Glossary
ACCOMMODATION ENDORSEMENT - An endorsed note signed solely for the purpose of inducing a creditor to lend money to a borrower whose credit may or may not be substantial enough to warrant a loan.
ADDITIONAL INSURED - Other persons that are insured under a policy other than the person named to hold the contract.
AGGREGATE LIMIT - Indicates how much coverage one is entitled to for a certain period of time, no matter how many accidents occur.
AMORTIZATION - The process of debt retirement or liquidation through systematic periodic payments. For example, most mortgage loans have monthly payments consisting of both principal and interest. Each month, the principal portion of the payment is applied to reduce the outstanding balance of the loan.
ANNUAL CONSTANT - The percentage which when applied directly to the face value of a debt develops the annual amount of money necessary to pay a specified net interest rate on the reducing balance and to liquidate the debt in a certain period of time.
ARREARS - An obligation remaining unpaid after the date on which it is due and payable.
ASSET - Anything owned by an individual or business which has commercial or exchange value.
ASSETS, CURRENT - Those assets which are readily convertible into cash without substantial loss. Sometimes referred to as quick assets.
ASSETS, FIXED - Those assets which are not readily convertible into cash and in the ordinary course of business are not so converted such as real estate, leasehold improvements, natural resources, machinery, equipment, furniture, fixtures, etc.
ASSUMPTION - The responsibility for loan payments assumed by a party other than the original maker of the debt. In church lending, assumptions may occur when a church with a loan merges with another church and the other church assumes responsibility for the subject loan.
BALANCE SHEET - An itemized listing of assets and liabilities for an organization or individual arranged and classified so as to permit determination of assets by class, liabilities by class and net worth. For non-profit organizations, net worth or equity is generally referred to as Fund Balance.
BALLOON NOTE - A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a "balloon" is due at maturity.
BINDER - An agreement that states that insurance can be put into force before the contract has been written or the premium has been paid.
BREACH - The failure of performance by a party to a contract.
CANCELLATION - What occurs when a policy is ceased by the insurer or the insured in compliance to what is outlined in the contract.
CAPITALIZATION (Appraisal Usage) - The process of converting an income stream or anticipated future income into an indication of value. Capitalization is used in the Income Approach value.
CAPITALIZE (Accounting Usage) - To charge an expenditure to an asset account because it benefits a period in excess of one year. For example, a betterment to a machine would be capitalized to the machinery account.
CAPITAL STEWARDSHIP PROGRAM - Services offered through state conventions; para-church organizations, and professional businesses. Program designed to increase designated giving toward a building project for a set period of time, usually three years. Church members individually pledge in advance set amounts of money toward the repayment of building-related debt. Each capital stewardship company is judged on its past success and its ability to identify with the common goals and culture of the local church they are contracted by.
CASH FLOW - Undesignated (general) income that is available to pay the mortgage payment after deducting all fixed expenses except debt service expense. Fixed expenses include such items as salaries, benefits, utilities, taxes, insurance and any other non-discretionary continuing expense.
COLLATERAL - Marketable properties such as stocks, bonds, land, property, evidences of deposit and other securities which the borrower pledges as security for a loan.
COMMITMENT - A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.
CONSTRUCTION LOAN - A business transaction between two legal entities whereby one party, known as a lender, agrees to loan funds to the second party, known as the borrower. The proceeds of this transaction will be used to build improvements upon land owned by the borrower. In most cases, the loan proceeds will be advanced in accordance with the corresponding progress of the completed improvements.
CONTRACT - A mutual agreement between two or more legal entities, which is enforceable by law.
DEBT SERVICE - Amount of money needed to meet required fixed costs. Mortgage payments and related expenses.
DEBT SERVICE RATIO - The required annual debt payments divided by general income.
DEFAULT - The failure to make payments on a loan.
DELINQUENCY - Late or non-payments of principal, interest, taxes or insurance.
DISCOUNT - The amount of money or the percentage of the principal deducted from the face value of a note. For example, a loan fee of 2% on a $100,000 loan would amount to a discount of $2,000 if the fee is deducted from the loan amount.
ESTATE - The interest, right or ownership in personal and real property.
FACE VALUE - The principal value or amount reflected on an instrument evidencing an obligation of debt.
FEE SIMPLE - Title to land which is without limitation or restriction.
FIDUCIARY - A person or other entity involving a relationship of trust or confidence, in which the person or party acts on behalf of another person or party.
FINANCIAL STATEMENT - A series of documents prepared by or for an organization regarding its financial status as of a certain date. The financial statement includes, but may not be limited to, a balance sheet, profit and loss statement and other pertinent exhibits.
FIXED COSTS - Costs identified as regular and reoccurring expenses as projected in a church budget. Costs such as salaries, utilities, insurance premiums and contractual obligations.
FUND BALANCE - Net worth or equity in the funds reflected on the balance sheet of a financial statement for a non-profit organization.
GENERAL CONTRACTOR - A person or business entity that supervises the erection of structures or other improvements.
GENERAL INCOME - A church's income which consists of undesignated income plus other ongoing income with demonstrated growth in each of the past three years. This income must come from church members and be used for budget expenses.
GROUND LEASE - A lease which provides for occupancy and use of a parcel of land.
GUARANTY - A three-party contract involving the promise of the guarantor to pay the debt in default of a borrower.
