Glossary: Moral Hazard – Mortgage Reform Act
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
- Moral Hazard – a term based on the principle that if people/bankers/investors are allowed to escape the consequences of their risky actions, they are more likely to engage in reckless behavior in the future. The moral hazard argument is often used to argue against the forgiveness of legally contracted debt.
- An example used in my book is the bailout of lending institutions during the Savings and Loan crisis in the late 80s. Some commentators have blamed this bailout for the generous lending seen before the mortgage market collapse.
- Mortgage – generally known as a financial agreement between a lender and a borrower in which the property is used as collateral for the loan.
- Technically speaking, what is usually referred to as a mortgage is actually a two-part process consisting of a note and the mortgage. The note is the part of the agreement that obligates the borrower to repay the lender. The mortgage obligates the borrower to protect the value of the property by paying taxes and assessments on the real estate, keeping improvements in good repair, maintaining both property damage and personal liability insurance for benefit of lender, and, of course, paying the debt in accordance with the terms of the note.
- A good example of the difference between the two is insurance. The note only requires the repayment of the balance owing but the mortgage requires the homeowner to carry insurance. If the policy should lapse for any reason, the mortgage is considered to be in default and the lender is within its rights to demand an immediate repayment of the amount owing on the note.
- Mortgage Broker – a trained professional with a wealth of knowledge and experience to find the mortgage that best suits your needs, at the best rate available, from a large selection of lenders that include most major banks, trust companies, and credit unions. Most importantly, a mortgage broker works for the borrower, not the lender.
- Mortgage Reform Act and Anti-Predatory Lending Act H.R. 3915 – a piece of legislation passed by the House of Representatives in November 2007 that requires brokers to place themselves on a national registry overseen by HUD. The bill also outlines changes in regulations that are meant to reduce predatory lending. The bill is now waiting for its reading in the Senate. Further detail is available in Chapter Six.
Have we missed one? Let us know what terms you need a definition for and we’ll get one posted right away.
