Cornerstone Home Lending Fund

Mortgage Debt, in Plain English

Residential mortgage debt has its own vocabulary, and most of it is unfamiliar even to experienced real estate investors. These are the 44 terms used across this fund’s materials, grouped by what they describe rather than alphabetically, so reading a section start to finish explains a whole part of the strategy.

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The Loans

What the fund holds, and how a loan's collateral is measured.

Non-Performing Loan (NPL): A mortgage the borrower has stopped paying on, generally 90 days or more past due. Because the payments have stopped, the loan trades at a discount to the balance owed, and the buyer's return comes from resolving it rather than from collecting interest.
Reperforming Loan (RPL): A loan that was delinquent and is now being paid again, usually after a modification reset the terms. Once a borrower has re-established a payment history, the loan can be sold to buyers who want the income stream rather than the workout.
First-Position Lien (First Lien): The senior claim against a property. If the home is sold or foreclosed, the first-position lender is paid in full before any second mortgage, home-equity line, or other junior claim receives anything. Position, not interest rate, is what determines who absorbs a loss first.
FICO Score: The standard consumer credit score, roughly 300 to 850. It measures a borrower's payment history, not the value of the property securing the loan. That is why a low score and a low-leverage loan are not the same kind of risk.
Loan-to-Value (LTV): The loan amount as a percentage of a property's value; a lower LTV means less leverage and less risk (e.g., 65% LTV).
Equity Cushion: The gap between what is owed on a property and what the property is worth. It is the buffer that absorbs a decline in value or the cost of a foreclosure before the lender's principal is exposed. Also called the collateral cushion.
Unpaid Principal Balance (UPB): The principal still owed on a loan, excluding interest, fees and advances. It is the standard denominator for pricing loans. A loan bought at 60% of UPB was bought for 60 cents per dollar of remaining principal.
Par: The loan's full face value, 100 cents on the dollar of unpaid principal. A discounted loan that is cured and starts paying again is said to be resolved toward par.
Coupon: The interest rate stated on the loan, which sets what the borrower pays. It is distinct from the yield the loan earns its owner, which also depends on what the owner paid for it.
Mortgage Insurance (MI): Insurance that reimburses the lender for part of a loss on a defaulted loan, typically required on high-leverage lending. A figure quoted “gross of MI” is stated before any insurance recovery, which is the more conservative way to present it.

When a Loan Stops Paying

The resolution paths a delinquent loan can take. Foreclosure is only one of them.

Loss Mitigation: The set of options for resolving a delinquent loan without a forced sale: modification, repayment plan, forbearance, short sale or deed in lieu. In practice it is the work of finding the outcome that recovers the most value, which is usually not foreclosure.
Workout: Any negotiated resolution of a defaulted loan. A workout is only possible when there is room between what the lender is owed and what the property is worth; without that margin, there is nothing to negotiate with.
Loan Modification: A permanent change to a loan's terms, whether rate, term, monthly payment or the handling of arrears, that makes it affordable again. A modified loan that resumes paying becomes a reperforming loan.
Forbearance: A temporary pause or reduction in payments for a borrower in short-term hardship, with the missed amounts repaid later. Unlike a modification, it does not change the underlying terms.
Payoff: The borrower settles the loan in full, typically by refinancing or selling the home. It is normally the fastest resolution path because it ends the loan outright rather than restructuring it.
Foreclosure: The legal process by which a lender forces the sale of a property to recover what it is owed. Timelines vary widely by state, and the cost and delay are why it is generally the last resolution path rather than the intended one.
REO (Real Estate Owned): A property the lender now owns because foreclosure ended without a third-party buyer. The lender becomes the seller, and the recovery depends on the sale of the house rather than on the loan.
Short Sale: The lender agrees to let the home be sold for less than the loan balance and accepts the proceeds as settlement. It usually recovers more than a foreclosure and takes less time.
Deed in Lieu of Foreclosure (DIL): The borrower voluntarily transfers ownership of the property to the lender to settle the debt, avoiding a foreclosure action. Faster and cheaper than foreclosing, and it spares the borrower the judgment.
Disposition: The sale that concludes an investment, either of the loan itself, or of a property acquired through it. Note that in loss-mitigation usage “disposition” is often the umbrella covering every exit path rather than one path among several.

