Q&A Hero

Q: Which of the following types of institutions has historically been the largest purchaser of residential mortgages? A. Commercial banks B. Savings and Loans C. Government sponsored enterprises D. Mortgage banking companies

Q: Mortgage originators can either hold loans in their portfolios or sell them to investors. When a mortgage originator decides to sell mortgages to another institution, this transaction occurs in what is commonly referred to as the: A. primary mortgage market B. secondary mortgage market C. over-the-counter market D. loan origination market

Q: Which of the following acts was passed out of concern for abusive predatory practices in subprime lending? 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)

Q: Which of the following acts prohibits discrimination in lending practices on the basis of race, color, religion, national origin, sex, marital status, age, or because all or part of an applicants income derives from a public assistance program? 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)

Q: Based on your understanding of the relation between the various types of bankruptcy and the foreclosure process, which of the following types of bankruptcy would you expect to be least harmful to a lenders mortgage interest?

Q: Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is a court supervised workout for a troubled household?

Q: Even after a property goes into foreclosure, it is still possible for the borrower to reclaim the property as long as they produce the outstanding mortgage balance and all foreclosure costs incurred to that point. In a state such as Georgia, this right only extends to the date of the foreclosure sale. When this occurs, this right is more commonly referred to as: A. Equity of redemption B. Statutory redemption C. Strategic default D. Substantive default

Q: In certain states, such as the state of Florida, the transfer of title to the lender does not occur until the borrower defaults. These states are referred to as: A. Title theory states B. Lien theory states C. Conforming states D. Nonconforming states

Q: When a borrower defaults on a mortgage loan, his or her credit record will be adversely affected. While borrowers can recover from this reduction in their credit score, if a default goes into the borrowers records it will remain for: A. 6 months B. 1 year C. 5 years D. 7 years

Q: If a homeowner in mortgage distress owes more than the value of the home, and is unable to make the loan manageable by refinancing or modifying the mortgage, the next recourse often is a short sale of the property. All of the following statements are true regarding a short sale EXCEPT: A. Legal costs should be lower with a short sale than with foreclosure B. A short sale usually enables a better sale price and a faster sale than foreclosure C. A short sale is less damaging to the borrowers credit than a foreclosure, thereby enabling the borrower to be eligible for another mortgage loan sooner D. A short sale relieves the seller of any other outstanding obligations on the home, such as owner association fees or a second mortgage.

Q: In an attempt to regulate home mortgage lending after the mortgage crisis of 2007, which of the following acts created an independent oversight agency tasked with the responsibility of overseeing and enforcing Federal consumer financial protection laws, enforcing anti-discrimination laws in consumer finance, restricting unfair, deceptive or abusive acts or practices, receiving consumer complaints, promoting financial education, and watching for emerging financial risks for consumers? A. Equal Credit Opportunity Act (ECOA) B. Truth-in-Lending Act (TILA) C. Real Estate Settlement Procedures Act (RESPA) D. Dodd-Frank Wall Street Reform and Consumer Protection Act

Q: Even after a property goes into foreclosure, it is still possible for the borrower to reclaim the property as long as they produce the outstanding mortgage balance and all foreclosure costs incurred to that point. In a state such as Florida, this right may even extend beyond the date of the foreclosure sale. When this occurs, this right is more commonly referred to as: A. Equity of redemption B. Statutory redemption C. Strategic default D. Substantive default

Q: A special contract in which the borrower pledges the mortgaged property as security to the lender is commonly referred to as the: A. Mortgage (Deed of Trust) B. Listing Contract C. Note D. Assignment of Mortgage

Q: In certain states, such as the state of Georgia, there is a temporary transfer of title to the lender at the time the mortgage loan is made. The borrower then would obtain the rights to the title once the loan has been repaid. These states are referred to as: A. Title theory states B. Lien theory states C. Conforming states D. Nonconforming states

Q: The ability of homeowners to prepay the principal on their outstanding mortgage balance creates cash flow uncertainty for the lender. As a result, the lender may wish to prohibit prepayment on a mortgage loan for a specified period of time after its origination. This is accomplished through which of the following? A. Defeasance B. Yield Maintenance Provision C. Demand Clause D. Lockout Provision

Q: Assume that an individual has just lost his job and has been consistently late paying his bills. The bank recognizes deterioration in the individuals credit score and has notified him that he must pay his home equity line of credit in full. The mortgage clause that makes this possible is known as the: A. demand clause B. insurance clause C. escrow clause D. exculpatory clause

