Real Estate 306 Exam 2 Questions and Answers Latest Update 2025 Graded A+
foreclosure - Answers the action of taking possession of a mortgaged property when the mortgagor fails
to keep up their mortgage payments
lien - Answers a claim or legal rights against assets that are typically used as collateral to satisfy a debt
term sheet - Answers a non-binding financing commitment
credit committee - Answers a loan committee that consists of upper management of a lending
institution with the authority to approve loans that the initial loan officer does not have the authority to
approve
special purpose entity (SPE) - Answers an entity created for a specific purpose such as a limited liability
company (LLC) or limited partnership (LP)
operating agreement - Answers part of the organizational documents that identifies the relationship
between investors/owners/developer is a deal and spells out their percentage ownership interest and
any rights responsibilities and profit splits
mortgage - Answers a type of loan used to purchase real estate, where the borrower agrees to pay the
lender over time, typically in a series of regular payments that are divided into principal and interest the
property then serves as collateral to secure the loan
note - Answers also known as a mortgage note or promissory note, is a legal document that binds the
borrower to repay the mortgage within an agreed period and outlines the terms of loan
guaranty - Answers promise by a third part entity, or individual, to pay or preform the obligation of the
borrower
amortization - Answers the process of reducing or paying off the principle of the loan, typically in regular
installments
term - Answers the amount of time during which a borrower repays a loan if fully amortizing, or until the
outstanding loan balance, or balloon payment, is due if non-amortizing (ie, interest only) or partially
amortizing
principle - Answers the amount of capital borrowed (the return of capital for the bank)
interest rate - Answers the cost of debt, i.e, what the borrower pays the lender for using its funds (the
return on capital for the bank) typically made up of the index rate plus margin
index - Answers typically a widely available quoted rate such as WSJ prime rate, (London interbank
offering rate) or SOFR (secure overnight financing rate) which reflects the lenders cost of capital and is
used to determining a portion of the interest rate for a loan
, margin - Answers also called spread, is the portion of the interest rate for a commercial real estate loan
that represents the lenders premium for the risk they are taking loaning the money
loan to value (LTV) - Answers the ratio of loan to value of the asset represented as a percentage
debt service coverage ratio (DSCR) - Answers also known as debt coverage ratio (DCR) is the ratio of
operating income available to debt serving for principle and interest
debt service - Answers payments, typically monthly and in arears, for the principle and interest owed on
a loan for that period
primary mortgage market - Answers the market where loans are created (or originated) such as
commercial banks, credit unions, mortgage banking companies
secondary mortgage market - Answers the market where loans (typically residential or multi family) are
resold to government-sponsored entities such as Fannie Mae or Freddie mac, which creates liquidity in
the primary mortgage market
residential mortgage backed securities (RMBS) - Answers a debt-based security (similar to a bond)
backed by the interest paid on loans for residences
commercial mortgage backed securities (CMBS) - Answers a type of mortgage backed security backed by
commercial real estate and mortgages rather than residential real estate
B-piece buyer (special servicer) - Answers the purchases of the most risky tranche of CMBS securities
that steps in as the special services if a loan included in the pool is in default
capital stack - Answers the capital stack refers to the source of fund for a real estate transaction and is
typically comprised of debt and equity
debt - Answers money that is borrowed that must be repaid
equity - Answers multiple meanings in commercial real estate including the difference between what is
owed in debt on a property and its current value and also refers to the developers own fund in a deal or
capital raised from investors
weighted average cost of capital - Answers the blended cost of capital across all sources, including both
debt and equity
WACC equation - Answers weighted average cost of capital = E (equity)/ E+D( debt) * RE (rate of return
on equity) +D / E+D * RD (cost of debt or yield to maturity on existing debt) * (1-T (tax rate))
loan servicing - Answers after a loan is closed, the servicer of the loan receives a fee for collecting
monthly debt service payments/escrows and managing defaults/foreclosures
real estate capital markets - Answers sources of real estate financing that includes public equity/ public