HAZARD INSURANCE - A form of insurance in which the insurance company protects the insured from certain losses, such as fire, vandalism, storms and certain other natural causes.
HIGHEST AND BEST USE - The legal, reasonable and probable use which will support the highest value of the property.
IMPROVED VALUE - The value of land when and if improved to its best or most appropriate use.
INDEMNITY - The obligation resting on one party to make good any loss or damage another party has incurred or may incur by acting at his request for his benefit.
INSOLVENCY - The state of having liabilities that exceed assets; i.e. a negative net worth or equity.
INSTITUTIONAL LENDERS - Banks, savings and loan associations and other businesses which make loans to the public in the ordinary course of business.
INTEREST - Compensation for the use of money borrowed.
INTEREST RATE SWAP - Interest rate swaps are undertaken to reduce a borrower's exposure to adverse increases in interest rates. A swap is a contract that lets a borrower exchange a floating rate for a fixed interest rate. The contract typically is with a financial institution such as a bank. By engaging in swaps, NAMB converts the floating interest rate on its borrowings into an interest rate that is fixed for a three, five or seven year term to match the adjustment periods on the church loans.
LAPSE - A term used to refer to a cancellation of a contract due to an individual's failure to pay premium.
LEASE - A written agreement between a property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time. LEVERAGE RATIOS - Ratios that show the per capita giving and debt loads for a church. These ratios are based on the current, average worship attendance.
LIABILITIES, CURRENT - Those pecuniary obligations ordinarily intended to be paid in the usual course of business within a relatively short time, normally within a year, out of earnings.
LIABILITIES, LONG TERM - Those debts or pecuniary obligations intended at their inception to be paid at a future date, usually more than one year.
LIABILITY INSURANCE - Insurance that protects property owners against claims that alleges negligence or inappropriate action that resulted in bodily injury or property damage to another party.
LIEN - A legal claim by one party against the property of another as security for a debt. Must be paid off when property is sold. A mortgage or a first trust deed is a lien.
LINE OF CREDIT - A fixed amount of credit granted to cover a series of transactions.
LOAN - A business transaction between two legal entities whereby one party, known as a lender, agrees to loan funds to the second party, known as the borrower.
LOAN AGREEMENT - A document to accompany the note and security instrument which sets forth the terms of the transaction.
LOAN PARTICIPATION - A cash purchase of a percentage of an outstanding loan from the originating lender, usually with risk shared pro rata.
LOAN SERVICING - A service performed by a lender to protect a mortgage investment, including collecting monthly payments from borrowers.
LOAN-TO-VALUE RATIO - The loan amount divided by the lower of the appraisal value or the selling price of the security property.
MARKET SURVEY - A survey of a subject market area to identify neighborhood characteristics in terms of demographics, residential and commercial developments, transportation and competition.
MARKET VALUE - The price which the property will bring in a competitive market under all conditions requisite to a fair sale, which would result from negotiations between a buyer and a seller, each acting prudently with knowledge and without undue stimulus.
MATURITY - Termination period of a note. For example, a 30-year mortgage has maturity of 30 years.
NAMED INSURED - Any person(s), firms or corporation that is named to be protected under the insurance contract.
NET WORTH - The excess of assets over creditor claims against the assets, that is to say, assets minus liabilities equals net worth.
NON-RENEWAL - Termination of insurance coverage at its expiration date.
NOTE - A legal document which evidences one's promise to pay another. For example, a borrower's promise to pay a lender.
NOTICE OF CANCELLATION - A notice written by an insurance agent with the intent of terminating a policy.
PAR - Used in connection with negotiable instruments to denote the face amount of the instrument and not the actual value it would receive on the open market.
PECUNIARY - Relates to money and monetary affairs or that which can be valued in money.
PERFORMANCE BOND - A surety bond supplied by one party to another protecting that party against loss in the event of improper performance or completion of the terms of an existing contract.
PERMANENT FINANCING - A fully amortized, or long term loan with payments which include both interest and principal and results in the elimination of the initial debt at its maturity.
POWER OF ATTORNEY - A written instrument by which one person as principal appoints another as his agent and confers upon him the authority to perform certain specified acts on behalf of the principal.
PROMISSORY NOTE - A written promise to pay a specified sum of money to a designated person or to his or her order, or to the bearer of the note, at a fixed time or on demand.
QUITCLAIM DEED - A conveyance to the grantee of only the interest held by the grantor at the time of the conveyance with no warranty as to encumbrances or condition of title.
RESCISSION - The canceling or annulling of an agreement, contract or deed.
REDEMPTION - The repayment of an indebtedness whether on maturity or prior to maturity.
REFINANCE - The act of securing a replacement loan.
SECURED LOAN - A loan that is backed by collateral.
SECURITY INTEREST - Any interest in property which secures payment or performance of an obligation, frequently called a "lien" in real estate transactions.
SUBORDINATION AGREEMENT - An agreement in which a party holding a security interest in property grants another interested party a priority claim or preference to the property of the borrower ahead of any claim that the first interested party may have.
TRUSTEE -
- One who holds legal title to property for the benefit of another person and who is required to carry out specific duties with regard to the property.
- One, as a corporate director, occupying a position of trust and performing functions comparable to those of a trustee, such as a church trustee or NAMB trustee.
UNSECURED LOAN - A loan requiring no physical or "real" collateral.
USURY - Accepting more than the legal rate of interest in the applicable jurisdiction.
YIELD - The rate of return received from one's investment.
