The existing stock of space cannot be adjusted in the short run, but can be increased or
decreased in the long run.
General industry standards for a conventional loan specify a maximum LTV of 60
percent.
At least 95 percent of the value of a REIT’s assets must consist of real estate assets,
cash, and government securities.
Permanent financing commitments usually allow the lender to approve major leases.
If interest rates decrease, the market value of a loan previously make will increase.
In general, real estate is usually considered more risky than bonds but less risky than
stocks.
It is common for a developer to hold back funds to be sure that subcontractors perform
all work completely before making final payment.
Syndications can take the form of corporations, limited partnership, or other
organizational forms.
Opportunity funds are designed for long-term investment and, accordingly, will
generally maintain ownership of acquired properties for several years.
An optional delivery commitment, gives Fannie Mae the right (but not the obligation)
to purchase mortgage loans from originators.
One of the objectives of RESPA was to disclose kickbacks and unearned fees on the
settlement sheet.
An interest only loan will provide a higher debt coverage ratio than an amortizing loan
with the same interest rate.
The term real estate refers to the ownership rights associated with the physical land and
improvements.
The APR for a loan assumes it is prepaid after ten years.
A conforming mortgage is one for which the US Treasury will provide credit backing.
When a purchaser takes a property ‘subject to” an existing mortgage, the purchaser
becomes personally liable for repaying the debt.
C-corps have the advantage of providing a pass-through of income for tax purposes.
Funds from operation (FFO), is calculated by adding back depreciation and
amortization and other non-cash deductions to earnings.
To attract anchor tenants, property owners tend to charge them lower rents. They
make-up for the lower rents by charging the anchor tenant higher CAM charges.
A gross lease is where tenants pay all expenses.
The floor of an ARM is the maximum reduction of payments or interest rates allowed.
A disadvantage of a limited partnership is that any tax losses can be allocated to the
partners to reduce their personal taxable income.
The use of a CPI index in a lease contract shifts risk to the tenant.
Marking the mortgage to market is the process of accumulating mortgage pools and
marketing them to individual investors as mortgage-backed bonds.
In general, investors risk seekers and, therefore, must be compensated more for the
higher risk of some investments.
If two securities have the same positive mean returns and they are perfectly, negatively
correlated, an investor in such securities will earn a positive return with zero risk.
Truth-in-lending requires the borrower to tell the truth on the loan application.
A major benefit of a PLAM is the mortgage payment increases closely following
borrower salary increases.
Because REITs are corporations, they are subject to double taxation.
A quitclaim deed says that the grantor “quits” whatever claim he has in the property in
favor of the grantee.
If mortgage interest rates increase, demand for purchased housing tends to increase.
Increasing rents tend to increase the marginal rate of return on a property.
In a well-diversified investment portfolio, the allocation of real estate investments
should not exceed five percent.
Graduated payment mortgage are loans available to people who have graduated from
college.
Because real estate usually declines in value faster than accounting depreciation, it is
reasonable to assume that the property has zero value at the end of the lease term.
Determining a loan balance on a CPM is a simple future value of an annuity problem.
Usually, a lender does not require a developer to submit a schedule of estimated cash
flows prior to approving a land development loan.
Characteristics of a PLAM include an increasing mortgage payment and an adjusting
loan balance tied to an index.
The term “financial risk” refers to the probability of interest rates changing.
A borrower takes out a 30-year mortgage loan for $100,000 with an interest rate of 6%
plus 4 points. What is the effective annual interest rate on the loan if the loan is carried
for all 30 years?
(a) 5.6%
(b) 6.0%
(c) 6.4%
(d) 6.6%
Which of the following is NOT a type of REIT?
(A) Mortgage trust
(B) Equity trust
(C) Hybrid trust
(D) Partnership trust
A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with
monthly payments. The first two years of the loan have a “teaser” rate of 4%, after that,
the rate can reset with a 2% annual rate cap. On the reset date, the composite rate is 5%.
What would the Year3 monthly payment be?
(a) $955
(b) $1,067
(c) $1,071
(d) $1,186
(e) Because of the rate cap, the payment would not change.