Q: In addition to numerous congressional acts that focus more on national regulation, laws have been created that affect the practice of home mortgage lending at a community or neighborhood level. For example, laws have been enacted to prevent lenders from avoiding certain neighborhoods without regard to the merits of the individual loan applications, a practice more commonly referred to as: A. rescinding B. redlining C. assuming D. holdout

Q: 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)

Q: It is possible to have a secured real estate loan without a mortgage through the use of a contract for deed. In contrast to the standard real estate sale, which of the following events occurs after the closing when dealing with a contract for deed? A. Offer B. Acceptance C. Possession of the property passes to the buyer D. Title to the property passes to the buyer

Q: Most real estate loans have a definite term to maturity, stated in years. The majority of home loans will typically have a term to maturity between: A. 1-5 years B. 5-7 years C. 7-15 years D. 15-30 years

Q: When a buyer acquires a property having an existing mortgage loan, a decision must be made as to whether or not the subsequent owner of the property can preserve the loan. If the buyer does not add his or her signature to the note, the buyer does not take on any personal liability. In this case, the buyer is said to: A. assume the old loan B. purchase the property subject to the existing loan C. obtain the property through the use of a contract for deed. D. foreclose on the property

Q: The risk of bankruptcy tends to travel with the risk of foreclosure since both can result from financial distress. Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is a court-supervised workout for a troubled business? Ans: C

Q: The difference between judicial foreclosure and power of sale in the treatment of defaulted mortgages can be significant. All of the following statements regarding power of sale are true EXCEPT: A. The power of sale treatment is faster than judicial foreclosure B. The foreclosed property is typically sold through a public auction administered by the court. C. It is less costly for power of sale to be employed than judicial foreclosure. D. Typically, lenders must give proper legal notice to the borrower, advertise the sale property, and allow a required passage of time before the sale.

Q: Foreclosure is considered the ultimate recourse of the lender because it allows the lender to bring about sale of the property to recover the outstanding indebtedness. All of the following statements regarding foreclosure are true EXCEPT: A. Foreclosure is a costly process for all parties involved. B. Only those claimants who are properly notified and engaged in the foreclosure suit can lose their claims to the property. C. When a lender forecloses on a property, it extinguishes all superior liens, bringing about a free and clear sale of the property. . D. The net recovery by a lender from a foreclosed loan seldom exceeds 80 percent of the outstanding loan balance and commonly is much less than this amount.

Q: 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 pursue a court supervised process of terminating all of the borrowers 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

Q: Violations of the requirements of a note that do not disrupt the payments on the loan tend to be viewed as technical defaults. In practice, how many days must a payment be overdue in order for lenders to treat a default as serious (i.e., a substantive default)? A. One day B. 30 days C. 60 days D. 90 days

Q: In a mortgage agreement, the borrower conveys to the lender a security interest in the mortgage property. The lender, i.e. the individual who receives the mortgage claim, is known as the: A. broker B. mortgagor C. agent D. mortgagee

Q: With most standard home loans, the lender can hold the borrower personally liable in the event of a default. Such loans are commonly referred to as: A. recourse loans B. nonrecourse loans C. conforming loans D. nonconforming loans

Q: Standard mortgage loans require monthly payments typically composed of two components: interest and principal repayments. When scheduled mortgage payments are insufficient to pay all of the accumulating interest, causing some interest to be added to the outstanding balance after each payment shortfall, the loan is said to be: A. fully amortizing B. partially amortizing C. nonamortizing D. negatively amortizing

Q: Certain mortgage loans contain a due-on-sale clause, which gives the lender the right to terminate the loan at sale of the property. Which of the following types of loans is the most likely to contain a due-on-sale clause? A. Federal Housing Administration (FHA) loan B. Veterans Affairs (VA) loan C. Conventional home loan D. An assumable home loan

Q: Because the mortgage conveys a complex claim for a long period of time, clauses are included in anticipation of possible future complications. Which of the following clauses requires a borrower to make monthly deposits into an account in order to pay obligations such as property taxes, community association fees, or causality insurance premiums? A. Demand clause B. Insurance clause C. Escrow clause D. Exculpatory clause

Q: For most mortgage loans on commercial real estate, the right of prepayment is constrained through a prepayment penalty. Which of the following types of prepayment penalties requires a borrower to provide the lender with some combination of U.S. Treasury securities that will serve to replace the cash flows of the loan being paid off? A. Yield-maintenance prepayment penalties B. Prepayment lockout C. Defeasance prepayment penalty D. Curtailment penalty

