CH 13&14 - Quiz

The final step in a real estate transaction is the closing. In most closings, which party is responsible for seeing that the closing is completed successfully? A. Escrow agent B. Lender C. Selling Broker D. Listing broker

Listing broker

Since the issues in many transactions are similar, brokers often use standard preprinted contract forms. Generally, the best standard form contracts are those prepared and approved by which of the following parties? A. Office supply firm B. Seller C. Local Board of Realtors D. Web source of generic legal forms

Local Board of Realtors

Some commercial mortgages have adjustable, or floating, interest rates. The index rate to which the contract rate is tied for commercial mortgages Is the

London Interbank Offer Rate (LIBOR)

Which of the following defects to mutual assent involves intentional misrepresentation? One of the parties is under duress. One of the parties is committing fraud. One of the parties is under menace. One of the parties is under undue influence.

One of the parties is committing fraud.

In certain circumstances, mutual assent between the contracting parties may be broken, thus invalidating the contract. Which of the following defects to mutual assent involves compelling a person to act by the use of force?

One of the parties is under duress.

Suppose you have just purchased your first home for $300,000. At the time of purchase you could onlyafford to commit to a down payment of $15,000. In order to make the loan, the lender requires you toobtain private mortgage insurance (PMI) on their behalf. Suppose over time you paid down the principal of the loan to $280,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $228,000, whatwould the lender's loss of principal be taking into consideration the protection of mortgage insurance? (Let's assume that the PMI in this case covers the top 30% of the loan.)

$0

In certain circumstances, mutual assent between the contracting parties may be broken, thus invalidating the contract. Which of the following defects to mutual assent involves compelling a person to act by the use of force? A. One of the parties is under duress. B. One of the parties is under undue influence. C. One of the parties is under menace. D. One of the parties is committing fraud.

One of the parties is under duress.

The laws of some states require that real estate brokers provide buyers and sellers with a list of estimated closing costs before signing a contract for sale. At the closing, it is typically which of the following party's responsibilities to pay the full premium for an owner's title insurance policy? A. Buyer B. Seller C. Lender D. Broker

Seller

When the seller in a contract for sale fails to perform (e.g. breach of contract, nonperformance, or default), the buyer has a variety of remedies. One such remedy is to appeal to the court to force the defaulting seller to carry out the contract. This remedy is most commonly referred to as suing for: A. Damages. B. Earnest. C. Recission. D. Specific performance

Specific performance

A property owner has set up a contract in which he agrees to sell a warehouse 5 years from now to the tenant who currently leases the space. The tenant has agreed to continue to pay $20,000 in rent at the end of each year, including year five, at which time he will purchase the building for an additional $1,500,000. Assuming the required rate of return on a similar investment is 10% (annual), how much is this deal presently worth to the original owner of the property?

$1,007,197.20

A property owner has set up a contract in which he agrees to sell a warehouse five years from now to the tenant who currently leases the space. The tenant has agreed to continue to pay $20,000 in rent at the end of each year, including year 5, at which time he will purchase the building for an additional $1,500,000. Assuming the required rate of return on a similar investment is 10% (annual), how much is this deal presently worth to the original owner of the property? A) $1,007,197.20 B) $1,014,779.29 C) $2,281,452.80 D) $2,293,663.00

$1,007,197.20

Suppose a bank decides to make a mortgage loan to an individual for the purchase of a home. The homeowner will pay the bank $1,500 per month in mortgage payments for the next thirty years. The bank will collect the mortgage payments at the end of the month. If the borrower does not default on the loan, how much money will the bank have accumulated if they could reinvest the monthly income at an annualized rate of 5% for the entire investment horizon? A) $23,058.68 B) $99,658.27 C) $279,422.43 D) $1,248,387.95

$1,248,387.95

Suppose you have taken out a $400,000 fully amortizing fixed-rate mortgage loan that has a term of 15 years and an interest rate of 3.75%. In month 1 of the mortgage, how much of the monthly mortgage payment does the interest portion consist of?

$1,250

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

$1,320.19

Suppose you are interested in obtaining a mortgage loan for $250,000 in order to purchase your principal residence. Your lender has suggested that you might be interested in taking an FHA loan. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully amortizing mortgage loan is 5% and the term is 30 years, what is your monthly mortgage payment assuming the UFMIP is financed?

$1,355.47

When a party in a contract fails to perform (e.g. breach of contract, nonperformance, or default) the other party has a variety of remedies. All of the following are remedies that an aggrieved seller may pursue EXCEPT: A. Sue for damages. B. Retain the earnest money deposit as liquidated damages. C. Agree to rescission of the contract. D. Sue for specific performance.

Sue for specific performance.

Suppose an institution has purchased a $250,000 mortgage loan from the loan originator and wishes to create a mortgage pass-through security. In doing so, this institution will generate revenue by charging a servicing fee of 35 basis points. If the monthly mortgage payment on the loan is $1,250, how much income is passed through to the investor in the mortgage pass through each month (rounded to the nearest dollar)?

$1,777

Suppose that you decide to purchase a property that has annual property taxes of $2,427.22. If the closing occurred on March 13th, calculate your share (Buyer's share) of the total property taxes. For this problem, assume that we are dealing with a 365 day calendar year.

$1,996.96

The purchase price of an income producing property today is $570,000. After analysis of the expected future cash flows, expected sales price, and expected yield, the investor determines that the future cash flows have a present value (PV) of $580,000. Taking into consideration the price of the property today, what is the net present value (NPV) of this investment opportunity, and should the investor take the deal?

$10,000; Yes

The purchase price of an income-producing property today is $570,000. After analysis of the expected future cash flows, expected sales price, and expected yield, the investor determines that the future cash flows have a present value (PV) of $580,000. Taking into consideration the price of the property today, what is the net present value (NPV) of this investment opportunity, and should the investor take the deal? A) $10,000; Yes B) $10,000; No C) -$10,000; Yes D) -$10,000; No

$10,000; Yes

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?

$10,800

Assume that an individual puts $10,000 into a savings account that pays 3% interest, with interest being compounded monthly. The individual plans to withdraw the balance in 5 years to buy a car. If he does not make any further deposits over this period, how much will the individual be able to put towards his purchase?

$11,616.17

Assume that an individual puts $10,000 into a savings account that pays 3% interest, with interest being compounded monthly. The individual plans to withdraw the balance in five years to buy a car. If he does not make any further deposits over this period, how much will the individual be able to put towards his purchase? A) $10,125.63 B) $11,592.74 C) $11,616.17 D) $58,916.03

$11,616.17

Suppose that a landlord is interested in renting out a two-bedroom apartment for $1,000 a month for the next year. The landlord requires rent to be paid at the beginning of the month, at which point he will deposit the rental check into a local savings account. If the annual interest that the tenant can earn on this account is 5% and interest is compounded monthly, how much will the tenant have in his savings account at the end of the year? A) $12,278.86 B) $12,330.01 C) $13,330.02 D) $15,917.13

$12,330.01

Suppose that a landlord is interested in renting out a two-bedroom apartment for $1000 a month for the next year. The landlord requires rent to be paid at the beginning of the month, at which point he will deposit the rental check into a local savings account. If the annual interest that the tenant can earn on this account is 5% and interest is compounded monthly, how much will the tenant have in his savings account at the end of the year?

$12,330.01

An investor just purchased an office building for $100,000. He knows for certain that he can sell the building for $110,000 in 5 years. Approximately how much does he need to charge in annual rent in order to achieve a 15% annual return on the deal (rounded to the nearest hundred dollars)?

$13,500

An investor just purchased an office building for $100,000. He knows for certain that he can sell the building for $110,000 in five years. Approximately how much does he need to charge in annual rent in order to achieve a 15% annual return on the deal (rounded to the nearest hundred dollars)? A) $2,500 B) $8,000 C) $13,500 D) $20,500

$13,500

Assume that a piece of land is currently valued at $50,000. If this piece of land is expected to appreciate at an annual rate of 5% per year for the next 20 years, how much will the land be worth 20 years from now?

$132,664.89

Assume that a piece of land is currently valued at $50,000. If this piece of land is expected to appreciate at an annual rate of 5% per year for the next twenty years, how much will the land be worth twenty years from now? A) $100,898.99 B) $112,633.09 C) $123,860.81 D) $132,664.89

$132,664.89

Given the following information on a fixed-rate fully amortizing loan, determine the maximum amount that the lender will be willing to provide to the borrower: loan term: 30 years; monthly payment: $800; interest rate: 6%.

$133,433

Suppose you are starting a Ph.D. program with only $1,000 in your savings account. The university has agreed to waive your tuition, cover all of your living expenses, and pay you an additional stipend of $2,000 at the beginning of each month, as long as you teach one course per semester over the course of five years. If your savings account is able to earn 5.5% per year for the five years that you will be in this program, how much will you have accumulated in your savings account by the end of the program if interest is compounded on a monthly basis?

$139,708.76

Suppose you are starting a PhD program with only $1,000 in your savings account. The university has agreed to waive your tuition, cover all of your living expenses, and pay you an additional stipend of $2,000 at the beginning of each month, as long as you teach one course per semester over the course of five years. If your savings account is able to earn 5.5% per year for the five years that you will be in this program, how much will you have accumulated in your savings account by the end of the program if interest is compounded on a monthly basis? A) $136,445.94 B) $137,708.75 C) $139, 077.35 D) $139,708.76

$139,708.76

Suppose you have obtained a 6%, 30-year fully amortizing FHA mortgage loan of $152,625 to finance the purchase of your primary residence. In so doing, you must pay an additional mortgage insurance premium (MIP) of 1.10%. If the first-year average loan balance is $151,775.25, determine the first-year monthly insurance premium payment.

