Exam 16: Commercial Mortgage Types and Decisions

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?

Given the following information,calculate the debt yield ratio on the following commercial property.Estimated Net Operating Income in the first year: $2,500,000,Debt service in the first year: $960,000,Loan amount: $20,000,000,Purchase price: $27,300,000

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

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 that a lender reduces their exposure to through the relatively short loan term on a balloon mortgage?

An alternative vehicle for financing commercial property involves having the lender acquire an ownership (equity)interest in the property by supplying a portion of the required equity capital in addition to providing the permanent debt financing.This type of financing arrangement is commonly referred to as a(n):

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:

The yields on commercial mortgages have been approximately 2 percent higher,on average,than the yields on comparable maturity treasury securities over the past 15 years.Often considered the signature risk of commercial mortgage lending,this spread primarily represents:

In recent years,lenders have been unwilling to relieve borrowers from personal liability in the event of fraud,environmental problems,or unpaid property tax obligations.Therefore,some lenders include a clause that pierces the single-purpose borrowing entity to hold the actual borrower liable in such instances.This clause is commonly referred to as a:

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

An interest-only balloon mortgage loan is commonly referred to as a(n):

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)

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?

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:

Assume you have taken out a balloon mortgage loan for $2,500,000 to finance the purchase of a commercial property.The loan has a term of 5 years,but amortizes over 25 years.Calculate the balloon payment at maturity (Year 5)if the interest rate on this loan is 4.5%.

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:

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:

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

While floating rate mortgage loans may offer lower interest rates to borrowers than comparable fixed-payment mortgages,floating-rate loans may increase a lender's exposure to which of the following risks since borrowers may not be able to continue to service the debt if payments on the loan increase significantly?

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?

Suppose you are considering the purchase of an apartment building that has 12 units that can be rented out at $1,050 per month.You have estimated operating expenses and expected vacancy and collection losses for the first year to be $35,700 and $30,240,respectively.You also have estimated that you will be able to generate an additional $3,840 in the first year from garage rentals on the property.If the expected purchase price of the property is $1,100,000 and you are planning on making a 10% down payment,calculate the debt yield ratio.