Potential Real Estate Questions

Given the following information, determine the value of having an additional bathroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.

$10,000

Suppose that an appraiser has come to the following conclusions in evaluating the subject property. Due to the dramatic shift in the perceived safety of the neighborhood, values of any residential properties in the area of the subject property have fallen by $10,000, on average. Due to the subject property's age, physical deterioration to the building accounts for an estimate of $50,000 in lost value. An evaluation of the floor plan reveals that it is quite obsolete relative to current homebuyer preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Based on your understanding of adjustments related to accrued depreciation, which of the following pertains to the adjustment for external obsolescence?

$10,000

A comparable property sold 15 months ago for $105,000. If the appropriate adjustment for market conditions is 0.25% per month (without compounding), what would be the adjusted price of the comparable property?

$108,937.50

Given the following information, determine the value of having an additional bedroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.

$25,000

Let's assume that we are about to appraise a house using the cost approach. The home was originally constructed in the early 1900s and is one of the last of its kind in this area. The cost of constructing an exact replica of this residence is estimated to be $350,000. On our trip to the actual property, we notice that this is the only residential unit located on this particular road. Based on the current usage of adjacent real estate, we estimate that the property would be worth an additional $25,000 in its highest and best use. However, due to the dramatic shift in the perceived safety of the neighborhood, values of any remaining residential properties in the area have fallen by $20,000. Due to the home's age, we also notice that there has been a significant amount of physical deterioration to the building, amounting to an estimate of $50,000 in lost value. Since the home was built over 100 years ago, the floor plan is quite obsolete relative to current preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Given this information, determine the appraised value of the home using the cost approach.

$290,000

While it is often sufficient to rely on informal methods of estimating the market value of real estate assets, the complexity and large dollar value of many real estate decisions dictate that formal estimates based on methodical collection and analysis of relevant market data should be utilized. The unbiased written estimate of the market value of a property is commonly referred to as a(n):

Appraisal

Real estate appraisal is often considered "more art than science," since identifying truly comparable properties is a subjective process. Therefore, it is essential that a comparable property transaction at least meets the requirement that it was fairly negotiated under typical market conditions. Which of the following types of transactions would be most appropriate for use in the sales comparison approach to valuation?

Arm's-length transactions

Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the market value of the subject property is $400,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the reproduction cost of the building?

$370,000

Assume you have been hired to appraise a local hospital. Your best estimate of the reproduction (or replacement) cost of the building is $3,700,000. However, upon evaluating the use of land in the local area, you have deemed the value of the site to be worth an additional $800,000. If the building has depreciated by $500,000 over its lifetime and there are no further depreciation losses due to external or functional obsolescence, what is the indicated value of the hospital using the cost approach?

$4,000,000

In using transaction data to determine the current value of the subject property, it is important to recognize that general market conditions may have changed since a particular transaction occurred. Property A sold 18 months ago for $235,000 and Property B sold 12 months ago for $215,000. If the two properties are priced today at $239,500 and $222,300, respectively, what is the average monthly rate of increase that can be used to adjust comparable prices for changes in market conditions?

.19%

Suppose that we observe two comparable properties that have each sold twice within the past two years. Property A sold 24 months ago for $350,000 and Property B sold 18 months ago for $325,000. If the two properties were sold today at $375,000 and $340,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis?

.28%

if a default goes into a residential borrower's recored it is likely to lower their credit score by atleast _____ points

100

Order these choices in terms of severity, from mildest to most severe 1Counseling and financial reorganization 2Deed in lieu of foreclosure 3Reduction or postponement of mortgage payments 4Short sale

1342

a late fee commonly is charged on a home mortgage loan at a rate of 4 to 5 percent of the overdue payment if the payment is delayed for than ____ days after it is due

15

Most real estate loans have a definite term to maturity, stated in years. The majority of home loans will typically have a term to maturity between ___ and ___ years

15, 30

Added to the index of the adjustable rate is a margin, which is the lender's "markup." For standard Adjustable Rate Mortgage (ARM) loans, the average industry margin has been stable at approximately

275 basis points

Violations of the requirements of a note that do not disrupt the payments on the loan tend to be viewed as "technical" defaults. In practice, how many days must a payment be overdue in order for lenders to treat a default as serious (i.e., a substantive default)?

