Question 1

Under which scenario is negative amortization likely to occur? Payment Cap Interest Rates

Accepted Answer

A)  None Increasing 
B)  None Decreasing 
C)  7.5% Increasing 
D)  7.5% Decreasing 
A)  None Increasing 
B)  None Decreasing 
C)  7.5% Increasing 
D)  7.5% Decreasing C

Question 2

Negative amortization reduces the principal balance of a loan.

Accepted Answer

A) True 
 B)False  False

Question 3

The expected cost of borrowing does NOT depend on which of the following provisions?

Accepted Answer

A)  The frequency of payment adjustments 
B)  The inclusions of caps and floors on the interest rate, payment or loan balances 
C)  The spread over the index chosen for a given ARM 
D)  None of the above 
A)  The frequency of payment adjustments 
B)  The inclusions of caps and floors on the interest rate, payment or loan balances 
C)  The spread over the index chosen for a given ARM 
D)  None of the above D

Question 4

A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a "teaser" rate of 4%, after that, the rate can reset with a 5% annual payment cap. On the reset date, the composite rate is 6%. What would the Year 3 monthly payment be?

Accepted Answer

A)  $955 
B)  $1,067 
C)  $1,003 
D)  $1,186 
E)  Because of the payment cap, the payment would not change. 
A)  $955 
B)  $1,067 
C)  $1,003 
D)  $1,186 
E)  Because of the payment cap, the payment would not change.

Question 5

Which is NOT a component of an ARM?

Accepted Answer

A)  A margin 
B)  An index 
C)  A chapter 
D)  Caps 
A)  A margin 
B)  An index 
C)  A chapter 
D)  Caps

Question 6

ARMs were developed because lenders were tired of offering a limited selection of loan alternatives to borrowers.

Accepted Answer

A) True 
 B)False

Question 7

Assume that the loan in the previous question allowed for negative amortization. What would be the outstanding balance on the loan at the end of Year 3?

Accepted Answer

A)  $190,074 
B)  $192,337 
C)  $192,812 
D)  $192,926 
A)  $190,074 
B)  $192,337 
C)  $192,812 
D)  $192,926

Question 8

The floor of an ARM is the maximum reduction of payments or interest rates allowed.

Accepted Answer

A) True 
 B)False

Question 9

ARMs help lenders combat unanticipated inflation changes, interest rate changes, and a maturity gap.

Accepted Answer

A) True 
 B)False

Question 10

PLAMs have been very popular with lenders.

Accepted Answer

A) True 
 B)False

Question 11

Characteristics of a PLAM include an increasing mortgage payment and an adjusting loan balance tied to an index.

Accepted Answer

A) True 
 B)False

Question 12

ARMs eliminate all the lender's interest rate risk.

Accepted Answer

A) True 
 B)False

Question 13

$\begin{array}{cccc}
\begin{array}{l}
\
Initial ~Interest~ Rate \
Loan ~Maturity~ years) \
\% Margin ~Above~ Index \
Adjustment ~Interval \
Points \
Interest ~Rate~ Cap\
\end{array}
\begin{array}{cccc}
\text { LOAN 1 } & \text { LOAN 2 } & \text { LOAN 3 } & \text { LOAN 4 } \
\hline ? & ? & ? & ? \
20 & 20 & 20 & 20 \
3 \% & -- & 3 \% & 3 \% \
1 \mathrm{yr} & -- & 1 \mathrm{yr} & 1 \mathrm{yr} . \
1 \% & 1 \% & 1 \% & 1 \% \
\text { NONE } & --- & 1 \% / \mathrm{yr} . & 3 \% / \mathrm{yr} .
\end{array}
\end{array}$
-With which loan in the above table does the lender have the lowest interest rate risk?

Accepted Answer

A)  Loan 1 
B)  Loan 2 
C)  Loan 3 
D)  Loan 4 
A)  Loan 1 
B)  Loan 2 
C)  Loan 3 
D)  Loan 4

Question 14

In order to calculate the APR for an ARM, you must,

Accepted Answer

A)  Only use the first year's given interest rate 
B)  Estimate interest rates over the life of the loan 
C)  Assume the worst case scenario and use interest rates at their highest possible point over the life of the loan 
D)  Use only the first five year's interest rates because they can easily be estimated and most people only own a property for five years 
A)  Only use the first year's given interest rate 
B)  Estimate interest rates over the life of the loan 
C)  Assume the worst case scenario and use interest rates at their highest possible point over the life of the loan 
D)  Use only the first five year's interest rates because they can easily be estimated and most people only own a property for five years

Question 15

If one of the terms of an ARM read, interest is capped at 2%/5%, what would that mean?

