Fin 25405 | Course Paper

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Loan servicing includes a number of responsibilities such as collecting monthly

mortgage payments from the borrower, remitting principal and interest payments to

investors, ensuring sufficient escrow payments are being made by the borrower, and

managing default if it should arise. In exchange for these services, mortgage bankers

receive a fee. If the outstanding loan balance is $250,000 and the annual servicing fee is

0.35%, what is the monthly fee for servicing the loan?

A. $72.92

B. $729.17

C. $875.00

D. $8,750.00

When a borrower defaults on the payment requirements of a loan, there are several

options that the lender has at its disposal. When the lender allows the borrower simply

to convey the property to the lender rather than pursuing a court supervised process of

terminating all of the borrower’s claims of ownership of the property, this is commonly

referred to as:

A. Bankruptcy

B. Foreclosure

C. Deed in lieu of foreclosure

D. Equity right of redemption

In evaluating potential tenants for residential rental properties, a landlord may be

interested in calculating the ratio of prospective rent to income for the applicant. Given

the following information, calculate the rent to income ratio for the applicant.

Applicant’s Gross Annual Salary (Income): $45,000; Prospective Monthly Rent:

$1,000; Applicant’s Annual Income Tax and Benefit Payments: $7,650.

A. 2.22%

B. 2.68%

C. 26.67%

D. 32.13%

Externalities can play an important role in determining a property’s price, either by

adding value through positive externalities or by diminishing value through negative

externalities. Which of the following is most likely to be considered a negative

externality?

A. Nearby parks and recreation facilities

B. Quality neighborhood schools

C. Public assistance facilities such as homeless shelters.

D. Well-kept landscapes.

With the recent popularity of adjustable-rate mortgages (ARM), lenders have begun to

offer ARMs with different adjustment periods. Which of the following ARM choices

will most likely have the highest initial rate?

A. Three-year-one-year ARM

B. Five-year-one-year ARM

C. Seven-year-one-year ARM

D. Ten-year-one-year ARM

Once a loan application is signed, the lender begins a process that typically includes

ordering the fee appraisal, the title report, and a number of third party inspection,

compliance, and engineering reports in an attempt to make sure the potential borrower

did not misrepresent the property in any way in the original loan submission package.

This process is more commonly referred to as:

A. Due diligence

B. Loan submission

C. Loan development

D. Defeasance

Which of the following forms of co-ownership, historically used for apartment

buildings, is not considered a form of true direct co-ownership, but rather qualifies as a

proprietary corporation?

A. Cooperative

B. Tenancy by the entirety

C. Condominium

D. Partnership

Suppose that you are attempting to value an income producing property using the direct

capitalization approach. Using data from comparable properties, you have determined

the overall capitalization rate to be 11.44%. If the projected first year net operating

income (NOI) for the subject property is $44,500, what is the indicated value of the

subject using direct capitalization?

A. $49,590.80

B. $50,225.73

C. $388,986.00

D. $509,080.00

The right of government to acquire private property, without the owner’s consent, for

public use in exchange for just compensation is referred to as:

A. inverse condemnation

B. regulatory taking

C. eminent domain

D. dedication

Federal and state laws prohibit discrimination in housing. However, exemptions do

exist depending on the particular type of property that is being considered. All of the

following activities could be considered exempt in specific scenarios EXCEPT:

A. Refusing to sell or rent to a person because of race.

B. Refusing to sell or rent based on familial status (i.e. having children).

C. Refusing to sell or rent to persons based on age.

D. Refusing to sell or rent a single-family home based on religion provided the owners

do not employ the services of a broker or agent.

Given the following information on a 30-year fixed-payment fully-amortizing loan,

determine the remaining balance that the borrower has at the end of seven years.

Interest Rate: 7%, Monthly Payment: $1,200.