$139.13

An investor agreed to sell a warehouse 5 years from now to the tenant who currently rents the space. The tenant will continue to pay $20,000 rent at the end of each year including year five in which he will purchase the building for an additional $150,000. Assuming the investor's required rate of return is 10%, how much is this deal presently worth to the investor who was willing to sell?

$168,953.93

An investor agreed to sell a warehouse five years from now to the tenant who currently rents the space. The tenant will continue to pay $20,000 rent at the end of each year including year 5 in which he will purchase the building for an additional $150,000. Assuming the investor's required rate of return is 10%, how much is this deal presently worth to the investor who was willing to sell? A) $168,953.93 B) $241, 451.07 C) $363,678.50 D) $1,032,475.67

$168,953.93

Since hazard insurance premiums are paid up-front, the buyer will have to reimburse (credit) the seller a portion of the premium at the closing. Suppose that the insurance policy’s coverage began on December 15 of the prior year and the property transaction is set to close on March 16 of a 365-day year. The premium paid originally by the seller was $250. If the coverage will expire as of the end of day December 14 in the current year, what is the dollar amount that the buyer must credit the seller?

$187.67

Since hazard insurance premiums are paid up-front, the buyer will have to reimburse (credit) the seller a portion of the premium at the closing. Suppose that the insurance policy's coverage began on December 15th of the prior year and the property transaction is set to close on March 16th of a 365-day year. The premium paid originally by the seller was $250. If the coverage will expire as of the end of day December 14th in the current year, what is the dollar amount that the buyer must credit the seller?

$187.67

Since hazard insurance premiums are paid up-front, the buyer will have to reimburse (credit) the seller a portion of the premium at the closing. Suppose that the insurance policy's coverage began on December 15th of the prior year and the property transaction is set to close on March 16th of a 365-day year. The premium paid originally by the seller was $250. If the coverage will expire as of the end of day December 14th in the current year, what is the dollar amount that the buyer must credit the seller? A. $0.00 B. $62.33 C. $187.67 D. $250.00

$187.67

Suppose a potential home buyer is interested in taking a $500,000 mortgage loan that has a term of 30 years and a fixed mortgage rate of 5.25%. What is the monthly mortgage payment that the homeowner would need to make if this loan is fully amortizing?

$2,761.02

Suppose an investor deposits $2,500 in an interest-bearing account at her local bank. The account pays 2.5% interest compounded annually. If the investor plans on withdrawing the original principal plus accumulated interest at the end of seven years, what is the total amount that she should expect to receive assuming interest rates do not change? A) $2,971.71 B) $2,974.89 C) $3,532.43 D) $11,920.93

$2,971.71

Suppose an investor deposits $2500 in an interest-bearing account at her local bank. The account pays 2.5% interest compounded annually. If the investor plans on withdrawing the original principal plus accumulated interest at the end of 7 years, what is the total amount that she should expect to receive assuming interest rates do not change?

$2,971.71

Suppose an investor deposits $2,500 in an interest-bearing account at her local bank. The account pays 2.5% interest compounded annually. If the investor plans on withdrawing the original principal plus accumulated interest at the end of seven years, what is the total amount that she should expect to receive assuming interest rates do not change? A) $2,971.71 B) $2,974.89 C) $3,532.43 D) $11,920.93

$2,971.71 = 2,500*(1.025)^7

Suppose you are interested in taking an FHA mortgage loan for $350,000 in order to purchase your principal residence. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully amortizing mortgage loan is 6% and the term is 30 years and the UFMIP is financed (i.e., it is included in the loan amount), what is the dollar portion of your monthly mortgage payment that is designated to cover the UFMIP?

$20.98

Assume that a veteran decides to purchase a house for $150,000 using a VA loan that amounts to $44,000. If the buyer were to default on the loan, what is the maximum amount that the VA guarantees the lender?

$22,000

Suppose a bank decides to make a mortgage loan to an individual so that she may purchase a home. The homeowner will pay the bank $1,500 per month in mortgage payments for the next thirty years. The bank will collect the mortgage payments at the end of the month. What is this promised stream of cash flows worth to the bank today if they could reinvest the monthly income at an annualized rate of 5% for the entire investment horizon? A) $23,058.68 B) $99,658.27 C) $279,422.43 D) $1,248,387.95

$279,422.43

Suppose a bank decides to make a mortgage loan to an individual so that they may purchase a home. The homeowner will pay the bank $1500 per month in mortgage payments for the next 30 years. The bank will collect the mortgage payments at the end of the month. What is this promised stream of cash flows worth to the bank today if they could reinvest the monthly income at an annualized rate of 5% for the entire investment horizon?

$279,422.43

If a property transaction is scheduled to close on May 14, calculate the individual tax responsibility for the buyer if the total tax owed at the end of the year is $5,000. For this problem, assume that we are dealing with a 365-day calendar year.

$3,178.08

If a property transaction is scheduled to close on May 14th, calculate the individual tax responsibility for the buyer if the total tax owed at the end of the year is $5,000. For this problem, assume that we are dealing with a 365 day calendar year.

$3,178.08

If a property transaction is scheduled to close on May 14th, calculate the individual tax responsibility for the buyer if the total tax owed at the end of the year is $5,000. For this problem, assume that we are dealing with a 365 day calendar year. A. $0.00 B. $1,821.92 C. $3,178.08 D. $5,000.00

$3,178.08

Suppose you have just purchased your first home for $300,000. At the time of purchase you could afford to commit 20% of the purchase price to a down payment. Suppose over time you paid down the principal of the loan to $220,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $190,000, determine the amount of the loan’s principal that the lender was unable to recover due to the default.

$30,000

Given the following information on an interest-only mortgage, calculate the monthly mortgage payment: loan amount: $56,000; term: 15 years; interest rate: 7.5%

$350

Suppose you are thinking about purchasing a small office building for $1,500,000. The 30-year fixedrate mortgage that you have arranged covers 80% of the purchase price and has an interest rate of 8%. Assume you were to default and go into foreclosure in year 10 of this loan. If the lender was able to sell this property for $700,000, how much does the lender stand to lose in the absence of PMI?

$352,696

Certain closing costs will be prorated to account for the period of time during which the seller occupied the house. If a transaction is scheduled to close on May 17 (136 days into a 365-day year), calculate the amount that the buyer will be credited if the particular closing cost in question is estimated to be $1,000 for the entire year.

$362.60

Certain closing costs will be prorated to account for the period of time during which the seller occupied the house. If a transaction is scheduled to close on May 17, 136 days into a 365-day year, calculate the amount that the buyer will be credited if the particular closing cost in question is estimated to be $1000 for the entire year. A. $182.19 B. $372.60 C. $624.66 D. $1000

$372.60

Let's assume that you have just taken out a mortgage loan for $200,000 with an origination fee of 2 points due up-front. The mortgage term is 30 years and the mortgage rate is fixed at 4%. What is the cost of the origination fee in dollar terms?

$4,000

Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 15 years; current loan balance: $100,000; current loan interest: 7%; current loan mortgage payment: $898.33; remaining term on current mortgage: 15 years; new loan interest: 5.5%; new loan mortgage payment: $817.08; new loan term: 15 years; cost of refinancing: $5,000. Assume that the opportunity cost is the interest rate on the new loan (5.5%)

$4,943.48

Jim has hired a real estate broker to help facilitate the sale of his home. If the broker requires a commission of 6%, how much will Jim clear from the sale (after the commission has been paid) if he is able to sell his house for $478,723? (Assume that Jim has already paid off his mortgage.)

$450,000

Upon starting his first job after graduation, Jon has completed the necessary paperwork to set up direct deposit of his paycheck into his savings account. After taxes, medical benefits, and retirement account contributions have been taken out of John's gross salary, he is left with a direct deposit of $4,000 at the end of each month. If John started with no other savings in his account, how much will John have in his savings account at the end of 12 months if he is able to earn an annual interest rate of 3%, with interest being compounded monthly? A) $48, 665.53 B) $48,787.19 C) $56,768.12 D) $58,471.16

$48, 665.53

Upon starting his first job after graduation, Jon has completed the necessary paperwork to set up direct deposit of his paycheck into his savings account. After taxes, medical benefits, and retirement account contributions have been taken out of John's gross salary, he is left with a direct deposit of $4000 at the end of each month. If John started with no other savings in his account, how much will John have in his savings account at the end of 12 months if he is able to earn an annual interest rate of 3%, with interest being compounded monthly?

$48, 665.53

Suppose your personal financial goal is to retire with $1 million in your savings account. How much must you deposit monthly in an account paying 5% a year (with interest being compounded monthly and your deposits occurring at the end of the month), to accumulate $1,000,000 by your 65th birthday if you begin your deposits on your 22nd birthday? (Note: Assume that you started with no savings in the account prior to your first deposit at age 22 and you do not make a deposit on your 65th birthday.) A) $552.13 B) $701.90 C) $21,282.95 D) $186,354.63

$552.13

Suppose your personal financial goal is to retire with a million dollars in your savings account. How much must you deposit monthly in an account paying 5% a year (with interest being compounded monthly and your deposits occurring at the end of the month), to accumulate $1,000,000 by your 65th birthday if you begin your deposits on your 22nd birthday? (Note: Assume that you started with no savings in the account prior to your first deposit at age 22 and you do not make a deposit on your 65th birthday)

$552.13

Assuming that an investor requires a 10% annual yield over the next 12 years, how much would she be willing to pay for the right to receive $20,000 at the end of year 12?

$6,372.62

Assuming that an investor requires a 10% annual yield over the next twelve years, how much would she be willing to pay for the right to receive $20,000 at the end of year 12? A) $6,053.91 B) $6,372.62 C) $62,768.57 D) $136,273.84

$6,372.62

Suppose an investor deposits $5,000 in an interest-bearing account at her local bank. The account pays 2.5% (annual) with interest compounded monthly. If the investor plans on withdrawing the original principal plus accumulated interest at the end of 10 years, what is the total amount that she should expect to receive assuming interest rates do not change?

$6,418.46

Suppose an investor deposits $5,000 in an interest-bearing account at her local bank. The account pays 2.5% (annual) with interest compounded monthly. If the investor plans on withdrawing the original principal plus accumulated interest at the end of ten years, what is the total amount that she should expect to receive assuming interest rates do not change? A) $5,105.15 B) $6,400.42 C) $6,418.46 D) $96,790.75

$6,418.46

In a fixed-term, level-payment reverse mortgage, sometimes called a reverse annuity mortgage, or RAM, a lender agrees to pay the homeowner a monthly payment, or annuity, and expects to be repaid from the homeowner's equity when he or she sells the home or obtains other financing to pay off the RAM. Consider a household that owns a $150,000 home free and clear of mortgage debt. The RAM lender agrees to a $100,000 RAM for 10 years at 6 percent. Assume payments are made annually, at the beginning of each year to the homeowner. Calculate the annual payment on the RAM.

$7,157.35

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?

$72.92

Suppose an investor has the opportunity to make an investment that promises to pay her $100,000 5 years from now. How much should this investor be willing to pay today for this investment opportunity if he could otherwise invest his money in an interest bearing account that yields 5% (annual) and compounds interest on a monthly basis?

$77,920.54

Suppose an investor has the opportunity to make an investment that promises to pay her $100,000 five years from now. How much should this investor be willing to pay today for this investment opportunity if she could otherwise invest her money in an interest-bearing account that yields 5% (annual) and compounds interest on a monthly basis? A) $77,920.54 B) $78,352.62 C) $97,942.46 D) $432,947.67

$77,920.54

Assume you have taken out a partially amortizing loan for $1,000,000 that has a term of seven years but amortizes over 20 years. Calculate the balloon payment if the interest rate on this loan is 9%.

$825,679

Suppose you have found a tenant who wishes to rent out your vacation home for the next twelve months. You are charging $800 per month in rent. You will collect the first rent payment today and then on the first of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annual rate of 3% with interest compounded on a monthly basis? A) $7,963.20 B) $8,202.10 C) $9,445.80 D) $9,469.42

$9,469.42

Suppose you have found a tenant who wishes to rent out your vacation home for the next twelve months. You are charging $800 per month in rent. You will collect the first rent payment today and then on the 1st of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annual rate of 3% with interest compounded on a monthly basis?

$9,469.42

Suppose you own a house that you are renting out to a group of college students for the 10 month academic year. You are charging $1000 per month in rent. You will collect the first rent payment today and then on the 1st of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at a rate of 6%?

$9,779.06

Suppose you own a house that you are renting out to a group of college students for the 10 month academic year. You are charging $1000 per month in rent. You will collect the first rent payment today and then on the 1st of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annualized rate of 6%?

$9,779.06

Suppose you own a house that you are renting out to a group of college students for the 10-month academic year. You are charging $1,000 per month in rent. You will collect the first rent payment today and then on the first of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annualized rate of 6%? A) $9,677.77 B) $9,730.41 C) $9,779.06 D) $11,677.03

$9,779.06

Suppose an investor is interested in purchasing the following income producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $40,000 Year 2 =$45,000 Year 3 = $50,000 Year 4 = $55,000 Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year four is $500,000, what is the NPV of the project?

$9,889.56

Suppose an investor is interested in purchasing the following income producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $40,000, Year 2 = $45,000, Year 3 = $50,000, Year 4 = $55,000. Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year four is $500,000, what is the NPV of the project?

$9,889.56

Suppose an investor is interested in purchasing the following income-producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: year 1 = $40,000; year 2 = $45,000; year 3 = $50,000; year 4 = $55,000. Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year 4 is $500,000, what is the NPV of the project? A) $8,829.96 B) $9,889.56 C) $428,113.65 D) $459,889.56

$9,889.56

Suppose that a property can generate cash flows of $10,000 per year for eight years and can sell for $80,000 at the end of the investment period. Assuming a discount rate of 10%, what is the present value of this property? (Assume end of period cash flows in your calculation.) A) $117,320 B) $160,000 C) $133,349 D) $90,670

$90,670

Suppose that a property can generate cash flows of $10,000 per year for eight years and can sell for $80,000 at the end of the investment period. Assuming a discount rate of 10%, what is the present value of this property (Assume end of period cash flows in your calculation)?

$90,670

Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the

(fixed-rate) level-payment mortgage (LPM).

Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 3 years; current loan balance: $100,000; current loan interest: 7%; current loan mortgage payment: $898.33; remaining term on current mortgage: 15 years; new loan interest: 5.5%; new loan mortgage payment: $817.08; new loan term: 15 years; cost of refinancing: $5,000. Assume that the opportunity cost is the interest rate on the new loan (5.5%).

-$1,155.27

Suppose an investor is interested in purchasing the following income producing property at a current market price of $490,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $48,000, Year 2 = $49,440, Year 3 = $50,923, Year 4 = $52,451. Assuming that the required rate of return is 14% and the estimated proceeds from selling the property at the end of year four is $560,000, what is the NPV of the project?

-$12,860.53

Suppose an investor is interested in purchasing the following income-producing property at a current market price of $490,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: year 1 = $48,000; year 2 = $49,440; year 3 = $50,923; year 4 = $52,451. Assuming that the required rate of return is 14% and the estimated proceeds from selling the property at the end of year 4 is $560,000, what is the NPV of the project? A) -$12,860.53 B) $145,574.52 C) $331,564.96 D) $477,139.47

-$12,860.53

When the mortgage banker originates a home loan, she actually creates two assets: the loan and the servicing rights. When the mortgage bank sells the servicing right to the loan, it historically has had a value of

0.75-1.25% of the loan

Given the following information, calculate the loan-to-value ratio of this commercial loan: estimated net operating income in the first year: $150,000; debt service in the first year: $100,000; loan amount: $1,000,000; purchase price: $1,300,000.

0.77

FHA mortgage insurance covers any lender loss after conveyance of title of the property to the U.S. Department of Housing and Urban Development (HUD). FHA mortgage insurance requires two premiums to be paid: the UFMIP (up-mortgage insurance premium) and the MIP (monthly insurance premium). Currently, the UFMIP is what percentage of the loan for normal loans used to purchase a personal residence?

1.0%

In addition to the UFMIP (up-front mortgage insurance premium), the owner-occupant borrower who decides to use an FHA mortgage loan will normally pay an additional annual mortgage insurance premium (MIP) that depends on the loan-to-value ratio and the term of the loan. For loans with maturity longer than fifteen years and a loan to value ratio that is greater than 95%, the MIP will be what percentage of the average annual loan balance?

1.15%

Given the following information, calculate the debt coverage ratio of this commercial loan: estimated net operating income (NOI) in the first year: $150,000; debt service in the first year: $100,000; loan amount: $1,000,000; purchase price: $1,300,000.

1.50

If property owners fail to pay their taxes in a timely fashion, this can create a first lien on the mortgaged property. In order to protect against this, lenders often require that borrowers add what fraction of their estimated tax bill to their required monthly mortgage payments?

1/12

If property owners fail to pay their taxes in a timely fashion, this can create a first lien on the mortgaged property. In order to protect against this, lenders often require that borrowers add what fraction of their estimated tax bill to their required monthly mortgage payments? A. 1/12 B. 1/6 C. 1/4 D. 1/2

1/12

Assume that an industrial building can be purchased for $1,500,000 today, is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,625,000. Calculate the internal rate of return (IRR) for this transaction. A) 3.14% B) 6.78% C) 9.20% D) 10.37%

10.37%

Suppose an investor is interested in purchasing the following income producing property at a current market price of $2,500,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $100,000, Year 2 = $150,000, Year 3 = $200,000, Year 4 = $250,000. If the estimated proceeds from selling the property at the end of year four is $3,000,000, what is the internal rate of return (IRR) of the project?

10.99%

Suppose an investor is interested in purchasing the following income-producing property at a current market price of $2,500,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: year 1 = $100,000; year 2 = $150,000; year 3 = 4$200,000; year 4 = $250,000. If the estimated proceeds from selling the property at the end of year 4 is $3,000,000, what is the internal rate of return (IRR) of the project? A) -33.93% B) 5.72% C) 8.99% D) 10.99%

10.99%

Suppose that a landlord is interested in renting out a two-bedroom apartment for $1000 a month for the next year. The landlord requires rent to be paid at the beginning of the month, at which point he will deposit the rental check into a local savings account. If the annual interest that the tenant can earn on this account is 5% and interest is compounded monthly, how much will the tenant have in his savings account at the end of the year?

12,330.01

Suppose an investor deposits $2500 in an interest-bearing account at her local bank. The account pays 2.5% interest compounded annually. If the investor plans on withdrawing the original principal plus accumulated interest at the end of 7 years, what is the total amount that she should expect to receive assuming interest rates do not change?

2,971.71

In accordance with RESPA, whenever a buyer obtains a new first mortgage loan from a chartered or insured lender, when the loan is insured by the FHA or guaranteed by the VA, or when the loan will be sold to one of the federally related secondary mortgage market agencies, a good-faith estimate of the settlement costs must be provided by the lender within: A. 3 business days B. 5 business days C. 30 calendar days D. 90 calendar days

3 business days

In accordance with RESPA, whenever a buyer obtains a new first mortgage loan from a chartered or insured lender, when the loan is insured by the FHA or guaranteed by the VA, or when the loan will be sold to one of the federally related secondary mortgage market agencies, an estimate of loan costs must be provided by the lender within:

3 business days.

While a variety of loan terms are available in a lender’s mortgage menu, the most common loan term on a level-payment mortgage is

30 years

Using the following information, calculate the housing expense ratio: monthly principal and interest on mortgage loan: $635; monthly tax and insurance payments into escrow: $125; gross monthly income: $2,500.

30.4%

Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period.

43 months

In ascertaining whether a borrower has the ability to pay off his loan over time, a mortgage bank may rely on calculating a total debt ratio as part of its underwriting process. Using the following information, calculate the total debt ratio: monthly principal and interest on mortgage loan: $635; monthly tax and insurance payments into escrow: $125; monthly car lease payment (lease term is 3 years): $350; gross monthly income: $2,500.

44.4%

The development of Fannie Mae and Freddie Mac established the framework for a liquid secondary market for residential mortgages. In 2015, the share of all residential mortgage loans owned or securitized by Fannie Mae and Freddie Mac approached approximately

46%

The recent emergence of discount brokerage services has had a modest effect on the price of brokerage services. The average commission that a broker could expect to receive today would most likely range between

5% and 6%

Amy is trying to decide whether or not it would be beneficial to employ the services of a real estate broker in order to facilitate the sale of her home. She has estimated that the marketing costs and opportunity cost associated with time spent dealing with prospective buyers amounts to $5,000. If Amy were to sell the house on her own for $200,000, but a broker would have been able to negotiate a higher price of $206,350, what commission rate should Amy have been willing to accept from a real estate broker to make her indifferent between selling the house on her own and hiring a real estate broker?

5.5%

Since property taxes are paid in arrears, the buyer will be responsible for paying them after closing. Suppose that the closing date on the home for sale is February 28 of a leap year (2012, 2016, etc.). How many calendar days would the seller be responsible for when calculating his/her share of the property tax owed for the year in which the home was sold?

58 days

Since property taxes are paid in arrears, the buyer will be responsible for paying them after closing. Suppose that the closing date on the home for sale is February 28th of a leap year (e.g., 2012, 2016, etc). How many calendar days would the seller be responsible for when calculating his/her share of the property tax owed for the year in which the home was sold. A. 58 days B. 59 days C. 307 day D. 308 days

58 days

Since property taxes are paid in arrears, the buyer will be responsible for paying them after closing. Suppose that the closing date on the home for sale is February 28th of a leap year (e.g., 2012, 2016, etc.). How many calendar days would the seller be responsible for when calculating his/her share of the property tax owed for the year in which the home was sold?

58 days

Assume that an industrial building can be purchased for $1,500,000 today, is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,625,000. Calculate the internal rate of return (IRR) for this transaction.

6.78%

In analyzing a borrower's credit worthiness, the lender will typically examine the borrower's FICO score (a product developed by the Fair Isaac Corporation). High-quality (prime) borrowers are those with a credit score above

660

A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S. government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to provide a guarantee for the fulfillment of the borrower’s obligations. Typically PMI is required for all loans that have a loan to value (LTV) ratio greater than

80%

A lender is considering whether to approve a mortgage loan on a home recently appraised at a value of $500,000. If the borrower is willing to make a down payment of $100,000, determine the loan-tovalue ratio associated with this property

80%

An investor originally paid $22,000 for a vacant lot 12 years ago. If the investor is able to sell the lot today for $62,000, what would his annual rate of return be on this investment (rounded to the nearest percent)?

9%

An investor originally paid $22,000 for a vacant lot twelve years ago. If the investor is able to sell the lot today for $62,000, what would his annual rate of return be on this investment (rounded to the nearest percent)? A) 5% B) 7% C) 9% D) 11%

9%

Suppose that an industrial building can be purchased today for $2,500,000. If it is expected to produce cash flows of $180,000 for each of the next five years (assume CFs are received at the end of each year) and can be sold at the end of the fifth year for $2,800,000, what is the internal rate of return (IRR) on this investment? A) 0.09% B) 4.57% C) 9.20% D) 10.37%

9.20%

Suppose that an industrial building can be purchased today for $2,500,000. If it is expected to produce cash flows of $180,000 for each of the next five years (assume CFs are received at the end of each year) and can be sold at the end of the fifth year for $2,800,000, what is the internal rate of return (IRR) on this investment?

9.20%

When a mortgage is used as collateral for the issuance of a mortgage-backed security (MBS), the underlying mortgage is said to be securitized. Approximately what percentage of conventional conforming and FHA or VA loans in the United States are being sold into the secondary market and being used as collateral for the issuance of MBS?

90%

As an agent for the buyer or seller, a broker has six basic fiduciary responsibilities. Which of the following definitions best describes the responsibility of obedience?

A broker must follow the instructions of the principal to the limits of what is legal and ethical.

A property owner has set up a contract in which he agrees to sell a warehouse five years from now to the tenant who currently leases the space. The tenant has agreed to continue to pay $20,000 in rent at the end of each year, including year 5, at which time he will purchase the building for an additional $1,500,000. Assuming the required rate of return on a similar investment is 10% (annual), how much is this deal presently worth to the original owner of the property? A) $1,007,197.20 B) $1,014,779.29 C) $2,281,452.80 D) $2,293,663.00

A) $1,007,197.20

The purchase price of an income-producing property today is $570,000. After analysis of the expected future cash flows, expected sales price, and expected yield, the investor determines that the future cash flows have a present value (PV) of $580,000. Taking into consideration the price of the property today, what is the net present value (NPV) of this investment opportunity, and should the investor take the deal? A) $10,000; Yes B) $10,000; No C) -$10,000; Yes D) -$10,000; No

A) $10,000; Yes

An investor agreed to sell a warehouse five years from now to the tenant who currently rents the space. The tenant will continue to pay $20,000 rent at the end of each year including year 5 in which he will purchase the building for an additional $150,000. Assuming the investor's required rate of return is 10%, how much is this deal presently worth to the investor who was willing to sell? A) $168,953.93 B) $241, 451.07 C) $363,678.50 D) $1,032,475.67

A) $168,953.93

Upon starting his first job after graduation, Jon has completed the necessary paperwork to set up direct deposit of his paycheck into his savings account. After taxes, medical benefits, and retirement account contributions have been taken out of John's gross salary, he is left with a direct deposit of $4,000 at the end of each month. If John started with no other savings in his account, how much will John have in his savings account at the end of 12 months if he is able to earn an annual interest rate of 3%, with interest being compounded monthly? A) $48, 665.53 B) $48,787.19 C) $56,768.12 D) $58,471.16

A) $48,665.53

Suppose your personal financial goal is to retire with $1 million in your savings account. How much must you deposit monthly in an account paying 5% a year (with interest being compounded monthly and your deposits occurring at the end of the month), to accumulate $1,000,000 by your 65th birthday if you begin your deposits on your 22nd birthday? (Note: Assume that you started with no savings in the account prior to your first deposit at age 22 and you do not make a deposit on your 65th birthday.) A) $552.13 B) $701.90 C) $21,282.95 D) $186,354.63

A) $552.13

The internal rate of return (IRR) and the net present value (NPV) are tools that are widely used in real estate investment and finance decision making. An investor would most likely pursue an investment if which of the following circumstances was true? A) The going-in IRR exceeds the investor's required rate of return. B) The going-in IRR is less than the investor's required rate of return. C) The going-in IRR exceeds the NPV. D) The going-in IRR is less than the NPV.

A) The going-in IRR exceeds the investor's required rate of return.

With compound interest, the investor earns interest on the principal amount invested plus interest on accumulated interest. Which of the following compounding frequencies would yield the investor the greatest ending balance assuming all else is equal? A) daily B) monthly C) quarterly D) annually

A) daily

The Real Estate Research Corporation (RERC) regularly surveys a sample of institutional investors and managers in order to gain insight into the required returns and risk adjustments used by industry professionals when making real estate acquisitions. Most of the properties that RERC examines are large, relatively new, located in major metropolitan areas, and fully or substantially leased. These classifications of properties are commonly referred to as A) investment grade properties. B) speculative grade properties. C) net-lease properties. D) industrial properties.

A) investment grade properties.