Accepted Answer

A)  The borrower can choose the cap he wants by simply circling the appropriate choice 
B)  The interest rate has a 2% annual cap rate and a 5% lifetime cap rate 
C)  The interest rate has a 5% annual cap rate and a 2% lifetime cap rate 
D)  The interest rate has a 2% annual cap rate and a 5% floor cap rate 
A)  The borrower can choose the cap he wants by simply circling the appropriate choice 
B)  The interest rate has a 2% annual cap rate and a 5% lifetime cap rate 
C)  The interest rate has a 5% annual cap rate and a 2% lifetime cap rate 
D)  The interest rate has a 2% annual cap rate and a 5% floor cap rate

Question 16

$\begin{array}{cccc}
\begin{array}{l}
\
Initial ~Interest~ Rate \
Loan ~Maturity~ years) \
\% Margin ~Above~ Index \
Adjustment ~Interval \
Points \
Interest ~Rate~ Cap\
\end{array}
\begin{array}{cccc}
\text { LOAN 1 } & \text { LOAN 2 } & \text { LOAN 3 } & \text { LOAN 4 } \
\hline ? & ? & ? & ? \
20 & 20 & 20 & 20 \
3 \% & -- & 3 \% & 3 \% \
1 \mathrm{yr} & -- & 1 \mathrm{yr} & 1 \mathrm{yr} . \
1 \% & 1 \% & 1 \% & 1 \% \
\text { NONE } & --- & 1 \% / \mathrm{yr} . & 3 \% / \mathrm{yr} .
\end{array}
\end{array}$
-Which loan in the above table should have the lowest initial interest rate?

Accepted Answer

A)  Loan 1 
B)  Loan 2 
C)  Loan 3 
D)  Loan 4 
A)  Loan 1 
B)  Loan 2 
C)  Loan 3 
D)  Loan 4

Question 17

Given that every other factor is equal, which of the following ARMs will have the lowest expected cost?

Accepted Answer

A)  An ARM with payment caps and negative amortization 
B)  An ARM with interest rate caps 
C)  An ARM with longer Adjustment interval 
D)  An ARM with no caps or limitations 
A)  An ARM with payment caps and negative amortization 
B)  An ARM with interest rate caps 
C)  An ARM with longer Adjustment interval 
D)  An ARM with no caps or limitations

Question 18

The default risk of a FRM is higher than the default risk of an ARM.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following descriptions most accurately reflects the risk position of an ARM lender in comparison to that of a FRM lender? Interest Rate Risk Default Risk

Accepted Answer

A)  Higher Higher 
B)  Lower Lower 
C)  Higher Lower 
D)  Lower Higher 
A)  Higher Higher 
B)  Lower Lower 
C)  Higher Lower 
D)  Lower Higher

Question 20

$\begin{array}{cccc}
\begin{array}{l}
\
Initial ~Interest~ Rate \
Loan ~Maturity~ years) \
\% Margin ~Above~ Index \
Adjustment ~Interval \
Points \
Interest ~Rate~ Cap\
\end{array}
\begin{array}{cccc}
\text { LOAN 1 } & \text { LOAN 2 } & \text { LOAN 3 } & \text { LOAN 4 } \
\hline ? & ? & ? & ? \
20 & 20 & 20 & 20 \
3 \% & -- & 3 \% & 3 \% \
1 \mathrm{yr} & -- & 1 \mathrm{yr} & 1 \mathrm{yr} . \
1 \% & 1 \% & 1 \% & 1 \% \
\text { NONE } & --- & 1 \% / \mathrm{yr} . & 3 \% / \mathrm{yr} .
\end{array}
\end{array}$
-Which loan in the above table is a FRM?

Accepted Answer

A)  Loan 1 
B)  Loan 2 
C)  Loan 3 
D)  Loan 4 
A)  Loan 1 
B)  Loan 2 
C)  Loan 3 
D)  Loan 4

Under which scenario is negative amortization likely to occur? Payment Cap Interest Rates

Negative amortization reduces the principal balance of a loan.

The expected cost of borrowing does NOT depend on which of the following provisions?

Which is NOT a component of an ARM?

