Glossary of Distressed Real Estate – N
Negative Amortization – A type of loan whereby the monthly interest payment is insufficient to pay the monthly interest due under the promissory note. The result is that the interest shortfall is added back to the principal balance thus increasing the principal amount due under the loan. During the credit bubble, when housing prices skyrocketed, some lenders offered loan programs that permitted borrowers to pay less than the total interest due for a period of time. They were sometimes referred to as “Neg-AM Loans.” These programs were attractive to borrowers who could not afford interest-only or fully amortizing [principal and interest installments] loans and believed that housing prices would continue to rise so that eventually they could refinance out of their current loan or sell the property to extricate themselves from the compounding effect of the negative amortization process. When housing prices dropped, many of these borrowers found themselves “underwater” – meaning that they owed more on their loan than the home was worth. Negatively amortizing loans are not illegal in Oregon, but are subject to certain statutory regulation.
Negative Equity – This term refers to the difference between the current balance of all recorded mortgages and other liens on a property (residential or commercial) and its present fair market value. For example, if the mortgage(s) total(s) $300,000 and present fair market value is $200,000, the negative equity is $100,000. In today’s vernacular, that property is “underwater.”
Net Income – The total income from all sources, less all expenses for the same period.
Net Present Value (“NPV”) – A mathematical analysis of today’s present value of an investment, such as real property subject to a loan, after the occurrence of a future event, such as foreclosure or loan modification. [See, NPV Test, below.]
Net Present Value Test (“NPV Test”) – A test used by banks and servicers for all loans being considered for a Home Affordable Modification under HAMP. This test applies regardless of whether the loan is a Fannie Mae mortgage or not. It is a mathematical model developed by the Treasury Department to determine the NPV of a borrower’s property based upon two opposite scenarios, or outcomes: (1) The net present value if the requested foreclosure avoidance event (e.g. loan modification, short sale, deed-in-lieu) is approved, versus (2) The net present value if it is foreclosed. If the NPV figure is higher under the pre-foreclosure scenario, the result is declared “positive” and the requested foreclosure avoidance solution may be approved – since it is in the economic interest of the loan’s owner [e.g. the bank or investor] to do so. If the NPV analysis is higher under the foreclosure scenario, the test results are deemed “negative” and the borrower’s requested pre-foreclosure solution will likely be denied.
Net Worth – One’s financial worth arrived at by deducting all liabilities from all assets including cash.
No Cash-Out Refinance – A refinancing of the unpaid principal balance of an existing loan where the borrower does not receive any of the funds from the refinancing.
No-Cost Loan – A broad term referring to any of several types of loans that do not include typical borrower costs such as title insurance, escrow fees, closing costs, appraisal fees, recording fees, etc. No points may be charged, as well. The purpose of such loans is to reduce the upfront cost to the buyer. The interest rate may be higher to make up for the fact that the lender is initially absorbing these costs.
No-Doc Loans – These loans were a staple of the lending industry during the easy credit years of 2004 – 2007. They were usually based upon the borrowers’ “stated income” or “stated assets.” Often referred to as ‘liar loans,” since by their nature, they encouraged or resulted in borrowers misstating their financial qualifications to obtain the loan. Lenders demanded little or no documentation for the loans they made to borrowers, so long as the borrowers’ credit met the lender’s guidelines. The reason for this lax or non-existent underwriting was due, in part, to the widely held belief that property values would continue to rise, so neither borrower nor lender was at much risk. The other reason for the poor underwriting practices was that at the mortgage origination level, no one really cared.
Non-Judicial Foreclosure – In Oregon, trust deeds are primarily foreclosed non-judicially. That is, the process occurs without the filing of a foreclosure complaint in court. Instead, the trust deed foreclosure process is conducted by advertising in a newspaper of general circulation and by mailing of the appropriate documentation to all persons whose interest is being foreclosed or who may have some recorded interest in the property. Under ORS 86.770(2), a non-judicial foreclosure of a residence means that there can be no deficiency to pursue by the lender against the borrower.
Nonperforming Asset – A term frequently used today to refer to loans being carried on a bank’s books that are significantly delinquent and not being repaid.
Note – See Promissory Note.
Note Rate – The interest rate stated on a promissory note that is secured by a trust deed or mortgage.
Non-Conforming Loan – A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits. [See Conforming Loan.]
Notary Public – One who is licensed by a public body to certify the authenticity of a signature. Under Oregon law, recording a document on the deed records and other public records requires notarization. Before such certification, the notary is required to verify the identity of the signer and actually observe them signing the document. It is illegal to notarize a document that was pre-signed outside the presence of the notary.
Notice of Default or “NOD” – A written notice informing one obligated under a contract that they are in default. Under Oregon’s trust deed foreclosure law, the Notice of Default is recorded in the public records of the county in which the property is located, and published in a “newspaper of general circulation.” This recording officially commences the non-judicial foreclosure process in Oregon. If the property being foreclosed is a residential trust deed, the borrower must be notified of the opportunity to mediate with the lender in order to try to reach consensus upon a foreclosure avoidance measure.
Notice of Sale – A written notice sent to a borrower, notifying them of a non-judicial foreclosure of their trust deed. It identifies the amount of the default, the sale date, and their rights to “cure” the default and prevent the foreclosure by paying the amount then due, plus statutory costs and attorney fees. The Notice of Sale must precede the actual sale by at least 120 days. Effective July 11, 2012, a notice must be given to the borrower of the opportunity to mediate with the foreclosing bank in an effort to arrive at a “foreclosure avoidance measure”. This notice of mediation must be given at least sixty days prior to mailing or service of the Notice of Sale.