Question

Please answer the following questions and give the process of calculation and explanation (use excel to calculate)

1) An adjustable rate mortgage with a start rate of 1.5%, an index of the 11 th District COFI, a margin of 2.5%, and periodic and lifetime caps of 1/5 with semi-annual adjustments, would have a maximum interest rate of what at the beginning of the third loan year if the 11th District COFI is then 7.0%?
a) 5.5%
b) 6.5%
c) 8.5%
d) 9.5%

2) An investor is considering a commercial property acquisition at a price of $5,000,000 with the following annualized financial information:
Gross rental and other income …………. $ 550,000   
Operating Expenses …………………………$ 220,000
Annual Tax Depreciation   ………………….$ 100,000
Assumable interest-only mortgage ………$3,000,000 at 4% per year

What is the acquisition cap. rate?
a) 11.0%
b) 6.6%
c) 4.6%
d) 2.2%

3) Referring to the prior question, what is the property's taxable income?
a) $330,000
b) $230,000
c) $210,000
d) $110,000

4) All of the following are types of depreciation that reduce the value of real property, except:
a) Physical deterioration
b) Tax depreciation
c) Functional obsolescence
d) Economic obsolescence

5) If the loan to value ratio is 75%, the stated annual interest rate is 5%, the loan term is 15 years fully amortizing, and the down payment is $250,000, what is the purchase price of the property?
a) $750,000
b) $800,000
c) $1,000,000
d) $1,250,000

6) Referring to the prior question, what is the monthly payment on the loan?
a) $5,930.95
b) $6,326.35
c) $7,907.93
d) $9,884.92

7) What is the APR on a 30 year fully amortizing fixed rate loan in the amount of $500,000 if the stated annual interest rate is 3.5% and the lender charges 1 point as an origination fee, $180 for a credit report and $360 for an appraisal?
a) 3.68%
b) 3.59%
c) 3.50%
d) 3.42%

8) How much should an investor pay for a property that is expected to generate annual triple net operating income of $500,000 for ten years with a sale value at the end of the tenth year of $8 million to achieve a 12% unleveraged compound annual rate of return?
a) $2.6 million
b) $3.6 million
c) $5.4 million
d) $8.0 million

9) Referring to the prior question, if the investor borrows 80% of the purchase price at 6% interest only for ten years, what will be the investor's leveraged compounded before tax annual rate of return?
a) 18.0%
b) 28.4%
c) 34.4%
d) 51.5%

10) If a lender wants to achieve an APR of 10 *1/2% on a 30 year fixed rate loan for S650,000 with a stated annual interest rate of 10 *1/4 % and no other fees or costs to the borrower, how many points should the lender charge the borrower?
a) 1/2
b) 1
c) 1 1/2
d) 2

11) If a commercial property's first year annual net operating income is projected to be $180,000, the property's acquisition cap. rate is 8.0%, and the lender's maximum LTV is 80% of the purchase price, what is the maximum loan amount?
a) $1,800,000
b) $2,000,000
c) $2,250,000
d) $2,812,500

12) Referring to the prior question, if the lender requires an initial debt service coverage ratio of 1.2 and an annual interest rate of 7.5% on a 30 year fully amortizing loan payable monthly, what is the maximum loan amount that can be borrower against the property?
a) $1,787,720
b) $2,157,420
c) $2,373,163
d) $2,574,317

13) If a 30 year fixed rate loan from lender A has a stated APR of 3.5% and a 15 year fixed rate loan for the same amount from lender B has a stated APR of 3.25%, a borrower should:
a) Always choose the loan from lender A
b) Always choose the loan from lender B
c) Always choose an ARM loan instead
d) Make a closer analysis of all of the terms and conditions of the two loans to determine which Joan is better for that borrower, or if another loan or lender should be considered.

14) The parties to a deed of trust include all of the following, except:
a) Trustor
b) Trustee
c) Benefactor
d) Beneficiary

15) An adjustable rate_mortgage with a start rate of 1.5% for one year, an index of one year LIBOR, a margin of 2.0%, and periodic and lifetime caps of 2/7 with annual adjustments, would have an interest rate of what at the beginning of the fourth loan year if the one year LIBOR rate is 5.0% at that time?
a) 6.5%
b) 7.0%
c) 7.5%
d) 8.5%

16) When a lease requires a tenant to pay more rent when the tenant's sales volume increases over a certain amount, the additional rent paid is:
a) Triple net rent
b) Percentage rent
c) Pass through rent
d) CPI rent

17) If a senior homeowner want to put a reverse annuity mortgage (RAM) on her property that currently appraise for $750,000 so that she will receive a monthly payment from the lender of $1,800 for the rest of her life, and if her lender's RAM program charges 6.5% annual interest compounded monthly, what will be the loan balance when the borrower dies after 22 years if the loan is not capped at the current appraised value?
a) $252,476
b) $750,000
c) $1,050,958
d) $2,070,995

18) If a borrower wants to buy down the rate on a $500,000 fixed rate fully amortizing 30 year loan with a 4.5% annual interest rate by paying additional points at closing to reduce the rate by half a percent, and if the lender charges one point for each 0.2% of rate buy down, the additional cost of the rate buy down at loan closing will be:
a) $1,000
b) $2,500
c) $5,000
d) $12,500

19) A commercial property owner can increase net operating income by:
a) Reducing CPI adjustments in leases
b) Reducing percentage rent collections
c) Reducing debt service
d) Reducing operating expenses

20) When the early payments on an adjustable rate mortgage are scheduled at less than fully indexed amounts, the possibility exists for:
a) Negative leverage
b) Negative hypothecation
c) Negative amortization
d) Negative credit report