debt/ private equity/private debt
foreclosure - Answers the action of taking possession of a mortgaged property when the mortgagor fails
to keep up their mortgage payments
lien - Answers a claim or legal rights against assets that are typically used as collateral to satisfy a debt
term sheet - Answers a non-binding financing commitment
credit committee - Answers a loan committee that consists of upper management of a lending
institution with the authority to approve loans that the initial loan officer does not have the authority to
approve
special purpose entity (SPE) - Answers an entity created for a specific purpose such as a limited liability
company (LLC) or limited partnership (LP)
operating agreement - Answers part of the organizational documents that identifies the relationship
between investors/owners/developer is a deal and spells out their percentage ownership interest and
any rights responsibilities and profit splits
mortgage - Answers a type of loan used to purchase real estate, where the borrower agrees to pay the
lender over time, typically in a series of regular payments that are divided into principal and interest the
property then serves as collateral to secure the loan
note - Answers also known as a mortgage note or promissory note, is a legal document that binds the
borrower to repay the mortgage within an agreed period and outlines the terms of loan
guaranty - Answers promise by a third part entity, or individual, to pay or preform the obligation of the
borrower
amortization - Answers the process of reducing or paying off the principle of the loan, typically in regular
installments
term - Answers the amount of time during which a borrower repays a loan if fully amortizing, or until the
outstanding loan balance, or balloon payment, is due if non-amortizing (ie, interest only) or partially
amortizing
principle - Answers the amount of capital borrowed (the return of capital for the bank)
interest rate - Answers the cost of debt, i.e, what the borrower pays the lender for using its funds (the
return on capital for the bank) typically made up of the index rate plus margin
index - Answers typically a widely available quoted rate such as WSJ prime rate, (London interbank
offering rate) or SOFR (secure overnight financing rate) which reflects the lenders cost of capital and is
used to determining a portion of the interest rate for a loan
, margin - Answers also called spread, is the portion of the interest rate for a commercial real estate loan
that represents the lenders premium for the risk they are taking loaning the money
loan to value (LTV) - Answers the ratio of loan to value of the asset represented as a percentage
debt service coverage ratio (DSCR) - Answers also known as debt coverage ratio (DCR) is the ratio of
operating income available to debt serving for principle and interest
debt service - Answers payments, typically monthly and in arears, for the principle and interest owed on
a loan for that period
primary mortgage market - Answers the market where loans are created (or originated) such as
commercial banks, credit unions, mortgage banking companies
secondary mortgage market - Answers the market where loans (typically residential or multi family) are
resold to government-sponsored entities such as Fannie Mae or Freddie mac, which creates liquidity in
the primary mortgage market
residential mortgage backed securities (RMBS) - Answers a debt-based security (similar to a bond)
backed by the interest paid on loans for residences
commercial mortgage backed securities (CMBS) - Answers a type of mortgage backed security backed by
commercial real estate and mortgages rather than residential real estate
B-piece buyer (special servicer) - Answers the purchases of the most risky tranche of CMBS securities
that steps in as the special services if a loan included in the pool is in default
capital stack - Answers the capital stack refers to the source of fund for a real estate transaction and is
typically comprised of debt and equity
debt - Answers money that is borrowed that must be repaid
equity - Answers multiple meanings in commercial real estate including the difference between what is
owed in debt on a property and its current value and also refers to the developers own fund in a deal or
capital raised from investors
weighted average cost of capital - Answers the blended cost of capital across all sources, including both
debt and equity
WACC equation - Answers weighted average cost of capital = E (equity)/ E+D( debt) * RE (rate of return
on equity) +D / E+D * RD (cost of debt or yield to maturity on existing debt) * (1-T (tax rate))
loan servicing - Answers after a loan is closed, the servicer of the loan receives a fee for collecting
monthly debt service payments/escrows and managing defaults/foreclosures
real estate capital markets - Answers sources of real estate financing that includes public equity/ public
debt/ private equity/private debt