Q: Most Adjustable Rate Mortgage (ARM) loans have been marketed with a temporarily reduced interest rate commonly referred to as a: A. rate cap B. teaser rate C. payment cap D. prepayment rate

Q: Added to the index of the adjustable rate is a margin, which is the lenders markup. For standard Adjustable Rate Mortgage (ARM) loans, the average industry margin has been stable at approximately: A. 75 basis points B. 175 basis points C. 275 basis points D. 375 basis points

Q: A significant number of mortgage loans use adjustable interest rates, in which the interest rate of the loan is tied to an index rate that fluctuates over time. For income-producing property, the most common index rate is the: A. one-year U.S. Treasury constant maturity rate B. prime rate C. London Interbank Offered Rate (LIBOR) D. cost-of-funds index

Q: In a mortgage loan, the borrower always creates two documents: a note and a mortgage. Which of the following pieces of information is provided in the mortgage? A. How the interest rate is to be computed. B. Whether the borrower has the right to prepay the principal during the term of the loan, and any prepayment penalties that would be incurred as a result. C. Whether the borrower is released from liability for fulfillment of the contract. D. An unambiguous description of the property that is being pledged as collateral for the loan.

Q: Which of the following measures is considered the fundamental determinate of market value for income-producing properties? A. Net operating income B. Potential gross income C. Operating expenses D. Capital expenditures

Q: Suppose that examination of a pro forma reveals that the fifth year net operating income (NOI) for an income producing property that you are analyzing is $913,058 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year, determine the projected sale price of the property at the end of year five if the going-out capitalization rate is 8%. A. $1,603,600 B. $2,350,159 C. $11,413,225 D. $11,755,622

Q: Suppose that an income producing property is expected to yield cash flows for the owner of $150,000 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 8% annually and the property can be sold for $1,250,000 at the end of the fifth year, determine the value of the property today. A. $304,704.00 B. $1,449,635.50 C. $1,481,143.98 D. $2,000,000.00

Q: 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 7.5%. If the projected first year net operating income (NOI) for the subject property is $135,500, what is the indicated value of the subject using direct capitalization? A. $144,985.00 B. $150,555.56 C. $1,806,666.67 D. $9,033,333.33

Q: Using the following information, determine the net operating income (NOI) for the first year of operations of the subject property using above-line treatment of capital expenditures. Subject Property Number of apartments 15 Market Rent (per month) 1000 Vacancy and Collection Losses 10% of PGI Operating Expenses 5% of EGI Capital Expenditures 10% of EGI A. $135,000 B. $137,700 C. $153,900 D.$162,000

Q: Using the following information, determine the net operating income (NOI) for the first year of operations of the subject property assuming below-line treatment of capital expenditures. Subject Property Number of apartments 15 Market Rent (per month) 1000 Vacancy and Collection Losses 10% of PGI Operating Expenses 5% of EGI Capital Expenditures 10% of EGI A. $135,000 B. $137,700 C. $153,900 D.$162,000

Q: Four highly similar and competitive income-producing properties located in close proximity to the subject property have sold this month. All four offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Comparable Sale Price NOI1 A $1,450,000 $155,000 B $1,100,000 $135,400 C $1,250,000 $143,400 D $1,500,000 $169,000 Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject. A. 10.69% B. 11.02% C. 11.43% D. 12.52%

Q: Analysis of a subject propertys pro forma reveals that its fifth year net operating income (NOI) is projected to be $100,282 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year and the going-out capitalization rate in year five to be 10%, determine the net sale proceeds the current owner of the property would receive if he were to sell the property at the end of year five and incur selling expenses that amounted to $58,300. A. $944,520.00 B. $974,610.00 C. $1,002,820.00 D. $1,032,910.00

Q: Suppose that examination of a pro forma reveals that the fifth year net operating income (NOI) for an income producing property that you are analyzing is $138,446 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 5% per year, determine the projected sale price of the property at the end of year five if the going-out capitalization rate is 9%. A. $988,900.00 B. $1,465,037.00 C. $1,538,289.00 D. $1,615,203.00

Q: 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

Q: 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

Q: Three highly similar and competitive income-producing properties within two blocks of the subject property have sold this month. All three offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Comparable Sale Price NOI1 A $500,000 $55,000 B $420,000 $50,400 C $475,000 $53,400 Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject. A. 11.0% B. 11.2% C. 11.4% D. 12.0%

