REE4303 - EXAM 2 2025 QUESTIONS AND ANSWERS
loan term - (answer)amount of time during which a borrower makes payments towards loan
amortization period - (answer)time period it will take to pay back the loan in full
recourse - (answer)borrowers are personally liable for debt oblifations when default
nonrecourse - (answer)borrowers are NOT personally liable for debt obligations when default
interest rate risk - (answer)risk that value of the loan declines due to increasing market rates
prepayment risk - (answer)risk that borrowers pay of their loan before maturity date due to
decreasing market rate
default risk - (answer)risk that borrowers will cease to make payments of principal and interest
financial risk - (answer)risk that NOI will be insufficient to cover the payments of principals and
interset (debt service) (does not necessarily lead to default)
home loans - (answer)small loan amount
15 or 30 year loan term
amortization period=loan term
standardized
brief
recourse
, REE4303 - EXAM 2 2025 QUESTIONS AND ANSWERS
CRE loans - (answer)large loan amount
3-10 year loan term (lower interest rate risk)
amortization period>loan term (balloon payment)
caries by property type
long and complex
typically nonrecourse
Why are CRE loans often nonrecourse? - (answer)borrowers are limited partnerships or LLC: cashflows
are derived from the property
Does nonrecourse meant "not responsible"? - (answer)no, indirect cost associated with default
lockout provision - (answer)prohibition against prepayment
yield maintenance agreement - (answer)you need an amount that offsets the benefit of getting a new
loan [NPV(refinancing)=PV of payment savings-refinancing cost and/or prepayment penalty=0]
defeasance penalty - (answer)you need to buy the lender a set of US Treasury securities that produce
cash flows equivalent to those on paid -off mortgage [NPV(refinancing)=0]
most significant risk of commercial mortgages - (answer)default risk because of balloon payment
indicators of financial risk - (answer)Debt coverage ratio (DCR) = NOI1/DS (≥ 1.35)
Loan-to-value ratio (LTV) = Loan amount/Acquisition price (≤ 60%-80%)
Debt yield ratio (DYR) =NOI/Loan amount (≥ 9%)
loan term - (answer)amount of time during which a borrower makes payments towards loan
amortization period - (answer)time period it will take to pay back the loan in full
recourse - (answer)borrowers are personally liable for debt oblifations when default
nonrecourse - (answer)borrowers are NOT personally liable for debt obligations when default
interest rate risk - (answer)risk that value of the loan declines due to increasing market rates
prepayment risk - (answer)risk that borrowers pay of their loan before maturity date due to
decreasing market rate
default risk - (answer)risk that borrowers will cease to make payments of principal and interest
financial risk - (answer)risk that NOI will be insufficient to cover the payments of principals and
interset (debt service) (does not necessarily lead to default)
home loans - (answer)small loan amount
15 or 30 year loan term
amortization period=loan term
standardized
brief
recourse
, REE4303 - EXAM 2 2025 QUESTIONS AND ANSWERS
CRE loans - (answer)large loan amount
3-10 year loan term (lower interest rate risk)
amortization period>loan term (balloon payment)
caries by property type
long and complex
typically nonrecourse
Why are CRE loans often nonrecourse? - (answer)borrowers are limited partnerships or LLC: cashflows
are derived from the property
Does nonrecourse meant "not responsible"? - (answer)no, indirect cost associated with default
lockout provision - (answer)prohibition against prepayment
yield maintenance agreement - (answer)you need an amount that offsets the benefit of getting a new
loan [NPV(refinancing)=PV of payment savings-refinancing cost and/or prepayment penalty=0]
defeasance penalty - (answer)you need to buy the lender a set of US Treasury securities that produce
cash flows equivalent to those on paid -off mortgage [NPV(refinancing)=0]
most significant risk of commercial mortgages - (answer)default risk because of balloon payment
indicators of financial risk - (answer)Debt coverage ratio (DCR) = NOI1/DS (≥ 1.35)
Loan-to-value ratio (LTV) = Loan amount/Acquisition price (≤ 60%-80%)
Debt yield ratio (DYR) =NOI/Loan amount (≥ 9%)
