Question 1

In regards to commercial mortgage loans, which of the below statements is FALSE?

Accepted Answer

A)  Commercial mortgage loans are typically balloon loans requiring substantial principal payment before the end of the balloon term. 
B)  If the borrower fails to make the balloon payment, the borrower is in default. 
C)  The lender may extend the loan and in so doing will typically modify the original loan terms. 
D)  Balloon risk is the risk that a borrower will not be able to make the balloon payment because the borrower either cannot arrange for refinancing at the balloon payment date or cannot sell the property to generate sufficient funds to pay off the balloon balance. 
A)  Commercial mortgage loans are typically balloon loans requiring substantial principal payment before the end of the balloon term. 
B)  If the borrower fails to make the balloon payment, the borrower is in default. 
C)  The lender may extend the loan and in so doing will typically modify the original loan terms. 
D)  Balloon risk is the risk that a borrower will not be able to make the balloon payment because the borrower either cannot arrange for refinancing at the balloon payment date or cannot sell the property to generate sufficient funds to pay off the balloon balance. A

Question 2

CMBS can be classified by the type of loan pool. Name and briefly describe the two types.

Accepted Answer

The first type of CMBS is those backed by a single borrower. Usually such CMBS are backed by large properties such as regional malls or office buildings. The investors in this type of CMBS are insurance companies. The second type of CMBS is those backed by loans to multiple borrowers. This is the most common type of CMBS and is backed by a variety of property types. The most prevalent form of deal backed by commercial mortgage loans to multiple borrowers is the conduit deal.

Question 3

What is a prepayment lockout?

Accepted Answer

A prepayment lockout is a contractual agreement that prohibits any prepayments during a specified period of time, called the lockout period. The lockout period can be from two to 10 years. After the lockout period, call protection usually comes in the form of either prepayment penalty points or yield maintenance charges.

Question 4

Which of the below statements is FALSE?

Accepted Answer

A)  For residential mortgage loans, "value" is either market value or appraised value. 
B)  For income-producing properties, the value of the property is based on the fundamental principles of valuation: the value of an asset is the present value of its expected cash flow. 
C)  In valuing commercial property, the cash flow is the future NOI and the discount rate (reflecting the risks associated with the cash flow) is used to compute the present value of the future NOI. 
D)  Investors are often confident about estimates of market value and the resulting LTVs reported for properties. 
A)  For residential mortgage loans, "value" is either market value or appraised value. 
B)  For income-producing properties, the value of the property is based on the fundamental principles of valuation: the value of an asset is the present value of its expected cash flow. 
C)  In valuing commercial property, the cash flow is the future NOI and the discount rate (reflecting the risks associated with the cash flow) is used to compute the present value of the future NOI. 
D)  Investors are often confident about estimates of market value and the resulting LTVs reported for properties.

Question 5

Describe some main features of a commercial loan.

Accepted Answer

Commercial mortgage loans are for mortga

Question 6

Ginnie Mae ________.

Accepted Answer

A)  issues securities that are not backed by FHA-insured multifamily housing loans. 
B)  does not create project loan pass-through securities. 
C)  purchase multi­family loans from approved lenders and either retain them in their portfolio or use them for collateral for a security. 
D)  creates securities that can be backed by a single project loan on a completed project or one or more project loans. 
A)  issues securities that are not backed by FHA-insured multifamily housing loans. 
B)  does not create project loan pass-through securities. 
C)  purchase multi­family loans from approved lenders and either retain them in their portfolio or use them for collateral for a security. 
D)  creates securities that can be backed by a single project loan on a completed project or one or more project loans.

Question 7

For commercial mortgage loans, call protection can take the following forms: ________.

Accepted Answer

A)  prepayment lockout and defeasance. 
B)  prepayment lockout and prepayment penalty points. 
C)  defeasance and yield maintenance charges. 
D)  All of these 
A)  prepayment lockout and defeasance. 
B)  prepayment lockout and prepayment penalty points. 
C)  defeasance and yield maintenance charges. 
D)  All of these

Question 8

The least prevalent form of deal backed by commercial mortgage loans to multiple borrowers is the conduit deal.

Accepted Answer

A) True 
 B)False

Question 9

One of the three major differences in the structures of a CMBS transaction and a nonagency RMBS transaction include: ________.

Accepted Answer

A)  Residential mortgages impose prepayment penalties or restrictions on prepayments. 
B)  The role of the buyers when the structure is being created is different. 
C)  With residential mortgages, the loan can be transferred by the servicer to the special servicer when the borrower is in default, imminent default, or in violation of covenants. 
D)  All of these 
A)  Residential mortgages impose prepayment penalties or restrictions on prepayments. 
B)  The role of the buyers when the structure is being created is different. 
C)  With residential mortgages, the loan can be transferred by the servicer to the special servicer when the borrower is in default, imminent default, or in violation of covenants. 
D)  All of these

Question 10

In a CMBS transaction, the special servicer is responsible for overseeing the deal, verifying that all servicing agreements are being maintained, and facilitating the timely payment of interest and principal.

Accepted Answer

A) True 
 B)False

Question 11

What is a yield maintenance charge?

Accepted Answer

A yield maintenance charge, in its simpl

Question 12

The two measures that have been found to be key indicators of the potential credit performance of a commercial mortgage loan are the debt-to-service coverage ratio and the loan-to-value ratio.

