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Definitions L

LIBOR

LIBOR, the London Interbank Offered Rate, is meant to represent a typical rate at which banks lend unsecured funds to each other.

The LIBOR-OIS spread is meant to represent just that component of the rate that is due to counterparty risk in the interbank market.

From Wikipedia:

The London Interbank Offered Rate (or LIBOR, pronounced /ˈlaɪbɔr/) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market)

From a St. Louis Fed backgrounder on the Libor-OIS spread:

The term London interbank offer rate (Libor) is the rate at which banks indicate they are willing to lend to other banks for a specified term of the loan. The term overnight indexed swap (OIS) rate is the rate on a derivative contract on the overnight rate. (In the United States, the overnight rate is the effective federal funds rate.) In such a contract, two parties agree that one will pay the other a rate of interest that is the difference between the term OIS rate and the geometric average the overnight federal funds rate over the term of the contract. The term OIS rate is a measure of the market’s expectation of the overnight funds rate over the term of the contract. There is very little default risk in the OIS market because there is no exchange of principal; funds are exchanged only at the maturity of the contract, when one party pays the net interest obligation to the other.

The term Libor-OIS spread is assumed to be a measure of the health of banks because it reflects what banks believe is the risk of default associated with lending to other banks.

Lien

A lien is the right to hold the property of a debtor as security or payment for a debt.

From Wikipedia:

“In law, a lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation.”

And,

“The term lien refers to a very specific type of security interest, being a passive right to retain (but not sell) property until the debt or other obligation is discharged. In contrast to the usage of the term in the USA, in other countries it refers to a purely possessory form of security interest.”

Lienholder

A lienholder, also called a lienor, is a person or institution that controls a lien.

From BusinessDictionary.com:

“Creditor or party that holds a mortgage or a legally enforceable right (lien) on a specific asset, good, or property of another (the 'lienee') as a security for a debt or to satisfy a claim.”

See definition of second lienholder.

Loan-to-value

The loan-to-value (LTV) is the ratio of the amount remaining on a mortgage loan to the appraised value of the property.

From Wikipedia:

“Loan to value is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage. The risk of default is always at the forefront of lending decisions, and the likelihood of a lender absorbing a loss in the foreclosure process increases as the amount of equity decreases. Therefore, as the LTV ratio of a loan increases, the qualification guidelines for certain mortgage programs become much more strict. Lenders can require borrowers of high LTV loans to buy mortgage insurance to protect the lender from the buyer default, which increases the costs of the mortgage.”

And from the Lending Tree glossary:

“Low LTV ratios (below 80%) usually enable lower rates for lower-risk borrowers and allow lenders to consider higher-risk borrowers, such as those with low FICO credit scores, large loan amounts, history of previous late payments, high debt-to-income ratios, cash-out requirements, insufficient reserves or no income documentation. Higher LTV ratios are primarily reserved for borrowers with higher credit scores and a satisfactory mortgage history. The full financing, or 100% LTV, is reserved for only the most credit-worthy borrowers and may not be available at all during poor market conditions.”

For a quick loan-to-value calculator, see Bankrate.com.

Loan workout actions

A loan modification, in the strict sense, modifies the terms of the contract, for example by changing the interest rate or the amortization schedule. A repayment plan is simpler, meant to get a delinquent borrower back on track within the original terms, for example by adding missed payments into the principle. A workout is either a loan modification or a repayment plan. Sometimes loan modification is used in a broad sense to mean workout. Forbearance means delaying some of the money due until later.

From the Hope Now "Industry_data" page:

“Workout Plans = Repayment Plans + Modifications …

Repayment Plans: A plan that allows the borrower to become current and catch up on missed payments that are appropriate to the borrower’s circumstances, which involves deferring or rescheduling payments but the full amount of the loan is expected ultimately to be paid and within the original contractual maturity of the loan.

Modifications: A modification occurs any time any term of the original loan contract is permanently altered. This can involve a reduction in the interest rate, forgiveness of a portion of principal or extension of the maturity date of the loan.”

From Marketwatch, "Fending_off_foreclosures", 18 Jan 2008:

“A loan modification is an adjustment to the terms of the loan, including changes to the interest rate … A repayment plan is a way for borrowers who have missed one or more payments to make them up, often spreading out the late payments over a set period of time.”

From the FRB Atlanta Macroblog, "Foreclosure_mitigation:_What_we_think_we_know", 24 Feb 2009:

[Forbearance,] “in which the borrower pays significantly lower payments for some period, with the arrears made up (with interest) later on.”