Over the weekend, several of my clients asked me about a few more acronyms that are thrown around by mortgage professionals and on the news, so I thought I would share one more round of acronyms with you, my loyal readers. I hope some of these descriptions help you in the home buying process.

MBS – Mortgage Backed Securities. Groups of mortgages bundled together to be sold as an investment on Wall Street.

DU – Desktop Underwriter. A computer-based underwriting program used for Fannie Mae and FHA loans. It gives a preliminary assessment of a borrowers qualifications and can approve, deny, or refer a potential borrower to an underwriter.

LP – Loan Prospector. A computer-based underwriting program used for Freddie Mac and FHA loans. It gives a preliminary assessment of a borrower’s qualifications and can approve, deny, or refer a potential borrower to an underwriter.

HUD – Department of Housing and Urban Development. A branch of the US Government which manages housing policy. This department runs the FHA programs and is a partner to Fannie Mae and Freddie Mac.

LO – Loan Officer. A licensed individual who can take a mortgage application.

PMI – Private Mortgage Insurance. Insurance on a conventional mortgage with over 80% LTV.

ARM – Adjustable Rate Mortgage. A mortgage product with a fixed rate for a specific period of time, which will then adjust after that fixed period. The rate then typically adjusts annually based upon the terms in the contract and current rates.

IO – Interest Only. A payment option on some ARM loans which allows the borrower to only pay the interest (and escrow, if applicable) for the month. This payment option lowers the monthly burden but does not pay down the principal balance.

NEG AM – Negative Amortizing. A payment option on some ARM loans which allows the borrower to pay less than the interest (and escrow, if applicable) for the month. With this payment option, the principal balance actually increases monthly, as the unpaid interest is added to the balance.

Between this post and the last two in the series, I hope I have shed some light on some important acronyms. If you have any questions about the mortgage process, please contact me and I will be glad to help you. And if there are any other acronyms out there which you would like explained, please leave a comment.