Accepted Answer

A) True 
 B)False

Question 13

CMBS can be issued by Ginnie Mae, Fannie Mae, Freddie Mac, and private entities.

Accepted Answer

A) True 
 B)False

Question 14

The largest sector of the CMBS market is constituted by ________.

Accepted Answer

A)  securities backed by Ginnie Mae. 
B)  securities issued by private entities. 
C)  securities backed by Freddie Mac. 
D)  securities issued by the two government-sponsored enterprises. 
A)  securities backed by Ginnie Mae. 
B)  securities issued by private entities. 
C)  securities backed by Freddie Mac. 
D)  securities issued by the two government-sponsored enterprises.

Question 15

Regardless of the property type, the two measures that have been found to be key indicators of the potential credit performance are the ________.

Accepted Answer

A)  debt-to-equity leverage ratio and the loan-to-value ratio. 
B)  debt-to-service coverage ratio and the loan-to-value ratio. 
C)  debt-to-service coverage ratio and the value-to-loan ratio. 
D)  debt-to-equity leverage ratio and the value-to-loan ratio. 
A)  debt-to-equity leverage ratio and the loan-to-value ratio. 
B)  debt-to-service coverage ratio and the loan-to-value ratio. 
C)  debt-to-service coverage ratio and the value-to-loan ratio. 
D)  debt-to-equity leverage ratio and the value-to-loan ratio.

Question 16

In regards to commercial mortgage loans, name four of the major property types that have been securitized.

Accepted Answer

The major property types that have been

Question 17

A commercial mortgage-backed security is a security backed by at least two commercial mortgage loans, the loans being either newly originated or seasoned loans.

Accepted Answer

A) True 
 B)False

Question 18

Are CMBS and nonagency RMBS structures similar or different? Discuss.

Accepted Answer

The structure of a CMBS transaction is t

Question 19

If there is a default on a commercial mortgage loan, the lender looks to the proceeds from the ________ for repayment and has ________ to the borrower for any unpaid balance.

Accepted Answer

A)  sale of the property; no recourse 
B)  sale of the property; little recourse 
C)  purchase of the property; no recourse 
D)  sale of the property; recourse 
A)  sale of the property; no recourse 
B)  sale of the property; little recourse 
C)  purchase of the property; no recourse 
D)  sale of the property; recourse

Question 20

The structure of a CMBS transaction is the same as in a nonagency RMBS ________.

Accepted Answer

A)  in that most structures have a sing bond class (tranch) with the same rating, and there are regulations for the distribution of interest and principal to the bond class. 
B)  in that most structures have multiple bond classes (tranches) with the same ratings, and there are rules for the distribution of interest and principal to the bond classes. 
C)  in that most structures have multiple bond classes (tranches) with different ratings, but there are no regulations for the distribution of interest and principal to the bond classes. 
D)  in that most structures have multiple bond classes (tranches) with different ratings, and there are rules for the distribution of interest and principal to the bond classes. 
A)  in that most structures have a sing bond class (tranch) with the same rating, and there are regulations for the distribution of interest and principal to the bond class. 
B)  in that most structures have multiple bond classes (tranches) with the same ratings, and there are rules for the distribution of interest and principal to the bond classes. 
C)  in that most structures have multiple bond classes (tranches) with different ratings, but there are no regulations for the distribution of interest and principal to the bond classes. 
D)  in that most structures have multiple bond classes (tranches) with different ratings, and there are rules for the distribution of interest and principal to the bond classes.

Exam 24: Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

In regards to commercial mortgage loans, which of the below statements is FALSE?

CMBS can be classified by the type of loan pool. Name and briefly describe the two types.

What is a prepayment lockout?

Which of the below statements is FALSE?

Describe some main features of a commercial loan.

Ginnie Mae ________.

For commercial mortgage loans, call protection can take the following forms: ________.

The least prevalent form of deal backed by commercial mortgage loans to multiple borrowers is the conduit deal.

One of the three major differences in the structures of a CMBS transaction and a nonagency RMBS transaction include: ________.

In a CMBS transaction, the special servicer is responsible for overseeing the deal, verifying that all servicing agreements are being maintained, and facilitating the timely payment of interest and principal.

What is a yield maintenance charge?

The two measures that have been found to be key indicators of the potential credit performance of a commercial mortgage loan are the debt-to-service coverage ratio and the loan-to-value ratio.

CMBS can be issued by Ginnie Mae, Fannie Mae, Freddie Mac, and private entities.

The largest sector of the CMBS market is constituted by ________.

Regardless of the property type, the two measures that have been found to be key indicators of the potential credit performance are the ________.

In regards to commercial mortgage loans, name four of the major property types that have been securitized.

A commercial mortgage-backed security is a security backed by at least two commercial mortgage loans, the loans being either newly originated or seasoned loans.

Are CMBS and nonagency RMBS structures similar or different? Discuss.

If there is a default on a commercial mortgage loan, the lender looks to the proceeds from the ________ for repayment and has ________ to the borrower for any unpaid balance.

The structure of a CMBS transaction is the same as in a nonagency RMBS ________.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters

If there is a default on a commercial mortgage loan, the lender looks to the proceeds from the for repayment and has to the borrower for any unpaid balance.