90 days

default generally becomes considered substantiative when payments have been missed for ____ days. Then the ultimate response of the lender is likely to be ______

90, foreclosure

19. Given the following information, calculate the overall capitalization rate. Sale price: $950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: $50,000, and Operating Expenses: $50,000. A. 15.8% B. 21.1% C. 26.3% D. 36.8%

A. 15.8%

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

A. Apartments

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

A. Capital expenditures are subtracted in the calculation of net operating income.

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

A. Net operating income

3. The process of converting periodic income into a value estimate is referred to as income capitalization. Income capitalization models can generally be categorized as either direct capitalization models or discounted cash flow models. Which of the following statements best describes the direct capitalization method? A. Value estimates are based on a multiple of expected first year net operating income. B. Appraisers must make explicit forecasts of the property's net operating income for each year of the expected holding period. C. Appraisers must select the appropriate yield at which to discount future cash flows. D. The forecast must include the net income produced by a sale of the property at the end of the expected holding period.

A. Value estimates are based on a multiple of expected first year net operating income.

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

B

35. Suppose that an income producing property is expected to yield cash flows for the owner of $150,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 8% annually and the property can be sold for $1,250,000 at the end of the fifth year, determine the value of the property today. A. $304,704.00 B. $1,449,635.50 C. $1,481,143.98 D. $2,000,000.00

B. $1,449,635.50

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

B. $102,000

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

B. $137,700

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

B. $60,000

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

B. $974,610.00

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

B. 7.35

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

B. 9%

2. Net operating income is similar to which of the following measures of cash flow in corporate finance? A. Dividend yield B. Earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA) C. Price-earnings ratio D. Discount rate

B. Earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA)

6. One complication that appraisers may face is the variety of lease types that may be available for a particular property type. Which of the following statements best describes a "graduated" or step-up lease? A. The monthly rent remains fixed over the entire lease term. B. The lease establishes schedule of rental rate increases over the term of the lease. C. Rental rate increases are indexed to the general rate of inflation. D. Rental rates are a function of the sales of the tenant's business.

B. The lease establishes schedule of rental rate increases over the term of the lease.

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

B. capital expenditures

4. The starting point in calculating net operating income is the total annual income the property would produce assuming 100 percent occupancy and no collection losses. This is commonly referred to as: A. effective Gross Income B. potential Gross Income C. operating expenses D. capital expenditures

B. potential Gross Income

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

C

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

C

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

C

34. Suppose that you are attempting to value an income producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 7.5%. If the projected first year net operating income (NOI) for the subject property is $135,500, what is the indicated value of the subject using direct capitalization? A. $144,985.00 B. $150,555.56 C. $1,806,666.67 D. $9,033,333.33

C. $1,806,666.67

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

C. $153,900

27. Suppose that you are attempting to value an income producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 11.44%. If the projected first year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization? A. $49,590.80 B. $50,225.73 C. $388,986.00 D. $509,080.00

C. $388,986.00

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

C. 11.4%

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

C. 11.43%

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

C. 12.5%

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

C. It is analogous to the dividend yield on a common stock.

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

C. Local property taxes

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

C. Mortgage payments

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

C. between five and fifteen percent

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

C. terminal value

5. The distinction between market rent and contract rent is important due to differences in lease terms. Office, retail, and industrial tenants most commonly occupy their space under leases that run: A. one year or less B. one to three years C. three to five years D. ten years or more

C. three to five years

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

D

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

D. $1,615,203.00

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

D. $11,755,622

28. Suppose that an income producing property is expected to yield cash flows for the owner of $10,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 12% annually and the property can be sold for $100,000 at the end of the fifth year, determine the value of the property today. A. $36, 047.76 B. $56,742.69 C. $83,333.33 D. $92,790.45

D. $92,790.45

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

D. 3.6

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

D. Gross income multiplier

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

D. Property values have decreased

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

D. Roof replacement

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

D. pro forma

In an attempt to regulate home mortgage lending after the mortgage crisis of 2007, which of the following acts created an independent oversight agency tasked with the responsibility of overseeing and enforcing Federal consumer financial protection laws, enforcing anti-discrimination laws in consumer finance, restricting unfair, deceptive or abusive acts or practices, receiving consumer complaints, promoting financial education, and watching for emerging financial risks for consumers?

