Exam 6: Real Estate Market Analysis

In a certain CMBS issue $500 million of senior securities and $100 million of mezzanine securities are issued. The coupon on the senior securities is 7%, and that on the mezzanine is 9%. The average contractual interest rate in the underlying mortgage pool is 10%. Assuming annual interest payments and no par value retired or defaulted, how much residual interest will be available for an IO tranche from these two par-valued tranches at the end of the first year?

What is the present value at a 10% discount rate expected return) of a non-recourse mortgage that has a single payment remaining, due one year from now, in the amount of $1,000,000. Assume that the borrower will threaten a "strategic default" if it is in his interests to do so, and that the borrower has "full bargaining power" can make the lender pay all the foreclosure 3rd party costs). The foreclosure costs are $200,000, and the possible future value scenarios one year from now for the property securing the mortgage with probabilities) are: i) $1,500,000 80% probability) ii) $1,150,000 10% probability) iii) $900,000 10% probability)

For the same property as above, suppose the underwriting criteria is a maximum loan/value ratio LTV) of 75%, and we estimate property value by direct capitalization using a rate of 11% on the stated NOI. By this criterion what is the maximum loan amount?

An adjustable rate mortgage is offered with an initial interest rate of 7.00%. The index is currently yielding 5.50%, and the margin is 200 basis points. What is the size of the "teaser"?

A lender wants to achieve a 8.5% yield MEY) on a 30-year amortization, monthly-payment loan with an 8-year maturity with balloon. How many disbursement discount points must the lender charge under the following circumstances: a) Contract interest rate is 8%; b) Contract interest rate is 7.5%.

Suppose the 9%, $120,000, 30-year, monthly-payment CPM loan has 2 "points" of prepaid interest up front, plus a 5 point prepayment penalty percent of OLB). What would be the yield in nominal per annum terms) over an expected holding period of 7 years i.e., expected prepayment 7 years after loan is originated)? 9.88%

Why and how can it be that the more junior CMBS tranches command stated yields that are higher than the expected returns to the underlying property equity that backs the credit of these securities? Why are junior CMBS tranches more risky than whole first mortgages with the same LTV ratios?

In comparing an adjustable rate mortgage ARM) with a fixed rate mortgage FRM):

In a mortgage, an "exculpatory clause" typically is used to:

Which of the following is true when the yield curve is steeply rising: