgage:
A
mortgage
that
is
not
insured
or
guaranteed
by
the
government.
It
may
be
covered
by
private
mortgage
insurance
or
have
no
insurance.
Credit-bureau
score:
A
number
summarizing
an
individual’s
credit
profile
that
indicates
the
likelihood
that
a
borrower
will
repay
future
loan
obligations.
Credit
grantor:
An
institution
that
provides
credit,
such
as
a
bank
or
department
store.
Credit
repository:
An
organization
engaged
primarily
in
gathering,
recording,
updating
and
storing
information
about
an
individual’s
use
of
credit
and
repayment
of
obligations.
Repositories
are
also
known
as
credit
bureaus.
Debt-to-income
ratios:
The
ratio
of
monthly
housing
debt
payments
to
gross
monthly
income
(front-end
ratio)
and
the
ratio
of
total
monthly
debt
payments
to
gross
monthly
income
(back-end
ratio).
Derogatories
or
derogatory
credit
incidents:
Negative
information
in
a
credit
report.
For
example,
a
loan
that
is
in
foreclosure
is
a
derogatory.
FICO
score:
A
credit-bureau
score
developed
by
Fair,
Isaac
and
Company,
Inc.
Inquiry:
A
request
for
credit
information
from
a
repository.
Only
inquiries
triggered
when
a
consumer
applies
for
a
loan
are
used
to
compute
credit-bureau
scores.
Loan
Prospector:
Freddie
Mac’s
automated
underwriting
service.
Manual
underwriting:
See
Traditional
Underwriting.
Risk
classification:
The
outcome
of
automated
underwriting
that
indicates
the
likely
performance
of
the
loan.
For
Loan
Prospector
the
risk
classifications
are:
accept,
refer
and
caution.
Subprime
mortgages:
Mortgages
with
risk
attributes
below
investment-grade
standards.
Because
of
the
higher
risk,
these
mortgages
usually
have
higher
interest
rates
or
higher
fees.
Tradeline:
An
account
with
a
bank,
department
store,
mortgage
company
or
other
institution
that
extends
credit.
For
each
tradeline,
a
credit
file
includes
date
opened,
current
balance,
credit
limit,
payment
history
and
other
information.
Traditional
underwriting:
An
evaluation
of
a
loan
application
that
relies
on
the
subjective
judgment
of
a
human
underwriter
to
assess
the
risk
of
future
default. Underwriter: The employee of a lender or mortgage insurer who determines whether an applicant qualifies for a mortgage.
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