REE4303 - EXAM 2 2025 QUESTIONS AND
ANSWERS
Loan term - ANS amount of time during which a borrower makes payments towards loan
amortization period - ANS time period it will take to pay back the loan in full
recourse - ANS borrowers are personally liable for debt oblifations when default
nonrecourse - ANS borrowers are NOT personally liable for debt obligations when default
interest rate risk - ANS risk that value of the loan declines due to increasing market rates
prepayment risk - ANS risk that borrowers pay of their loan before maturity date due to
decreasing market rate
default risk - ANS risk that borrowers will cease to make payments of principal and interest
financial risk - ANS risk that NOI will be insufficient to cover the payments of principals and
interset (debt service) (does not necessarily lead to default)
home loans - ANS small loan amount
15 or 30 year loan term
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, amortization period=loan term
standardized
brief
recourse
CRE loans - ANS large loan amount
3-10 year loan term (lower interest rate risk)
amortization period>loan term (balloon payment)
caries by property type
long and complex
typically nonrecourse
Why are CRE loans often nonrecourse? - ANS borrowers are limited partnerships or LLC:
cashflows are derived from the property
Does nonrecourse meant "not responsible"? - ANS no, indirect cost associated with default
lockout provision - ANS prohibition against prepayment
yield maintenance agreement - ANS you need an amount that offsets the benefit of getting a
new loan [NPV(refinancing)=PV of payment savings-refinancing cost and/or prepayment
penalty=0]
defeasance penalty - ANS you need to buy the lender a set of US Treasury securities that
produce cash flows equivalent to those on paid -off mortgage [NPV(refinancing)=0]
most significant risk of commercial mortgages - ANS default risk because of balloon payment
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ANSWERS
Loan term - ANS amount of time during which a borrower makes payments towards loan
amortization period - ANS time period it will take to pay back the loan in full
recourse - ANS borrowers are personally liable for debt oblifations when default
nonrecourse - ANS borrowers are NOT personally liable for debt obligations when default
interest rate risk - ANS risk that value of the loan declines due to increasing market rates
prepayment risk - ANS risk that borrowers pay of their loan before maturity date due to
decreasing market rate
default risk - ANS risk that borrowers will cease to make payments of principal and interest
financial risk - ANS risk that NOI will be insufficient to cover the payments of principals and
interset (debt service) (does not necessarily lead to default)
home loans - ANS small loan amount
15 or 30 year loan term
COPYRIGHT © 2025 BRAINBARTER ALL RIGHTS RESERVED 1
, amortization period=loan term
standardized
brief
recourse
CRE loans - ANS large loan amount
3-10 year loan term (lower interest rate risk)
amortization period>loan term (balloon payment)
caries by property type
long and complex
typically nonrecourse
Why are CRE loans often nonrecourse? - ANS borrowers are limited partnerships or LLC:
cashflows are derived from the property
Does nonrecourse meant "not responsible"? - ANS no, indirect cost associated with default
lockout provision - ANS prohibition against prepayment
yield maintenance agreement - ANS you need an amount that offsets the benefit of getting a
new loan [NPV(refinancing)=PV of payment savings-refinancing cost and/or prepayment
penalty=0]
defeasance penalty - ANS you need to buy the lender a set of US Treasury securities that
produce cash flows equivalent to those on paid -off mortgage [NPV(refinancing)=0]
most significant risk of commercial mortgages - ANS default risk because of balloon payment
COPYRIGHT © 2025 BRAINBARTER ALL RIGHTS RESERVED 2
