Glossary of Distressed Real Estate – V – Z

VA Mortgage: A mortgage guaranteed by the U.S. Department of Veterans Affairs or the Oregon Department of Veterans Affairs. Note that these loans are not made by the VA, just guaranteed to the owner of the loan.  With this guarantee, lenders have been more willing to make loans upon more flexible and easier credit terms than for loans sold to Fannie and Freddie.  A VA loan is not a “conventional loan.” A conventional loan is one that is made or guaranteed by an agency of the federal government.

Walk-Away – A term used to describe a situation where owners abandon their homes due to being significantly “underwater” – meaning that the value of the home is less than the total indebtedness due and there is no reasonable prospect of selling or refinancing in the immediate future.  Walk-aways were also the result of some owners’ inability to pay their adjustable rate mortgage, which reached a level they could no longer afford.

Yield Spread Premium (“YSP”) – The payment mortgage brokers received from lenders when they sold consumers a loan carrying an interest rate that was higher than what a borrower might otherwise qualify for known as the “spread.” The higher the rate, the larger the spread, and the more money the broker could make.  Some critics have charged that YSPs were nothing more than a “kickback” by the lender to the mortgage broker for steering consumers – many of whom are already credit challenged – into high-cost loans they could not ultimately afford. Some studies have confirmed that a large percentage of all subprime loans included YSPs paid to the mortgage broker. Although YSPs were disclosed on the HUD-1, they were not clearly described nor pointed out to borrowers, and accordingly were either ignored or misunderstood by many of them.  On the other side of the coin, many mortgage brokers argue that some portion of the YSP were applied toward borrowers’ loan costs, thus enabling them to obtain a loan with less up-front money.  [However, some might say – in retrospect – that the inability to pay these up-front loan costs was an early indicator that perhaps the borrower should never have been qualified for the loan in the first place. – PCQ]