Q: Given the following information, calculate the effective gross income multiplier. Sale price: $2,500,000; Effective Gross Income: $340,000; Operating Expenses: $100,000; Capital Expenditures: $36,000. A. 0.136 B. 7.35 C. 10.42 D. 12.25

Q: Given the following information, calculate the appropriate going-in cap rate using general constant-growth formula. Overall market discount rate = 12%, Constant growth rate projection: 3% per year, Sale price: $1,950,000, Net operating income: $390,000, Potential gross income: $520,000. A. 8% B. 9% C. 10% D. 11.5%

Q: Given the following information, calculate the appropriate going-in cap rate using mortgage-equity rate analysis. Mortgage financing = 75%, Typical debt financing cap rate: 10%, Sale price: $1,950,000, Before Tax Cash Flow (BTCF): $390,000. A. 9.6% B. 10% C. 12.5% D. 13.6%

Q: Given the following information, calculate the effective gross income multiplier. Sale price: $950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: 15%, and Miscellaneous Income: $50,000. A. 0.36 B. 0.30 C. 2.8 D. 3.6

Q: Given the following information, calculate the effective gross income. Property: 4 office units, Contract rents per unit: $2500 per month, Vacancy and collection losses: 15%, Operating Expenses: $42,000, Capital Expenditures: 10% A. $100,000 B. $102,000 C. $120,000 D. $135,000

Q: Given the following information, calculate the net operating income assuming below-line treatment of capital expenditures. Property: 4 office units, Contract Rents per unit: $2500 per month, Vacancy and collection losses: 15%, Operating Expenses: $42,000, Capital Expenditures: 10%: A. $48,000 B. $60,000 C. $95,000 D. $102,000

Q: The cap rate is an important metric that investors use to analyze the state of commercial real estate markets. When interpreting cap rate movements, an increase in cap rates over time would indicate that: A. The discount rate used in TVM (time value of money) calculations has increased B. The discount rate used in TVM (time value of money) calculations has decreased C. Property values have increased D. Property values have decreased

Q: When calculating the net operating income of a property, it is important to identify any expenses that will be incurred in attempts to maintain the property. All of the following would be considered operating expenses EXCEPT: A. Property taxes B. Property insurance premiums C. Mortgage payments D. Utility expenses

Q: When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a: A. restricted appraisal report B. net operating income statement C. direct market extraction D. pro forma

Q: When using discounted cash flow analysis for valuation, the appraiser must estimate the sale price at the end of the expected holding period. This price (assuming selling expenses have yet to be accounted for) is referred to as the propertys: A. net sale proceeds B. selling expenses C. terminal value D. current market value

Q: Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents. Therefore, it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases. Which of the following property types, therefore, would we find it most appealing to use a gross-income multiplier in our analysis? A. Apartments B. Office C. Industrial D. Retail

Q: For smaller income-producing properties, appraisers may use the ratio of a propertys selling price to its effective gross income. This is an example of a: A. Net operating income B. Going-out cap rate C. Going-in cap rate D. Gross income multiplier

Q: The going-in cap rate, or overall capitalization rate, is a measure of the relationship between a propertys current income stream and its price or value. Which of the following statements regarding cap rates is true? A. It is a measure of total return since it accounts for future cash flows from operations and expected appreciation (depreciation) in the market value of the property. B. It is a discount rate that can be applied to future cash flows. C. It is analogous to the dividend yield on a common stock. D. It is the projected rate at which prices will appreciate in the future

Q: Most appraisers adhere to an above-line treatment of capital expenditures. This implies which of the following? A. Capital expenditures are subtracted in the calculation of net operating income. B. Capital expenditures are subtracted from net operating income to obtain a net cash flow measure. C. Capital expenditures are added to net operating income. D. Capital expenditures are excluded from all calculations because they are difficult to estimate.

Q: Which of these is most likely to be regarded as a capital expenditure rather than an operating expense? A. Property taxes B. Trash removal C. Insurance payments D. Roof replacement

Q: Operating expenses can be divided into two categories: variable and fixed expenses. Which of the following best exemplifies a fixed expense? A. Utilities B. Property management C. Local property taxes D. Trash removal

Q: The expected costs to make replacements, alterations, or improvements to a building that materially prolong its life and increase its value is referred to as: A. operating expenses B. capital expenditures C. vacancy losses D. collection losses

Q: In calculating net operating income, vacancy losses must be subtracted from the gross income collected. The normal range for vacancy and collection losses for apartment, office, and retail properties is: A. between zero and one percent B. between one and five percent C. between five and fifteen percent D. between fifteen and twenty percent