Glossary: Cash Out Refinance – Credit Score

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Cash Out Refinance
a loan that enables a homeowner to replace an existing mortgage balance with a new loan that is worth more than the old one. After the original mortgage is paid, the homeowner walks away with cash at closing. Most people use the additional cash for home improvements or to pay of credit card debts.
Chapter 11 Bankruptcy
a form of bankruptcy in which a company is protected from creditors while it restructures its business, usually by downsizing and narrowing focus. Companies that file for Chapter 11 bankruptcy American Home Mortgage, are given a break from paying their debts until they can get enough capital together to start making them again.
Charge to profit and loss
debts that a creditor (usually a credit card company) considers uncollectable and does not bother to spend time or lawyer’s fees collecting them. It is important to know however, that even if these companies aren’t actively trying to collect from you, the debts are still outstanding.

If you refinance your house or apply for another loan, most lenders will force you to pay off the outstanding debts first to avoid having them turn into a lien sometime in future. Charge to profit and loss statements affect your credit rating almost as much as a bankruptcy and the record of one stays on your credit report for seven years.

Chattel
Articles of personal property such as household goods, furnishings, and fixtures that are not permanently affixed to the house. Pianos, couches, appliances and other furniture are chattel. Trees, curtains and concrete are not.
Citibank
a major international bank, founded in 1812 as the City Bank of New York. Citibank is now the consumer and corporate banking arm of financial services giant Citigroup, one of the largest companies in the world. The bank invested heavily in subprime loan securities and was hit hard when the industry crashed in late 2006. As of January 15th 2008, the total losses posted by Citibank totalled nearly $10 billion.
Consumer Report
a report on an individual’s credit history or other personal information; regulated under the Fair Credit Reporting Act.
Conventional Loans
a loan or mortgage with a fixed interest rate, fixed payments and a fixed term. Generally speaking, these loans are acquired from a private lender such as a bank or credit union and are not underwritten by any government housing initiatives.
Countrywide Financial
the largest mortgage lender in America. In 2006, Countrywide financed between 17 and 20 percent of all mortgages originated in American, the value of which equalled approximately 3½ percent of the country’s Gross Domestic Product. On January 11th 2008, Countrywide was sold to Bank of America for $4.1 billion in stock.
Credit Crunch
a shortage of available loans. In well-functioning markets, this would simply mean a rise in interest rates, but in practice it often means that some borrowers cannot get loans at all (see credit rationing). The current crunch is a result of loans no longer being converted into securities. When the front line lending institution doesn’t physically have the cash to lend, loan criteria become far more stringent and more people are denied credit.
Credit Rating Agency (CRA)
a company that assigns credit ratings for issuers of certain types of debt obligations for the purposes of measuring credit worthiness, or the ability to pay back a loan. The most familiar type of agencies are those that deal in consumer credit.
Non-consumer credit rating agencies are companies, cities, non-profit organizations or national governments issuing debt-like securities that can be traded on a secondary market.
Credit Rationing
when a bank limits the supply of loans, even though it has enough funds to make the loans. When credit is rationed the supply of loans does not equal the demand of prospective borrowers.
Credit Score
an assessment used to evaluate the amount of risk involved in a credit transaction. The amount of risk is determined by analysis of information provided in a consumer’s application, the potential loan, and the consumer’s credit report. A credit score can range from a low of 300 to a perfect 850 and is affected by late or missed credit card and/or mortgage payments, the number of collections on the account and bankruptcy.

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