Which of the following is FALSE regarding negative amortization?
(A) It can result in a decrease to the borrower’s equity in the property
(B) It usually increases default risk
(C) It usually has a lower interest rate than a conventional loan
(D) It usually results in a lower DCR
The cash flows considered in a sale-leaseback analysis are:
(A) Purchase price, differences in operating expenses over the holding period, and cash
flow from future sale
(B) Purchase price, lease payments, and cash flow from future sale
(C) Cash flow from sale, differences in future cash flow from operations, and potential
cash flow from future sale
(D) Cash flow from sale, future lease payments, and differences in future operating
expenses
What legal document conveys title from one person to another?
(A) Mortgage
(B) Note
(C) Deed
(D) Title
Mr. Tramp made a mortgage 5 years ago for $85,000 at 8.25% interest and a 15 year
term. Rates have now risen to 10% for an equivalent loan. Mr. Tramp’s lender is willing
to discount the loan by $2,000 if he will prepay the loan. What rate of return would Mr.
Tramp receive by prepaying the loan?
(A) 10.24%
(B) 8.95%
(C) 14.32%
(D) 9.14%
When calculating taxes, the difference between the acquisition cost and selling price of
a house is called:
(A) Ordinary income
(B) Amortization
(C) Capital gain
(D) Deferred income
A historical summary of the publicly-recorded documents that affect the ownership of a
property is know as a(n):
(A) Estate
(B) Deed
(C) Abstract of title
(D) Lien
Which of the following regarding private (unlisted) REITs is TRUE?
(a) Unlisted REITs are less expensive than listed REITs
(b) Unlisted REITs are less liquid than listed REITS
(c) Unlisted REITs are more subject to short-term market price volatility than listed
REITS
(d) “List or liquidate” provisions in unlisted REITs make such REITs less risky than
listed REITS
The marginal rate of return for a property is:
(a) The APR on an incremental amount of borrowing
(b) The expected holding period return earned when the investor purchases the property
(c) The return earned on subprime property relative to prime property
(d) The return gained by holding the property for one additional year
Which of the following statements regarding mortgage-backed bonds is generally
TRUE?
(A) The total value of the MBBs issued usually equals the value of the mortgages in the
underlying pool
(B) Unlike corporate bonds, MBBs usually are issued with variable coupon rates of
interest
(C) Overcollateralization of the mortgage pool assures investors that the income from
mortgage will be sufficient to pay the interest on bonds and the principal upon maturity
(D) All of the above
Which mortgage would a borrower prefer to have during inflationary and recessionary
periods?
Inflationary Recessionary
(A) CPM GPM
(B) GPM CAM
(C) CPM CAM
(D) CPM GPM
When sales exceed a breakpoint sales volume in a retail lease with percentage rent, the
additional rent is referred to as:
(A) Retail rent
(B) Participation rent
(C) Overage rent
(D) Sales rent
A typical RESPA closing statement contains which of the following characteristics?
(A) 2 columns ” summary of borrower’s and seller’s transactions
(B) 2 columns ” summary of borrower’s and broker’s transactions
(C) 3 columns ” summary of borrower’s, seller’s, and broker’s transactions
(D) 3 columns ” summary of borrowers, seller’s, and lender’s transactions
When doing a sale versus lease analysis, how should the residual value of the property
be estimated?
(A) Assume it is worthless
(B) Set it equal to the book value of the property
(C) Assume it is equal to the original purchase price
(D) Assume it is equal to the market value of the real estate
The credit rating of an MPTB depends largely on the:
(A) Amount of overcollateralization
(B) Degree to which government-related securities constitute the excess collateral
(C) Riskiness of the mortgage in the underlying pools
(D) All of the above
Which of the following statements is FALSE regarding operating leases?
(A) They are recorded as present value of lease on the balance sheet
(B) They do not have any real effect the balance sheet
(C) They must not extend for at least 75 percent of the asset’s life
(D) They are usually the preferred form of accounting for leases
A borrower made a mortgage loan 7 years ago for $160,000 at 10.25% interest for 30
years. The loan balance is now $151,806.62 and rates for this amount are currently
9.0% for 23 years. Origination fees and closing costs are $4,500 and closing costs are
not financed by the lender. What is the effective cost of refinancing?