21) What is the debt service coverage ratio for a $1.8 million property generating a 6.5% before tax annual return on equity with a $1.5 million ten year interest-only first mortgage at a 5.5% annual interest rate?
a) 1.42
b) 1.24
c) 0.83
d) 0.71

22) What is the APR on a $500,000 fixed rate loan amortizing over 30 years but due in 10 years if the stated annual interest rate is 5.0% and the lender charges 2% as an origination fee, $18 for a credit report and $500 for an appraisal?
a) 4.74%
b) 5.00%
c) 5.19%
d) 5.29%

23) A borrower can obtain an 80% fully amortizing loan at a 6.0% annual interest rate with equal monthly payments of principal and interest over 30 years, or obtain a 90% fully amortizing loan for 30 years at a 6.5% annual interest rate with equal monthly payments. What is the incremental annual borrowing cost for the additional loan amount if each loan is outstanding for the full term?
a) 12.5%
b) 10.2%
c) 8.3%
d) 6.5%

24) A borrower has saved $50,000 to invest in a $500,000 home. She can obtain either a $450,000 fully amortizing 30 year mortgage at 5.75% from Lender A, or $400,000 fully amortizing 30 year first mortgage at 5.25% with a $50,000 fully amortizing 30 year second mortgage at 9.0% from Lender B. What is the effective cost of the loan package from Lender B?
a) 7.55°
b) 6.15%
c) 5.70%
d) 5.51%

25) Referring to the prior question, is the single $450,00 loan from Lender A preferred or the combined $400,000 first mortgage and $50,000 second mortgage from Lender B?
a) Single loan from Lender A
b) Loan package from Lender B
c) No difference
d) Depends on all of the terms and conditions from Lender A as compared to those from Lender B

26) If a real estate investor who needs liquidity is concerned that the current all-time low levels of long term interest rates may not last and are far more likely to rise significantly in the future, she should:
a) Borrow with ARMs
b) Borrow with short term fixed rate non-recourse mortgages
c) Borrow with long term fixed rate non-recourse mortgages
d) Borrow with six month LIBOR based floating rate mortgages

27) When compared to a 30 year fully amortizing fixed rate mortgage, a 15 year fully amortizing fixed rate mortgage of the same loan amount generally does all of the following, except:
a) Allows the borrower to pay a lower interest rate
b) Allows the borrower to pay less total interest over the life of the loan
c) Allows the borrower to pay lower monthly payments
d) Allows the borrower to build equity faster

28) A lender who fails to timely record a mortgage in connection with a loan is in danger of:
a) Losing its right to sue on the loan in the event of a default by the borrower
b) Losing the priority of its lien as against subsequent lenders to that borrower
c) Losing the ability to collect amounts due under the note
d) Federal Reserve sanctions for failure to timely record the mortgage

29) If long term interest rates rise, capitalization rates for commercial properties will likely:
a) Fall
b) Rise
c) Stay the same
d) Invert

30) A simple method to appraise the value of an apartment building is the:
a) Cost approach
b) Discounted cash flow
c) Gross rent multiplier
d) Comparable sales

31) Any loan amount still unpaid after a judicial foreclosure might become a deficiency judgment:
a) Against the borrower if the loan is non-recourse
b) Against the lender if the loan is non-recourse
c) Against the borrower if the loan is recourse
d) Against the lender if the loan is recourse

32) The market rent for a commercial property is affected by all of the following, except:
a) The national and local economic outlook
b) The supply of available comparable space
c) The terms and conditions for outstanding debt on the property
d) The demand for available comparable space

33) The capitalization rate for a commercial property at the time of acquisition:
a) Must exceed the stated interest rate on outstanding debt for there to be positive cash flow
b) Is equal to the property's net operating income divided by the purchase price
c) Will lead to negative cash flow if it is less than the debt service coverage ratio
d) Is equal to the property's purchase price divided by the before tax cash flow

34) The most common reason for a default by a borrower under a real property loan agreement is:
a) Failure to pay insurance and taxes when due
b) Failure to pay points and closing costs when due
c) Failure to pay servicing fees when due
d) Failure to pay interest and principal when due

35) Lenders prefer a deed of trust over a mortgage because:
a) Fewer parties are involved
b) Closing is easier
c) Foreclosure is easier
d) Interest rates are higher

36) All of the following are used as ARM indices, except:
a) 11th District COFI
b) One year treasuries
c) Federal funds rate
d) Six month LIBOR

37) A fully amortizing mortgage where a borrower pays a fixed amount each month that the loan is outstanding is a:
a) Constant amortization mortgage
b) Negative amortization mortgage
c) Constant payment mortgage
d) Graduated payment mortgage

38) When reviewing an application for a real estate construction loan, a lender is most interested in:
a) The location of the property
b) The expected income to be generated from the property
c) The sales prices for comparable properties
d) The ability of the borrower to repay the loan

39) California lenders generally document their real property loans with:
a) A note and deed of trust
b) A note and mortgage
c) A contract for deed
d) A land contract

40) If you borrow at a rate lower than a property's unleveraged IRR, the leveraged return will be:
a) Lower than the unleveraged IRR
b) Higher than the unleveraged IRR
c) The same as the unleveraged IRR
d) Depends on the unleveraged IRR

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b) 6.5% (Since the life time cap is 5%, the max rate possible would be 1.5% + 5% = 6.5%, even if the index is as high as 7%)
b) 6.6%
d) $110,000
b) Tax depreciation, as this is related to accounting purposes only.
c) $1,000,000...

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