Assuming all else the same, the ________ of an annuity due will be ________ that of an ordinary annuity. A)future value; greater than B) present value; equal to C) future value; less than D) present value; less than

A)future value; greater than

Suppose that a landlord is interested in renting out a two-bedroom apartment for $1,000 a month for the next year. The landlord requires rent to be paid at the beginning of the month, at which point he will deposit the rental check into a local savings account. If the annual interest that the tenant can earn on this account is 5% and interest is compounded monthly, how much will the tenant have in his savings account at the end of the year? A) $12,278.86 B) $12,330.01 C) $13,330.02 D) $15,917.13

B) $12,330.01 = 1,000(((1+.05)^12-1)/.05)

Suppose an investor is interested in purchasing the following income-producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: year 1 = $40,000; year 2 = $45,000; year 3 = $50,000; year 4 = $55,000. Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year 4 is $500,000, what is the NPV of the project? A) $8,829.96 B) $9,889.56 C) $428,113.65 D) $459,889.56

B) $9,889.56

Assume that an industrial building can be purchased for $1,500,000 today, is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,625,000. Calculate the internal rate of return (IRR) for this transaction. A) 3.14% B) 6.78% C) 9.20% D) 10.37%

B) 6.78%

You have just had a tenant sign a lease contract that guarantees you payments of $100,000 at the end of each year for the next five years. If you wish to determine the present value of these future cash flows (i.e., the value of this cash flow stream to you today), you would use which of the following time-value-of-money processes? A) compounding B) discounting C) amortizing D) aggregating

B) discounting

Since investors prefer to have money now rather than later, money received next week, instead of today, is not worth as much to those receiving it, assuming the magnitude of the cash flow in each period is the same. Therefore an adjustment to the prospective cash flows is required. This process is referred to as A) compounding. B) discounting. C) amortizing. D) hedging.

B) discounting.

The rate that is used to discount expected future cash flows can be thought of as the return the investor is forgoing on an alternative investment of equal risk. In this framework, the discount rate is being thought of as which of the following? A) net present value B) opportunity cost C) closing cost D) future value

B) opportunity cost

Risk is the possibility that actual outcomes will vary from what was expected when the asset was purchased. If investors require a higher rate of return for undertaking more risk, the underlying assumption is that investors are A) risk neutral. B) risk averse. C) risk taking. D) hedging risk.

B) risk averse.

Since the seller often has utilized the property for a portion of the year in which the transaction is being made, certain costs associated with the property will be prorated at the closing. All of the following items are subject to being prorated EXCEPT: A. Broker commission B. Prepaid rent C. Property tax D. Mortgage interest

Broker commission

Assume that an individual puts $10,000 into a savings account that pays 3% interest, with interest being compounded monthly. The individual plans to withdraw the balance in five years to buy a car. If he does not make any further deposits over this period, how much will the individual be able to put towards his purchase? A) $10,125.63 B) $11,592.74 C) $11,616.17 D) $58,916.03

C) $11,616.17

Suppose a bank decides to make a mortgage loan to an individual so that she may purchase a home. The homeowner will pay the bank $1,500 per month in mortgage payments for the next thirty years. The bank will collect the mortgage payments at the end of the month. What is this promised stream of cash flows worth to the bank today if they could reinvest the monthly income at an annualized rate of 5% for the entire investment horizon? A) $23,058.68 B) $99,658.27 C) $279,422.43 D) $1,248,387.95

C) $279,422.43

An investor originally paid $22,000 for a vacant lot twelve years ago. If the investor is able to sell the lot today for $62,000, what would his annual rate of return be on this investment (rounded to the nearest percent)? A) 5% B) 7% C) 9% D) 11%

C) 9%

Suppose that an industrial building can be purchased today for $2,500,000. If it is expected to produce cash flows of $180,000 for each of the next five years (assume CFs are received at the end of each year) and can be sold at the end of the fifth year for $2,800,000, what is the internal rate of return (IRR) on this investment? A) 0.09% B) 4.57% C) 9.20% D) 10.37%

C) 9.20%

When discussing time-value-of-money it is necessary to understand some key terminology. Which of the following terms refers to a fixed amount of money paid or received at the end of every recurring period (i.e., a series of equal lump sums)? A) future value B) present value C) ordinary annuity D) annuity due

C) ordinary annuity

The successful conveyance of real estate depends on a well-formed contract for sale since the contract dictates the rights and type of deed involved, as well as choreographs the entire transaction. Which of the following features of the contract for sale refers to the arrangements agreed to by the parties, such as price and date of closing? A. Contract terms B. Contract conditions C. Equitable title D. Contingency clause

Contract terms

Assume that a piece of land is currently valued at $50,000. If this piece of land is expected to appreciate at an annual rate of 5% per year for the next twenty years, how much will the land be worth twenty years from now? A) $100,898.99 B) $112,633.09 C) $123,860.81 D) $132,664.89

D) $132,664.89

Suppose you are starting a PhD program with only $1,000 in your savings account. The university has agreed to waive your tuition, cover all of your living expenses, and pay you an additional stipend of $2,000 at the beginning of each month, as long as you teach one course per semester over the course of five years. If your savings account is able to earn 5.5% per year for the five years that you will be in this program, how much will you have accumulated in your savings account by the end of the program if interest is compounded on a monthly basis? A) $136,445.94 B) $137,708.75 C) $139, 077.35 D) $139,708.76

D) $139,708.76

Suppose you have found a tenant who wishes to rent out your vacation home for the next twelve months. You are charging $800 per month in rent. You will collect the first rent payment today and then on the first of the month each month thereafter. What is the value of this investment opportunity to you today if you could reinvest your income at an annual rate of 3% with interest compounded on a monthly basis? A) $7,963.20 B) $8,202.10 C) $9,445.80 D) $9,469.42

D) $9,469.42

Suppose that a property can generate cash flows of $10,000 per year for eight years and can sell for $80,000 at the end of the investment period. Assuming a discount rate of 10%, what is the present value of this property? (Assume end of period cash flows in your calculation.) A) $117,320 B) $160,000 C) $133,349 D) $90,670

D) $90,670

Which of the following terms refers to a fixed amount of money paid or received at the beginning of every recurring period (i.e., a series of equal lump sums)? A) future value B) present value C) ordinary annuity D) annuity due

D) annuity due

Uncertainty of cash flows can vary significantly across property types. Which of the following property types is often considered to have the most uncertain expected cash flows? A) multifamily B) industrial C) office D) hospitality

D) hospitality

Federal Housing Administration (FHA) loans differ from conventional loans in a number of ways. All of the following statements regarding FHA loans are true except

FHA loans require higher credit scores than are needed for prime conventional loans.

Blockbusting, which involves persuading an individual to sell her home by telling her that minority groups are moving into the neighborhood, is one form of discrimination in housing that is prohibited by which of the following acts of Congress?

Fair Housing Act (Title VIII of the Civil Rights Act)

The Federal National Mortgage Association (Fannie Mae) was originally established to provide a secondary market for FHA-insured and VA-guaranteed loans. All of the following statements regarding Fannie Mae are true except

Fannie Mae lends money directly to homebuyers

In 1989, Congress took major steps to establish depository institution accountability by requiring these institutions to hold more capital as they take on riskier assets. Which of the following congressional acts imposed these capital standards on depository institutions?

Financial Institutions Reform, Recovery, and Enforcement Act

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

Good-faith estimate

In the late 1960s, Congress created a number of agencies designed to address a struggling secondary market for residential mortgages. Which of the following organizations was developed primarily to guarantee mortgage-backed securities based on pools of FHA, VA, and Rural Housing Service loans, rather than issue, buy, or sell mortgages?

Government National Mortgage Association (Ginnie Mae)

At the closing, the buyer will be credited for a number of costs that have been paid up-front (or will be paid after closing) as well as a number of prorated expenses that account for the period of time during which the seller occupied the house. All of the following items detailed in the closing costs involve credits that are commonly passed on to the buyer EXCEPT: A. Earnest money B. Hazard insurance premiums C. Property taxes D. Mortgage interest

Hazard insurance premiums

The distinction between legal title and equitable title is an important concept in the contract for sale of real estate. When the buyer obtains equitable title, the seller can no longer sell the property to someone else, even though the legal title has not officially passed on. In the contract for sale process, the creation of equitable title occurs when: A. The contract for sale is written. B. The contract for sale is signed. C. The contract terms are orally agreed upon. D. Each party is deemed legally competent.

The contract for sale is signed.

The internal rate of return (IRR) and the net present value (NPV) are tools that are widely used in real estate investment and finance decision making. An investor would most likely pursue an investment if which of the following circumstances was true? A) The going-in IRR exceeds the investor's required rate of return. B) The going-in IRR is less than the investor's required rate of return. C) The going-in IRR exceeds the NPV. D) The going-in IRR is less than the NPV.

The going-in IRR exceeds the investor's required rate of return.

The Federal Housing Administration (FHA) insures loans made by private lenders that meet FHA’s property and credit-risk standards. Which of the following statements concerning FHA insurance is true?

The insurance is paid by the borrower and protects the lender against loss due to borrower default.

Let's suppose that a lender has established a 90% loan-to-value ratio cutoff as one of its primary underwriting criteria. If a borrower is willing to make a down payment of $125,000 on a home recently appraised at $550,000, which of the following best describes the lender's decision on whether or not to approve the loan along this dimension?