Buying and Managing Loans

How mortgage debt is acquired, diligenced, financed and sold.

Loan Pool / Trade: Mortgage loans are bought and sold in bulk rather than one at a time. A pool, or trade, is one such package, priced as a whole, though each loan in it can be diligenced individually.
Loan Level vs. Trade Level: Two ways of reporting results. Loan level follows a single loan from purchase to resolution; trade level reports a whole pool, which absorbs the winners and losers together and is the more honest measure of a strategy.
Basis: What the buyer actually paid for a loan, which sets every return that follows. A low basis relative to the value of the collateral is what creates room to modify a loan rather than having to force a sale.
Discount to Property Value: The gap between the purchase price of a loan and the appraised value of the home securing it. Distinct from a discount to the loan balance. This one measures the margin against the asset, not against the debt.
Servicer / Servicing: The company that administers a loan day to day on the owner's behalf: collecting payments, managing escrow and taxes, and running loss mitigation when a borrower falls behind. Owning loans and servicing them are separate businesses.
Securitization: Pooling loans and issuing bonds backed by their cash flows, which converts a portfolio of individual mortgages into tradable securities and is a principal way loan portfolios are financed.
Liquidation Price: The price actually realized when a loan or the property behind it is sold to close out the position, the number that determines the return, as opposed to any earlier estimate of value.
Underwriting: The analysis a sponsor or lender performs to project a deal's income, expenses, risks, and returns before committing.

Fund Economics

The terms that determine what an investor in the fund actually receives.

Internal Rate of Return (IRR): The annualized return that accounts for the timing and size of every cash flow over a deal's life — a core metric for comparing investments.
Preferred Return (Pref): A minimum annual return paid to investors before the sponsor shares in profits — a common investor-first feature (e.g., an 8% pref).
Return of Capital: Paying investors back their original investment, as distinct from paying them a profit. Where it sits in the order of payments matters: a promote calculated only after capital is returned is more investor-favourable than one that is not.
Promote (Carried Interest): The share of profits a sponsor earns above the preferred return, rewarding performance once investors have received their pref.
Management Fee: The annual fee the manager charges to run the fund. Watch what it is charged on. A fee on unreturned capital falls as money is paid back, while a fee on committed capital does not.
Investment Period: The window during which the fund may deploy investor capital into new loans. After it closes the fund manages and resolves what it already holds rather than buying more.
Fund Term: The expected life of the fund, from first close to final distribution. It is a target rather than a promise. Actual timing depends on how quickly the underlying loans resolve.
Distribution: A payment of profits or cash flow from a deal or fund to its investors — made monthly, quarterly, or upon a sale or refinance.
Capital Stack: The layers of financing in a deal — senior debt, mezzanine debt, preferred equity, and common equity — ordered by repayment priority and risk.
K-1 (Schedule K-1): The tax form a partnership issues each investor annually, reporting their share of income, losses, and deductions.

Eligibility and Regulation

Who can invest, and the rules that created the lending gap this fund operates in.

Accredited Investor: An individual or entity that meets SEC income or net-worth thresholds (broadly, $200K+ annual income or $1M+ net worth excluding a primary residence), making them eligible to invest in private offerings like real estate syndications.
Regulation D / Rule 501(a): The SEC rules that let a private fund raise capital without registering the offering, on the condition that it is sold to accredited investors and not marketed to the general public. Rule 501(a) is the part that defines who counts as accredited.
General Partner (GP) / Sponsor: The party that finds, finances, and operates a deal and makes day-to-day decisions; also called the sponsor.
Limited Partner (LP): A passive investor who contributes capital but has no management role, with liability limited to the amount invested.
Ability-to-Repay / Qualified Mortgage (QM): Rules effective in 2014 requiring a lender to verify a borrower can repay. A loan meeting the standardized Qualified Mortgage criteria gives the lender legal safe harbour; lending outside that box is permitted but carries real liability, which is why many well-collateralized borrowers cannot get a bank loan.
Dodd-Frank / CFPB: The 2010 law passed after the financial crisis and the consumer regulator it created. Together they set the compliance and liability regime that governs mortgage lending and the standardized credit box most banks now lend inside.

These definitions are provided for educational purposes only and are simplified for general understanding. They are not investment, legal, or tax advice. Where a term has a specific meaning under the fund’s governing documents, those documents control.

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