A. $17,143

B. $79,509

C. $164,402

D. $180,369

Real estate asset managers perform certain functions that would not be expected of

asset managers who deal with stock and bond portfolios. Which of the following

functions would you expect both asset managers in real estate as well as stocks / bonds

to perform?

A. Find specific assets in which the owners/client can invest

B. Monitor asset performance

C. Negotiate the acquisition price of assets

D. Oversee due diligence and closing

While a sublease and an assignment are two distinct choices for a tenant who wishes to

transfer his rights during the term of a lease, both agreements:

A. transfer all of a tenant’s rights to another party

B. transfer only a subset of rights to another party

C. grant another party the right to cancel the original lease before expiration

D. maintain that the original tenant be held liable for fulfilling the original lease unless

otherwise specified

Given the following information, calculate the NPV for this property. Initial cash

outflow: $200,000, Discount rate: 15%, CF for year 1: $25,876, CF for year 2: $23,998,

CF for year 3: $23,013, CF for year 4: $22,105, CF for year 5: $144,670.

A. -$51,875

B. -$59,657

C. $140,343

D. $295,951

Consider the following excerpt from a sample deed: “The Seller, for itself and its heirs,

hereby covenants with the Buyer, its heirs and assigns forever, that the Seller is lawfully

seized in fee simple of the above described property.” The underlined portion of the

preceding statement represents which of the following basic requirements of a deed?

A. Habendum clause

B. Recital of consideration

C. Words of conveyance

D. Exceptions and reservations clause

You have taken out a $225,000, 3/1 ARM. The initial rate of 5.8% (annual) is locked in

for 3 years and is expected to increase to 6.5% at the end of the lock period. Calculate

the initial payment on the loan. (Note: the term on this 3/1 ARM is 30 years)

A. $1,320.19

B. $1,422.15

C. $1,874.45

D. $1959.99

Given the following information, calculate the balloon payment for a partially

amortized mortgage. Loan amount: $84,000, Term to maturity: 7 years, Amortization

Term: 30 years, Interest rate: 4.5%, Monthly Payment: $425.62.

A. $9,458

B. $30,620

C. $73,102

D. $84,000

Total mortgage debt outstanding as of the third quarter of 2011 approached $13.6

trillion. Which of the following types of mortgage loans accounts for the greatest

percentage of mortgage debt outstanding?

A. Residential (1-4 family)

B. Apartment (multifamily)

C. Commercial

D. Farm

It would be hard to overstate the importance of the Federal Housing Administration

(FHA) in the history of housing finance. Which of the following instruments created by

the FHA is considered the single most important financial instrument in modern

housing finance?

A. Level-payment, fully amortizing loan

B. Adjustable rate mortgage

C. Partially-amortizing balloon loan

D. Subprime mortgage loan

Which of the following would be categorized as a cause of external obsolescence?

A. Lack of adequate insulation

B. Deterioration of indoor carpets

C. Increased traffic flow due to more intensive use in the local area

D. Outdated fixtures

In considering a 3/1 adjustable-rate mortgage (ARM), the interest rate will be fixed for

how many years?

A. One year

B. Two years

C. Three years

D. Four years

Suppose an owner is trying to decide whether or not to make improvements to her

property. Given the following information, what would be the value added or potential

loss if the improvements are undertaken? Current rent per square foot: $8.75,

Anticipated rent per square foot: $14.50, Cost of improvements: $250,000, Square feet:

34,000.

A. Gain of $54,500

B. Loss of $54,500

C. Gain of $195,500

D. Loss of $195,500

Which of the following types of liens is automatically superior to any other lien?

A. Property tax and assessment lien

B. Mortgage lien

C. Lien arising from a court judgment unrelated to ownership of the property

D. Mechanics’ lien

Zoning ordinances that tend to exclude lower income groups by large lot size, or that do

not adequately provide low- and moderate-income housing are referred to as:

A. special uses

B. nonconforming uses

C. conforming uses

D. exclusionary uses

Which of the following measures, equal to the estimated total market value of a REITs

underlying assets, allows investors to compare the value of a publicly traded security to

the value of the properties that it holds in the private market?

