Glossary: ARMs – Assets

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Adjustable Rate Mortgage

– a loan in which the interest rate is periodically adjusted, moving higher or lower in the same ratio as a pre-selected index, such as Treasury bill rates.

ARM loans may include caps on interest rate over the life of the loan and limits on the frequency of interest rate adjustments. ARM loans generally have initial below market interest rates in return for the borrower sharing the risk that interest rates may rise during the life of the loan. ARM loans are also known as Variable Rate Mortgages (VRM) and, less commonly, Adjustable Mortgage Loan (AML).

Adverse Public Record

– also known as Derogatory Public Records, APRs are usually found on a credit report and include things like bankruptcy, judgments, suits, liens, wage attachments, collection items, and/or delinquency (past due items).

Alt-A Borrower

– borrowers that typically have prime-quality credit scores of 620 or above but have some kind of “defect” in their borrowing profile. This could be something as unavoidable as being self-employed or the result of having very little savings or a high debt-to-income ratio.

American Home Mortgage (AHM)

– an investment company that invested in home loans, mortgage securities and serviced mortgage accounts as well as originating loans from a network of branches across the nation. Their specialty was Alt-A mortgage loans and ARMs. On August 6th, 2007, AHM filed for Chapter 11 bankruptcy.

This is significant because it marked the first bankruptcy for a mortgage company that did not deal exclusively in high-risk, low-quality subprime loans. As you may imagine, this event shook the confidence of other prime lending institutions that previously felt that they might escape this whole crisis unscathed.

AMTPA (Alternative Mortgage Transaction Parity Act)

– a piece of legislation passed in 1982 that, for the first time, made it possible for lenders to charge variable interest on the term of a loan. The AMTPA also permitted balloon payments or interest only loans. This was an important step forward in the newly developing industry of subprime mortgages.

Assets

– personal possessions of value, including cash, real estate, vehicles and investments. Essentially, anything a person owns that can be converted into cash is considered an asset.

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