Dodd- Frank Wall Street Reform and Consumer Protection Act

Several techniques can be used to obtain an indication of land value. The cost approach to valuation would most likely be used for which of the following properties?

Education facility

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

Escrow clause

The sequence of adjustments to the transaction price of a comparable property would make no difference if all adjustments were dollar adjustments. However, if percentage adjustments are involved then the sequence does matter. In making adjustments to a comparable property to arrive at a final adjusted sales price, the proper sequence for the following adjustments would be:

Financing terms, market conditions, location

Accrued depreciation is the difference between the current market value of a building and the total cost to reproduce it new. One reason for this difference is related to changes in tastes, preferences, technical innovations, or market standards. This is commonly referred to as:

Functional obsolescence

It may be appropriate for a real estate professional to utilize different approaches for estimating the market value of a property depending upon the particular property type and use. Which of the following approaches would be most applicable when considering the valuation of retail office space (i.e., which approach would receive the most weight in the valuation process

Income approach

Which of the following would be categorized as a cause of external obsolescence?

Increased traffic flow due to more intensive use in the local area

At the conclusion of the traditional sales comparison approach to valuation, the appraiser evaluates and reconciles the final adjusted sale prices into a single value for the subject property. This single value is commonly referred to as:

Indicated value

Real estate appraisers generally distinguish among the concepts of market value, investment value, and transaction value. Which of the following statements best describes the concept of market value?

It is an estimate of the most probable selling price of a property in a competitive market

When employing the sales comparison approach, appraisers must consider numerous adjustments to convert each comparable sale transaction into an approximation of the subject property. Adjustments are divided into two groups: transactional adjustments and property adjustments. All of the following are transactional adjustments EXCEPT:

Location

Estimating the market value of real estate is complicated by the unique characteristics of real estate markets. In contrast to stock markets, real estate markets are characterized by all of the following EXCEPT:

Market prices are revealed almost instantaneously to prospective buyers

In real estate markets, a transaction occurs only when the investment value of the buyer exceeds the investment value of the seller. The buyer's investment value is the ________ that he or she would be willing to pay for a particular property, while the seller's investment value is the _______ that he or she would be willing to accept.

Maximum; minimum

As part of the data analysis step in the appraisal process, it is necessary to consider the highest and best use of the property in question. In regards to determining highest and best use, all of the following statements are true EXCEPT:

No financial limits are considered when determining the property's best use

The cost approach to valuation assumes the market value of a new building is similar to the cost of constructing it today. Which of the following terms refers to the expenditure required to construct a building of equal utility using modern construction techniques, materials, and design that eliminates outdated aspects of the structure?

Replacement cost

While there are several conventional approaches used to estimate the market value of real estate, which of the following is typically considered the most reliable approach?

Sales comparison approach

If all appraisal methods are appropriate for use in valuing a particular property, there is a clear order of preference that real estate professionals adhere to. Which of the following depicts the preferred order, with the most preferable approach being listed first and the least preferable listed last?

Sales comparison approach, income approach, cost approach

Most appraisers would say that report writing is one of the most important functions that they perform. Assume that an appraiser is putting together a report for a single family home. Which of the following reporting options would be the most commonly used in this scenario?

Summary appraisal report

Favorable mortgage financing may have a significant impact on the transaction price of the particular property. If the comparable property was known to have had favorable financing terms negotiated into the transaction price, which of the following adjustments should take place? (Note: Assume that the comparable property cannot be dropped from the analysis as there are already limited comparable sales transactions)

The transaction price of the comparable property should be adjusted downward

Adjustments for physical characteristics are intended to capture the dimensions in which a comparable property differs physically from the subject property. If the only physical difference between the subject property and the comparable is that the comparable does not have a fireplace, which of the following adjustments should take place?