A. Net income

B. Net asset value

C. Funds from operations

D. Effective gross income

Congress has enacted a number of regulations that have established criteria for

evaluating home loan applicants and mandating disclosures in the origination of home

loans. Which of the following congressional acts requires important disclosures

concerning the cost of consumer credit, including the computation of the annual

percentage rate (APR)?

A. Equal Credit Opportunity Act (ECOA)

B. Truth-in-Lending Act (TILA)

C. Real Estate Settlement Procedures Act (RESPA)

D. Home Ownership and Equity Protection Act (HOEPA)

Suppose that an income producing property is expected to yield cash flows for the

owner of $10,000 in each of the next five years, with cash flows being received at the

end of each

period. If the opportunity cost of investment is 12% annually and the property can be

sold for $100,000 at the end of the fifth year, determine the value of the property today.

A. $36, 047.76

B. $56,742.69

C. $83,333.33

D. $92,790.45

In acting as an agent for another person, the broker carries several special

responsibilities, which by law must be adhered here to throughout the transaction

process. These responsibilities constitute what is commonly referred to as a:

A. Subagency relationship

B. Dual agency relationship

C. Fiduciary relationship

D. Open listing relationship

A major problem in buildings constructed prior to the early 1970’s, which of the

following environmental hazards commonly associated with insulation has been the

focus of costly

cleanups at many public buildings, especially schools?

A. Asbestos

B. Radon

C. PCBs (Polychlorinated biphenyls)

D. LUSTs (leaking underground storage tanks)

In considering the main components of a construction budget, which costs would be

expected to constitute the largest portion of a development project’s expense?

A. Land costs

B. Hard construction costs

C. Soft construction costs

D. Marketing costs

The Real Estate Settlement Procedures Act (RESPA) is a federal law that requires

federally chartered or insured lenders to provide buyers and sellers with expectations of

their closing costs prior to the closing date. When a borrower (the buyer) applies for a

loan, the lender will provide him/her with which of the following forms that includes

details pertaining to specific loan information and an estimate of expenses that the

borrower is likely to incur at the closing?

A. Uniform Settlement Statement (HUD-1) form

B. Good-faith estimate

C. Settlement Costs and You booklet

D. Certificate of occupancy

Accrued depreciation is the difference between the current market value of a building

and the total cost to reproduce it new. One reason for this difference is related to

changes in tastes, preferences, technical innovations, or market standards. This is

commonly referred to as:

A. physical deterioration

B. functional obsolescence

C. external obsolescence

D. tax depreciation

Jonathan recently sold his home and was able to take home $423,000 after paying the

real estate broker’s commission of 6%. If the buyer was ultimately found through a

buyer broker, the dollar commission will need to be split between the listing broker and

buyer broker. If the buyer broker is entitled to 40% of the commission, what is her share

of the commission rounded to the nearest dollar?

A. $10,800

B. $13,500

C. $16,200

D. $27,000

If the mortgage loan is going to be packaged with similar loans and then resold to

investors as part of a commercial mortgage-backed security, the originating lender may

rely more heavily on examining which of the following ratios in order to determine the

maximum amount they are willing to lend to the borrower? (Note: This ratio indicates

the cash-on-cash return the lender would earn on its invested capital if it had to

foreclose on the property immediately after originating the loan)

A. Debt coverage ratio

B. Debt yield ratio

C. Debt service ratio

D. Equity dividend ratio

An individual works downtown and pays $600 per month in rent for an apartment

located 10 miles from her office. She has calculated that she spends 30 minutes per day

driving each way to the office and it costs her $4 per day in gas and lost productivity.

Using the framework of the bid-rent model, how much would she be willing to pay for

an apartment downtown, assuming a 20 workday month?

A. $80

B. $440

C. $520

D. $680