(A) 9.00%
(B) 10.85%
(C) 15.32%
(D) 9.39%
Assume that houses in an area appreciate at the rate of 4percent a year. A borrower
expects to have a loan-to-value ratio of 90percent. What would be the approximate
expected appreciation rate on home equity (EAHE)?
(a) 4.0%
(b) 4.4%
(c) 10%
(d) 20%
(e) 40%
Consider the financial statements for a REIT, given above. Price multiples for
comparable REITs are about 10 times current funds from operation (FFO). What price
does this suggest for the REIT’s shares if 1,000,000 shares are issued?
(a) $4.52 per share
(b) $45.20 per share
(c) $8.92 per share
(d) $89.20 per share
Permanent funding commitments usually contain many funding contingencies. Which
of the following typically is NOT one of those contingencies?
(A) Approval of all prospective leases
(B) Approval of design changes or building material substitution
(C) Provisions for gap financing
(D) Minimum rent-up requirements
The future value of $1,000 compounded annually for 8 years at 12% may be calculated
with the following formula:
FV = $1,000 * (1 + 12%)8
If the same $1,000 was compounded quarterly, what formula would you use to calculate
the FV? (C)
(a) FV = $1,000 * (1 + 3%)8
(b) FV = $1,000 * (1 + 12%)32
(c) FV = $1,000 * (1 + 3%)32
(d) FV = $1,000 * (1 + 12%)2
Which of the following is one reason that construction lenders typically prefer the cost
approach to valuation over the income approach?
(a) The cost approach provides a more conservative estimate of value
(b) The cost approach provides a more optimistic estimate of value
(c) The cost approach is a good indication of the expected value of an
income-producing property once construction is complete and it has been leased-up
(d) The cost approach is a better estimate of actual market value of the project
Which of the following is typically NOT one of the settlement costs that are escrowed
over the life of the loan?
(A) Property taxes
(B) Mortgage insurance
(C) Selling commissions
(D) Hazard insurance
The difference between EPS (earnings per share) and FFO (funds from operations) is:
(A) Irrelevant
(B) Determined by growth of the company
(C) Due to depreciation and amortization
(D) Due to the number of shares outstanding
A borrower is purchasing a property for $180,000 and can choose between two possible
loan alternatives. The first is a 90% loan for 25 years at 9% interest and 1 point and the
second is a 95% loan for 25 years at 9.25% interest and 1 point. Assuming the loan will
be held to maturity, what is the incremental cost of borrowing the extra money?
(A) 13.66%
(B) 13.50%
(C) 14.34%
(D) 12.01%
The amount to be paid to the lender from each lot sale is included in the:
(A) Release schedule
(B) Development agreement
(C) Cost breakdowns
(D) Subcontracts
Which of the following does NOT need to occur for a partnership allocation to have
substantial economic effect?
(A) An adjustment must be made in the partner’s capital account
(B) Liquidation proceeds must be distributed in accordance with capital accounts
(C) Profits and losses must be allocated to different partners in proportion to their
equity contribution
(D) Following the distribution of sale proceeds, partners must be liable to the
partnership to restore any deficit in their capital account
A core strategy typically uses the type of fund structure under which new investors may
be admitted after the initial offering and after the commencement of fund operations.
These funds are referred to as:
a. closed-end fund
b. finite fund
c. liquidation fund
d. open-end fund
A 10-year maturity mortgage-backed bond is issued. The bond is a zero coupon bond
that promises to pay $10,000 (par) after 10 years. At issue, bond market investors
require a 15 percent interest rate on the bond. What is the initial price on the bond?
(a) $2,252
(b) $2,472
(c) $8,696
(d) $10,000
A deposit placed in an interest-earning account earning 8% a year will double in value
in ___ years.
(a) 6
(b) 8
(c) 9
(d) 72
(e) It will never double in value