The lender approves the loan because the LTV ratio is less than 90%

Both parties to a valid and enforceable contract must provide consideration. In a contract for the sale and purchase of real estate, which of the following depicts the seller's consideration? A. A meeting of the minds with the buyer. B. The option to present a counteroffer. C. The property to be given up. D. The money or goods that constitute the purchase price.

The property to be given up.

Both parties to a valid and enforceable contract must provide consideration. In a contract for the sale and purchase of real estate, which of the following depicts the seller's consideration?

The property to be given up.

The Real Estate Settlement Procedures Act (RESPA) is a federal law that requires federally chartered or insured lenders to provide buyers and sellers with information on all settlement costs. According to RESPA, loan closing information must be prepared on a special form known as the: A. Uniform Settlement Statement or HUD-1 form B. Good-faith estimate of settlement costs C. Settlement Costs and You booklet D. Certificate of occupancy

Uniform Settlement Statement or HUD-1 form

In general, most contracts - including a real estate contract - can be assigned. All of the following statements regarding assignment are true EXCEPT: A. Any type of personal performance contracted by one party cannot be assigned without that party's permission. B. Land contracts are not assignable without the owner's permission C. If buyers of real estate assign the contract, the new buyers may pay the agreed upon price and obtain title to the property. D. When buyers assign their rights to someone else, they escape liability under the original contract.

When buyers assign their rights to someone else, they escape liability under the original contract.

Any contract, whether it is for the sale of real estate or some other entity, must contain five basic elements. However, any contract for the sale of real estate must adhere to two additional requirements. Which of the following contract elements is an additional requirement that must be satisfied in a contract for sale of real estate that isn't necessarily a part of other contracts? A. No defects to mutual assent B. Consideration C. Offer and acceptance D. Written form

Written form

Mortgage insurance rates vary with the perceived riskiness of the loan. Which of the following scenarios would result in a higher mortgage insurance premium?

a "cash-out" refinancing loan

The Dodd-Frank Act ushered in a new standard for home mortgage underwriting. Which of the following standards is now required of any lender when underwriting a home loan?

ability-to-repay standard

Which of the following duties refers to a broker’s obligation to keep the principal informed about financial aspects of their assignment?

accounting

Mortgage loans made to borrowers with normal credit quality but lacking the necessary documentation of their financial circumstances typically needed to meet conforming mortgage standards would most likely be considered

alt-A loans

Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages?

annual percentage rate

Which of the following terms refers to a fixed amount of money paid or received at the beginning of every recurring period (i.e. a series of equal lump sums)?

annuity due

Which of the following terms refers to a fixed amount of money paid or received at the beginning of every recurring period (i.e., a series of equal lump sums)? A) future value B) present value C) ordinary annuity D) annuity due

annuity due

Partially amortizing mortgage loans require periodic payments of principal but are not paid off completely over the loan’s term to maturity. Instead, the balance of the principal amount is paid at maturity in what is commonly referred to as a

ballon payment

Suppose that a recent purchase of a residential home has been facilitated equally by a listing agent and a buyer broker. Based on your understanding of how commissions are determined, which of the following scenarios best describes who would be entitled a commission upon sale of the property? (Note: For simplicity, you can assume the seller did not procure the buyer on his or her own.)

both the listing broker and the buyer broker

Since the seller often has utilized the property for a portion of the year in which the transaction is being made, certain costs associated with the property will be prorated at the closing. All of the following items are subject to being prorated EXCEPT: property tax. mortgage interest. broker commission. prepaid rent.

broker commission.

For the purposes of estimating the effective borrowing cost (EBC), only those up-front expenses associated with obtaining the mortgage should be included, not the settlement costs associated with obtaining ownership of the property. With this in mind, which of the following costs should not be included in one’s calculation of EBC?

buyers title insurance

Traditional home mortgage underwriting is said to rest on three elements, the "three C's." The housing expense ratio is one tool that lenders will use to address concerns associated with which of the "three C's"?

capacity

Placed under the umbrella of the Consumer Financial Protection Bureau as part of the Dodd-Frank Act of 2010, the Real Estate Settlement Procedures Act (RESPA) requires loan settlement information to be prepared on a special form known as the

closing disclosure

Traditional home mortgage underwriting is said to rest on three elements, the "three C’s." Recent research (e.g., Archer and Smith, 2011) has confirmed that the underwriting characteristic most strongly associated with default is

collateral

Real estate brokers serve as intermediaries by bringing buyers and sellers together in the real estate market. For this service, brokers are paid what is commonly referred to as a

commission

The process for computing the future value of an investment is referred to as:

compounding

In the securitization process, mortgages are pooled together and cash flows are packaged into securities to be sold in the secondary market. Agencies and private companies that pool mortgages and sell mortgage-backed securities (MBS) are often referred to as

conduits

Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment-to-income ratio. The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as

conforming conventional loans

Recording documents in the public records informs anyone who may have a potential interest in a property of both the owner and lender. In so doing, it provides what is commonly referred to as ____________ of an interest in real property.

constructive notice

Recording documents in the public records informs anyone who may have a potential interest in a property of both the owner and lender. In so doing, it provides what is commonly referred to as ____________ of an interest in real property. A. mutual assent B. constructive notice C. consideration D. simultaneous issue

constructive notice

Recording documents in the public records informs anyone who may have a potential interest in a property of both the owner and lender. In so doing, it provides what is commonly referred to as ____________ of an interest in real property.

constructive notice

Contracts for sale may contain sections that cause implementation of the contract to depend on the successful completion of some prior action such as the buyer's ability to obtain financing on specified terms. This type of contract is commonly referred to as a(n):

contingencies

The successful conveyance of real estate depends on a well-formed contract for sale since the contract dictates the rights and type of deed involved, as well as choreographs the entire transaction. Which of the following features of the contract for sale refers to the arrangements agreed to by the parties, such as price and date of closing?

contract terms

Contracts for sale may contain sections that cause implementation of the contract to depend on the successful completion of some prior action such as the buyer’s ability to obtain financing on specified terms. This type of contract is commonly referred to as a(n)

contract with contingencies

Contracts for sale may contain sections that cause implementation of the contract to depend on the successful completion of some prior action such as the buyer's ability to obtain financing on specified terms. This type of contract is commonly referred to as a(n): A. contract assignment B. equitable title C. contract with contingencies D. uniform settlement statement

contract with contingencies

Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government?

conventional home loans

Prospective borrowers often submit loan requests directly to lenders. However, commercial loan requests can also be submitted through another channel in which a permanent lender agrees to purchase loans or consider loan requests from a mortgage banker or broker. This type of business relationship is more commonly referred to as a(n)

correspondent relationship

With compound interest, the investor earns interest on the principal amount invested plus interest on accumulated interest. Which of the following compounding frequencies would yield the investor the greatest ending balance assuming all else is equal? A) daily B) monthly C) quarterly D) annually

daily

With compound interest, the investor earns interest on the principal amount invested plus interest on accumulated interest. Which of the following compounding frequencies would yield the investor the greatest ending balance assuming all else is equal?

daily

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.)

debt yield ratio

If mortgage rates decline significantly, borrowers may decide to prepay the principal on their loan even if they face prepayment penalties. One way that lenders protect themselves from prepayments in such circumstances is by requiring the borrower who prepays to purchase for the lender a set of U.S. Treasury securities whose coupon payments replicate the cash flows the lender will lose as a result of the early retirement of the mortgage. This process is referred to as

defeasance

According to the law of agency, real estate brokers are required to observe several duties as they act as an agent for an individual trying to buy or sell a property. Which of the following duties refers to a broker’s obligation to be completely open and honest with the principal?

disclosure

Since investors prefer to have money now rather than later, money received next week, instead of today, is not worth as much to those receiving it, assuming the magnitude of the cash flow in each period is the same. Therefore an adjustment to the prospective cash flows is required. This process is referred to as:

discounting

You have just had a tenant sign a lease contract that guarantees you payments of $100,000 at the end of each year for the next five years. If you wish to determine the present value of these future cash flows (i.e., the value of this cash flow stream to you today), you would use which of the following time-value-of-money processes? A) compounding B) discounting C) amortizing D) aggregating

discounting

You have just had a tenant sign a lease contract that guarantees you payments of $100,000 at the end of each year for the next five years. If you wish to determine the present value of these future cash flows (i.e. the value of this cash flow stream to you today), you would use which of the following time value of money processes?

discounting

Since investors prefer to have money now rather than later, money received next week, instead of today, is not worth as much to those receiving it, assuming the magnitude of the cash flow in each period is the same. Therefore an adjustment to the prospective cash flows is required. This process is referred to as A) compounding. B) discounting. C) amortizing. D) hedging.

discounting.

In the early 1970s, home mortgage lenders were predominantly depository institutions. By the end of the decade, the growth of deposits at these institutions became negative due to the emergence of more attractive investment opportunities such as money market funds. This change in the distribution chain of funds is more commonly referred to as

disintermediation

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

due dilligence

When a buyer signs an offer to purchase a property, the broker receives a monetary amount from the purchaser of 5% or 10% of the purchase price. This deposit is commonly referred to as the

earnest money

When a buyer signs an offer to purchase a property, the broker receives a monetary amount from the purchaser of 5 or 10 percent of the purchase price. This deposit is commonly referred to as the: A. commission B. earnest money C. closing cost D. title insurance premium

earnest money

The right of someone to obtain full, legal title to real estate is more commonly referred to as:

equitable title.