The transaction price of the comparable property should be adjusted upward

While there is no specific number of comparables that is required for every appraisal assignment, how many comparable sales are considered adequate as long as the properties are very similar to the subject property?

Three

Congress has enacted a number of regulations that have established criteria for evaluating home loan applicants and mandating disclosures in the origination of home loans. Which of the following congressional acts requires important disclosures concerning the cost of consumer credit, including the computation of the annual percentage rate (APR)?

Truth in Lending Act

Real estate professionals have long supported strict standards of ethics and practice. Followed by all states and federal regulatory agencies, which of the following imposes ethical obligations and minimum standards that must be followed by all real estate professionals providing formal estimates of market value?

Uniform Standards of Professional Appraisal Practice (USPAP)

the repayment of a loan through a series of scheduled balance reductions is called:

amortization

Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is the traditional form of bankruptcy wherein the court simply liquidates the assets of the debtor and distributes the proceeds to creditors in proportion to their share of total claims? a. chapter 1 bankruptcy b. chapter 11 bankruptcy c. chapter 7 bankruptcy d. chapter 13 bankruptcy

c. chapter 7 bankruptcy

When a borrower defaults on the payment requirements of a loan, there are several options that the lender has at its disposal. When the lender allows the borrower simply to convey the property to the lender rather than pursuing a court supervised process of terminating all of the borrower's claims of ownership of the property, this is commonly referred to as:

deed in lieu of foreclosure

in some states, including California, a _____ of _____ is used instead of a mortgage

deed, trust

Assume that an individual has just lost his job and has been consistently late paying his bills. The bank recognizes deterioration in the individual's credit score and has notified him that he must pay his home equity line of credit in full. The mortgage clause that makes this possible is known as the:

demand clause

the primary reason lender require escrow payments is because

each required payment reduces the lender's risk of loss

The ability of homeowners to prepay the principal on their outstanding mortgage balance creates cash flow uncertainty for the lender. As a result, the lender may wish to prohibit prepayment on a mortgage loan for a specified period of time after its origination. This is accomplished through which of the following?

lockout provision

for a mortgage loan the number of months until the final payment is called the term to _______

maturity

A special contract in which the borrower pledges the mortgaged property as security to the lender is commonly referred to as the:

mortgage (Deed of trust)

In a mortgage agreement, the borrower conveys to the lender a security interest in the mortgage property. The lender, i.e. the individual who receives the mortgage claim, is known as the:

mortgagee

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

negatively amortizing

under traditional common law, a mortgage borrower had ___ right of prepayment unless it was explicitly states in the note

no

a mortgage loan where the borrower is not personally liable is called a:

nonrecourse loan

the two documents of a mortgage loan are the ______ and the _____

note, mortgage

When a buyer acquires a property having an existing mortgage loan, a decision must be made as to whether or not the subsequent owner of the property can preserve the loan. If the buyer does not add his or her signature to the note, the buyer does not take on any personal liability. In this case, the buyer is said to:

purchase the property subject to the existing loan

With most standard home loans, the lender can hold the borrower personally liable in the event of a default. Such loans are commonly referred to as:

recourse loans

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

redlining

in modern times most state laws provide for some right of prepayment at least for __________ first mortgage loans

residential

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

statutory redemption

late fees on residential or home loans have been most severe for ______ loans

subprime

Most Adjustable Rate Mortgage (ARM) loans have been marketed with a temporarily reduced interest rate commonly referred to as a:

teaser rate

failure to meet some condition required by a mortgage while still maintaining timely payments is referred to as _______ default

technical

the note defines the exact _____ and _______ of a loan

terms, conditions

In certain states, such as the state of Georgia, there is a temporary transfer of title to the lender at the time the mortgage loan is made. The borrower then would obtain the rights to the title once the loan has been repaid. These states are referred to as:

title theory states