ARMs were developed because lenders were tired of offering a limited selection of loan alternatives to borrowers.

Assume that the loan in the previous question allowed for negative amortization. What would be the outstanding balance on the loan at the end of Year 3?

The floor of an ARM is the maximum reduction of payments or interest rates allowed.

ARMs help lenders combat unanticipated inflation changes, interest rate changes, and a maturity gap.

PLAMs have been very popular with lenders.

Characteristics of a PLAM include an increasing mortgage payment and an adjusting loan balance tied to an index.

ARMs eliminate all the lender's interest rate risk.

In order to calculate the APR for an ARM, you must,

If one of the terms of an ARM read, interest is capped at 2%/5%, what would that mean?

Given that every other factor is equal, which of the following ARMs will have the lowest expected cost?

The default risk of a FRM is higher than the default risk of an ARM.

Which of the following descriptions most accurately reflects the risk position of an ARM lender in comparison to that of a FRM lender? Interest Rate Risk Default Risk

Real Estate Investment: Basic Legal Concepts

Real Estate Financing: Notes and Mortgages

Mortgage Loan Foundations: the Time Value of Money

Fixed Interest Rate Mortgage Loans

Mortgages: Additional Concepts, Analysis, and Applications

Single Family Housing: Pricing, Investment, and Tax Considerations

Underwriting and Financing Residential Properties

Income-Producing Properties: Leases, Rents, and the Market for Space

Valuation of Income Properties: Appraisal and the Market for Capital

Investment Analysis and Taxation of Income Properties

Financial Leverage and Financing Alternatives

Risk Analysis

Disposition and Renovation of Income Properties

Financing Corporate Real Estate

Financing Project Development

Financing Land Development Projects

Structuring Real Estate Investments: Organizational Forms and Joint Ventures

The Secondary Mortgage Market: Pass-Through Securities

The Secondary Mortgage Market: Cmos and Derivative Securities

Real Estate Investment Trusts Reits

Real Estate Investment Performance and Portfolio Considerations

Real Estate Investment Funds: Structure, Performance

Filters

Exam 5: Adjustable and Floating Rate Mortgage Loans

Under which scenario is negative amortization likely to occur? Payment Cap Interest Rates

Negative amortization reduces the principal balance of a loan.

The expected cost of borrowing does NOT depend on which of the following provisions?

Which is NOT a component of an ARM?

ARMs were developed because lenders were tired of offering a limited selection of loan alternatives to borrowers.

Assume that the loan in the previous question allowed for negative amortization. What would be the outstanding balance on the loan at the end of Year 3?

The floor of an ARM is the maximum reduction of payments or interest rates allowed.

ARMs help lenders combat unanticipated inflation changes, interest rate changes, and a maturity gap.

PLAMs have been very popular with lenders.

Characteristics of a PLAM include an increasing mortgage payment and an adjusting loan balance tied to an index.

ARMs eliminate all the lender's interest rate risk.

In order to calculate the APR for an ARM, you must,

If one of the terms of an ARM read, interest is capped at 2%/5%, what would that mean?

Given that every other factor is equal, which of the following ARMs will have the lowest expected cost?

The default risk of a FRM is higher than the default risk of an ARM.

Which of the following descriptions most accurately reflects the risk position of an ARM lender in comparison to that of a FRM lender? Interest Rate Risk Default Risk

Real Estate Investment: Basic Legal Concepts

Real Estate Financing: Notes and Mortgages

Mortgage Loan Foundations: the Time Value of Money

Fixed Interest Rate Mortgage Loans

Mortgages: Additional Concepts, Analysis, and Applications

Single Family Housing: Pricing, Investment, and Tax Considerations

Underwriting and Financing Residential Properties

Income-Producing Properties: Leases, Rents, and the Market for Space

Valuation of Income Properties: Appraisal and the Market for Capital

Investment Analysis and Taxation of Income Properties

Financial Leverage and Financing Alternatives

Risk Analysis

Disposition and Renovation of Income Properties

Financing Corporate Real Estate

Financing Project Development

Financing Land Development Projects

Structuring Real Estate Investments: Organizational Forms and Joint Ventures

The Secondary Mortgage Market: Pass-Through Securities

The Secondary Mortgage Market: Cmos and Derivative Securities

Real Estate Investment Trusts Reits

Real Estate Investment Performance and Portfolio Considerations

Real Estate Investment Funds: Structure, Performance

Filters