One of the traditional requirements for individuals who wish to obtain a brokerage license has been to demonstrate financial capacity to cover damage judgments brought against them by clients. In order to address this concern, some states have required licensees to first obtain

errors and omission insurance

There are a number of different types of listing contracts that can be used when marketing a property. Which of the following types of listings requires the broker to be paid a commission if anyone, other than the owner, sells the property during the contract period?

exclusive agency listing

There are a number of different types of listing contracts that can be used when marketing a property. Which of the following types of listings requires the broker to be paid a commission if any other broker, or even the owner, sells the property during the contract period?

exclusive right of sale listing

Suppose that a mortgage bank locked in an interest rate for a prospective borrower at 8.5%. However, prior to the loan closing, the market mortgage rate falls to 7.5%. In this scenario, the mortgage banker would be most concerned with which of the following risks?

fallout risk

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

fiduciary relationship

In contrast to conventional home loans, the interest-only balloon loan requires the borrower to pay off the loan with a balloon payment equal to the original balance after

five to seven years

Which of the following types of loans is the most common instrument used to finance the acquisition of existing commercial property?

fixed-rate balloon mortgage loans

Assuming all else the same, the ________ of an annuity due will be ________ that of an ordinary annuity. A)future value; greater than B) present value; equal to C) future value; less than D) present value; less than

future value; greater than

Assuming all else the same, the ___________ of an annuity due will be _____________ that of an ordinary annuity.

future value; greater than

Which of the following types of institutions has historically been the largest purchaser of residential mortgages?

government-sponsored enterprises

At the closing, the buyer will be credited for a number of costs that have been paid up-front (or will be paid after closing) as well as a number of prorated expenses that account for the period of time during which the seller occupied the house. All of the following items detailed in the closing costs involve credits that are commonly passed on to the buyer EXCEPT: hazard insurance premiums. mortgage interest. property taxes. earnest money.

hazard insurance premiums.

Uncertainty of cash flows can vary significantly across property types. Which of the following property types is often considered to have the most uncertain expected cash flows?

hospitality

Uncertainty of cash flows can vary significantly across property types. Which of the following property types is often considered to have the most uncertain expected cash flows? A) multifamily B) industrial C) office D) hospitality

hospitality

Relative to residential loans, the underwriting process for commercial loans is more complicated. The commercial loan underwriting process focuses first on which of the following?

income producing potential of the collateral property

When the contract rate at closing is less than the current market rate (i.e., interest rates have increased since the time of the loan commitment), the mortgage banker will have to sell the newly originated loan at a discount. This scenario best depicts the mortgage banker’s exposure to which of the following risks?

interest rate risk

While balloon mortgage loan payments are typically based on a 30-year amortization schedule, the loan actually matures in either 3, 5, 7, or 10 years. Of the following, which is the primary risk to which lenders reduce their exposure through the relatively short loan term on a balloon mortgage?

interest rate risk

The refinancing decision is sometimes oversimplified into a few rules of thumb that a borrower uses in order to gauge its potential benefits. Which of the following methodologies is criticized for its inability to account for a variation in refinancing benefits due to cost or holding period differences?

interest rate spread

The Real Estate Research Corporation (RERC) regularly surveys a sample of institutional investors and managers in order to gain insight into the required returns and risk adjustments used by industry professionals when making real estate acquisitions. Most of the properties that RERC examines are large, relatively new, located in major metropolitan areas and fully or substantially leased. These classifications of properties are commonly referred to as:

investment grade properties

The Real Estate Research Corporation (RERC) regularly surveys a sample of institutional investors and managers in order to gain insight into the required returns and risk adjustments used by industry professionals when making real estate acquisitions. Most of the properties that RERC examines are large, relatively new, located in major metropolitan areas, and fully or substantially leased. These classifications of properties are commonly referred to as A) investment grade properties. B) speculative grade properties. C) net-lease properties. D) industrial properties.

investment grade properties.

While fee splitting between cooperating real estate brokers is permitted, RESPA explicitly prohibits such actions as rebating part of the title insurance premium to the lender who recommended or required the title insurance. These unearned fees are commonly referred to as

kickbacks

While fee splitting between cooperating real estate brokers is permitted, RESPA explicitly prohibits such actions as rebating part of the title insurance premium to the lender who recommended or required the title insurance. These unearned fees are commonly referred to as: A. commissions B. kickbacks C. damages D. specific performance dues

kickbacks

Different financing requirements usually are involved in the various phases of a property's life. Which of the following types of loans is used to finance improvements to the land, such as sewers, streets and utilities?

land development loans

When fully amortizing loans call for equal periodic payments over the life of the loan they are known

level-payment mortgages

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?

level-payment, full amortizing loan

The final step in a real estate transaction is the closing. In most closings, which party is responsible for seeing that the closing is completed successfully?

listing broker

The final step in a real estate transaction is the closing. In most closings, which party is responsible for seeing that the closing is completed successfully?

listing broker

Which of the following terms refers to a written agreement that binds the lender to make a loan to the borrower provided the borrower satisfies the terms and conditions of the agreement?

loan commitment

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?

loan estimate

Recently, mortgage banking has become the natural method for doing mortgage lending. Within the mortgage lending process, which of the following roles serves as the primary revenue source for mortgage banks?

loan servicing

Throughout the process of originating and selling mortgages, mortgage companies face a number of risks. Therefore, it is important for a lending institution to evaluate the risks of mortgage loan default through a process commonly referred to as

loan underwriting

In the process of deciding whether to extend a mortgage loan to a prospective borrower, lenders typically examine three elements, more commonly referred to as the "three C's." Which of the following metrics does a bank use to evaluate the collateral piece of the loan agreement?

loan-to-value ratio

In order to better understand a borrower's probability of default, lenders have a number of tools at their disposal. The ratio that measures the percentage of the price (or value) of a property that is encumbered by the first mortgage is referred to as the

loan-to-value ratio (LTV)

Since the issues in many transactions are similar, brokers often use standard preprinted contract forms. Generally, the best standard form contracts are those prepared and approved by which of the following parties?

local board of realtors

The flexibility to prepay the principal on a mortgage loan differs significantly between commercial and residential mortgages. Which of the following clauses prohibits prepayment of the mortgage loan for a specified period of time after its origination?

lockout provisions

Lenders generally require private mortgage insurance (PMI) for conventional loans over 80% of the value of the security property. PMI protects a lender against which of the following?

losses due to default on the loan

Since conforming loans can be much more readily bought and sold in the secondary mortgage market, they carry a(n) _______ interest rate than comparable nonconforming loans.

lower

Which of the following duties refers to a broker’s obligation to never subordinate the best interest of their principal to the interests of others?

loyalty

It is common for real estate firms to identify submarkets, such as property types or particular sections of a city, in which they can specialize and concentrate their transaction activity. This practice is referred to as

market segmentation

To put into perspective the amount of residential mortgage debt outstanding, it is useful to compare this market to other prominent sources of available debt. Listing the issuer with the largest amount of debt outstanding first, which of the following choices best depicts the relative rank ordering among the major sources of outstanding debt in the United States as of the end of 2015?

marketable U.S. government bonds, residential mortgage debt, corporate bonds, consumer credit

There are a number of alternatives when it comes to the capital structure for acquisitions of commercial real estate. Through which of the following lending relationships does the lender have the right to foreclose on the equity of the borrower's company in the case of default?

mezzannine loan

The monthly mortgage payment divided by the loan amount is commonly referred to as the

monthly loan constant

The emergence of mortgage securities propelled the development of mortgage companies, an entity significantly different from the thrifts and banks that previously dominated the mortgage landscape. Which of the following parties is responsible for providing mortgage origination services and initial funding within this new framework?

mortgage banker

With the arrival of subprime mortgages in recent years, a new kind of trigger event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis?

mortgage payment spikes

Mortgage banks typically will attempt to sell loans as quickly as possible after they are originated by either issuing mortgage securities or selling the loan to an intermediary that will subsequently sell the loan in the secondary market. The period between loan commitment and loan sale is referred to as the

mortgage pipeline

There are three basic types of listing contracts. These include all of the following except

multiple listing

In the modern framework of home mortgage lending, there are four channels by which first mortgage home loans are created. Within which of the following channels would you typically find a Wall Street investment bank obtaining loans, pooling loans, and creating a senior-subordinate security structure?

nonconforming conventional loans securitization

One of the main differences between residential mortgage loans and permanent financing of commercial real estate lies in the allocation of liability in the case of default. In commercial real estate, a "bankruptcy remote" special-purpose entity is created that shields the actual borrower from personal liability. When a lender cannot lay claim to the personal assets of the defaulted borrower, this type of loan is commonly referred to as a

nonrecourse loan

Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest rates are not going to fall appreciably from where they currently are. In this case, the homeowner appears to be concerned about which of the following costs associated with refinancing?

opportunity cost

The rate that is used to discount expected future cash flows can be thought of as the return the investor is forgoing on an alternative investment of equal risk. In this framework, the discount rate is being thought of as which of the following?

opportunity cost

The rate that is used to discount expected future cash flows can be thought of as the return the investor is forgoing on an alternative investment of equal risk. In this framework, the discount rate is being thought of as which of the following? A) net present value B) opportunity cost C) closing cost D) future value

opportunity cost

Mortgage loans that allow the borrower to switch among a variety of payment arrangements throughout the life of the loan are more commonly referred to as

option ARM loans

When discussing time-value-of-money it is necessary to understand some key terminology. Which of the following terms refers to a fixed amount of money paid or received at the end of every recurring period (i.e., a series of equal lump sums)? A) future value B) present value C) ordinary annuity D) annuity due

ordinary annuity

When discussing time-value-of-money it is necessary to understand some key terminology. Which of the following terms refers to a fixed amount of money paid or received at the end of every period (i.e. a series of equal lump sums)?

ordinary annuity

When a lender receives a specified portion of a property's net operating income and/or net sale proceeds as part of the loan agreement, this loan type is more commonly referred to as a

participation loan

In recent years, mortgage lenders responded to the demand from home buyers who were unable to put 20% down on their purchase and were looking to avoid the private mortgage insurance (PMI) requirement that would typically accompany such a loan by developing a second mortgage that is created simultaneously with the first mortgage in an amount of 10% of the value of the home. This enabled the borrower to obtain 90% financing while avoiding the additional cost of PMI. These loans are more commonly referred to as

piggyback mortgage loans

While the principal parties to a transaction must be legally competent for a contract to be valid, it is possible for a party acting on behalf of a principal to obtain this legal right. In order for personal representatives and trustees to be authorized to act on behalf of a principal, a legal instrument commonly referred to as ____________ must be in place.

power of attorney

While the principal parties to a transaction must be legally competent for a contract to be valid, it is possible for a party acting on behalf of a principal to obtain this legal right. In order for personal representatives and trustees to be authorized to act on behalf of a principal, a legal instrument commonly referred to as ____________ must be in place.

power of attorney

While the principal parties to a transaction must be legally competent for a contract to be valid, it is possible for a party acting on behalf of a principal to obtain this legal right. In order for personal representatives and trustees to be authorized to act on behalf of a principal, a legal instrument commonly referred to as ____________ must be in place. A. assignment B. power of attorney C. mutual assent D. consideration

power of attorney

The loan origination market, in which borrowers and lenders come together to provide adequate financing for the purchase of a property, is more commonly referred to as the

primary mortgage market

Which of the following contract elements is an additional requirement that must be satisfied in a contract for sale of real estate that isn't necessarily a part of other contracts?

proper description of the property

Which of the following contract elements is an additional requirement that must be satisfied in a contract for sale of real estate that isn't necessarily a part of other contracts? proper description of the property competent parties legal objective consideration

proper description of the property

Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly referred to as a

purchase money mortgage

Based on your understanding of the risks associated with different mortgage loan types, which of the following mortgage loans would be considered the safest with respect to default risk?

qualified mortgage loans

The Dodd-Frank Wall Street Reform and Consumer Protection Act created an important new class of home mortgages that is aimed at helping mortgage lenders implement an "ability to repay" standard imposed by the law. These mortgages are more commonly referred to as

qualified mortgage loans

A commercial real estate loan may take 90 days from the signing of the purchase and sale contract until loan closing. Therefore, there is the possibility for interest rates to fluctuate during this period. In some cases, the lender may offer the borrower the opportunity to "lock in" the interest rate on the loan. To protect against exposure to rate increases during this period, the borrower is often willing to pay a nonrefundable fee as part of what is more commonly known as a

rate lock agreement

All 50 states have licensing laws that regulate persons and companies that engage in the brokerage business. Interpreting and enforcing state licensing laws falls under the responsibilities of which of the following parties?

real estate commission

The note is the document used to create a legal debt. In most states, the note creates personal liability for residential borrowers. When mortgage lenders have access to other borrower assets in situations where the foreclosure sale price is less than the total amount of the loan outstanding, we commonly refer to this type of loan as a

recourse loan

Based on your understanding of the concept of a lockout provision, lenders are able to reduce their exposure to which of the following risks through its use?

reinvestment risk

Total mortgage debt outstanding as of the third quarter of 2015 approached $13.7 trillion. Which of the following types of mortgage loans accounts for the greatest percentage of mortgage debt outstanding?

residential (1-4 family)

Many older, retired households are considered "house poor." Which of the following forms of loans has been designed to help mitigate this problem by offering additional monthly income to these homeowners in exchange for a portion of their housing equity?

reverse mortgage

1) Risk is the possibility that actual outcomes will vary from what was expected when the asset was purchased. If investors require a higher rate of return for undertaking more risk, the underlying assumption is that investors are A) risk neutral. B) risk averse. C) risk taking. D) hedging risk.

risk averse

Risk is the possibility that actual outcomes will vary from what was expected when the asset was purchased. If investors require a higher rate of return for undertaking more risk, the underlying assumption is that investors are:

risk averse

If investors require a higher rate of return for undertaking more risk, the underlying assumption is that investors are:

risk averse.

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

secondary mortgage market

In an open-listing contract, an individual broker is entitled to a commission if

she procures the buyer of the property

In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following except

shorter terms than other consumer debt

Which of the following duties refers to a broker’s obligation to represent the interests of their principals to the best of their ability in the same way they would represent themselves, acquiring and applying the necessary knowledge and information about relevant laws and regulations, the market, and subject property?

skill and care

Real estate brokers operate under the law of agency, which gives a broker the right to act for a principal in trying to buy or sell a property. In the basic principal-agent relationship of real estate brokerage, real estate brokers act in the capacity of a

special agent

When the seller in a contract for sale fails to perform (e.g. breach of contract, nonperformance, or default), the buyer has a variety of remedies. One such remedy is to appeal to the court to force the defaulting seller to carry out the contract. This remedy is most commonly referred to as suing for:

specific performance.

When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n)

strategic default

Modern real estate brokerage normally relies on a multiple listing service (MLS) through which brokers have access to each other's listings. Which of the following types of agency agreements is established with the use of a MLS?

subagency agreement

Despite many innovations in the lending process that made mortgage loans more accessible and affordable to the general public, many potential borrowers faced considerable barriers in qualifying for a loan and making a down payment. Which of the following types of loans was designed for a borrower with weak credit, those who seek 100% financing, or who cannot document their income?

subprime mortgage loan

When a party in a contract fails to perform (e.g. breach of contract, nonperformance, or default) the other party has a variety of remedies. All of the following are remedies that an aggrieved seller may pursue EXCEPT: sue for specific performance. sue for damages. retain the earnest money deposit as liquidated damages. agree to rescission of the contract.

sue for specific performance.

To encourage borrowers to accept adjustable rate mortgages (ARMs) rather than level-payment mortgages, mortgage originators generally offer an initial short-term introductory rate that is less than the prevailing market mortgage rate. This rate is referred to as a(n)

teaser rate

Some investors obtain more than one loan when acquiring properties, thereby substituting more debt financing for equity financing. A traditional second mortgage is secured by

the borrower's pledge of the property as collateral

the internal rate of return (IRR) and the net present value (NPV) are tools that are widely used in real estate investment and finance decision making. An investor would most likely pursue an investment if which of the following circumstances was true?

the going-in IRR exceeds the investor's required rate of return

One reason why adjustable rate mortgages (ARMs) have become popular has to do with the impact that they have on the interest rate risk that is borne by the parties involved. If interest rates were to rise on a level-payment mortgage (LPM), the interest rate risk of the loan would typically be borne by

the lender only

A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes

the loan always goes to maturity

To be considered a qualified mortgage, the loan must have specific features and meet designated underwriting requirements. Based on your understanding of what constitutes a qualified mortgage, all of the following features describe a qualified mortgage except

the loan does not require verification of underwriting information from third-party records.

The traditional approach to loan underwriting has virtually been replaced by an automated underwriting process that involves a statistically derived equation to determine the level of default risk associated with a loan application. All of the following statements regarding the automated underwriting process are true except

the marginal cost per loan underwritten using the automated process is greater than the case of traditional underwriting

When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loan's yield?

the yield on the loan will increase

In considering a 3/1 adjustable rate mortgage (ARM), the interest rate will be fixed for how many years?

three years

In the real estate appraisal business, the internal rate of return (IRR) is often referred to as the __________ because it measures return that includes both current and expected future property rental income, as well as the expected change in the asset's price.

total yield

In dual agency, conflicts of interest may arise since a single broker has both the listing contract with the seller and a buyer agency agreement with the purchaser. One way that states have attempted to deal with this issue is to develop a new type of brokerage relationship in which the broker assists the buyer and seller, but does not represent either party. This type of brokerage relationship is commonly referred to as

transaction brokerage

The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future. In its most common form, known as a 2-28, the hybrid ARM will have a fixed-interest rate for

two years

In addition to providing home mortgages, large commercial banks have specialized in providing shortterm funds to mortgage banking companies in order to enable them to originate mortgage loans and hold the loans until the mortgage banking company can sell them in the secondary market. This type of financing is commonly referred to as

warehousing

Any contract, whether it is for the sale of real estate or some other entity, must contain five basic elements. However, any contract for the sale of real estate must adhere to two additional requirements. Which of the following contract elements is an additional requirement that must be satisfied in a contract for sale of real estate that isn't necessarily a part of other contracts?

written form

In contrast to residential mortgage loans, most fixed-rate commercial mortgages do not allow borrowers to freely prepay the principal on their loan. Which of the following prepayment penalties ties the penalty that borrowers pay to how far interest rates have declined since origination?

yield-maintenance agreements