Question 1

A ________ is a contractual agreement that prohibits any prepayments during a specified period of time, called the lockout period.

Accepted Answer

A prepayment lockout is a provision in a loan agreement that prevents the borrower from making any prepayments during a specified period of time, typically for a few years after the loan origination. This is done to protect the lender's expected cash flows and return on investment, as prepayments can reduce the interest income that the lender would earn over time. During the lockout period, the borrower can only make the scheduled payments according to the loan terms, and may face penalties or fees if they attempt to prepay the loan. Defeasance and yield maintenance charges are other types of prepayment provisions that may be included in loan agreements, but they have different mechanisms and effects compared to a prepayment lockout. Prepayment penalty points are not a common term used in loan agreements.

Question 2

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

The two key indicators of potential credit performance are the debt-to-service coverage ratio and the loan-to-value ratio. The debt-to-service coverage ratio measures the property's ability to generate enough income to cover its debt payments, while the loan-to-value ratio measures the property's equity and risk of default. The debt-to-equity leverage ratio and the value-to-loan ratio are not as definitive in predicting credit performance as the other two ratios.

Question 3

A commercial mortgage loan is originated either to ________.

Accepted Answer

A commercial mortgage loan is specifically designed to finance commercial property purchases or to refinance a prior mortgage obligation on commercial property. It is not meant for residential purchases or subsequent mortgage obligations.

Question 4

Commercial mortgage loans are for mortgage loans for ________.

Accepted Answer

Commercial mortgage loans are specifically designed for income-producing properties such as office buildings, retail centers, warehouses, and apartment complexes. The purpose of the loan is to assist business owners and investors in purchasing or refinancing properties that will generate income. Therefore options A, B, and D are not suitable choices.

Question 5

With ________, the borrower provides sufficient funds for the servicer to invest in a portfolio of Treasury securities that replicates the cash flows that would exist in the absence of prepayments.

Accepted Answer

Defeasance is a process in which the borrower provides sufficient funds (usually from the proceeds of the sale of the property) for the servicer to invest in a portfolio of Treasury securities that replicates the cash flows that would exist in the absence of prepayments. This essentially eliminates the prepayment risk for the lender and allows the borrower to pay off the loan early without incurring any prepayment penalty points or yield maintenance charges. Prepayment lockout is a provision in the loan agreement that prohibits the borrower from prepaying the loan for a specified period of time, and prepayment penalty points and yield maintenance charges are fees that are imposed on the borrower for prepaying the loan.

Question 6

Which of the below statements is FALSE?

Accepted Answer

The objective of the master servicer is to ensure that all servicing agreements are being maintained, not necessarily to maximize the recovery of defaulted loans.

Question 7

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

Accepted Answer

CMBS transactions typically have multiple bond classes with different ratings, and there are rules for the distribution of interest and principal to the bond classes. This is similar to the structure of a nonagency RMBS. Therefore, option D is the best choice. A and B are not correct because they offer conflicting statements about the number of bond classes and their ratings. Option C is not correct because it says there are no regulations for the distribution of interest and principal, which is inaccurate.

Question 8

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

Accepted Answer

Commercial mortgage loans may be structured as balloon loans, but it is not necessarily true that they always require substantial principal payment before the end of the balloon term. Some commercial mortgage loans may have fully-amortizing payment schedules over the term of the loan.

Question 9

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

Accepted Answer

The largest sector of the Commercial Mortgage-Backed Securities (CMBS) market is constituted by securities issued by private entities. CMBS are typically backed by mortgages on commercial properties rather than residential properties, and a significant portion of these securities are issued by private financial institutions rather than government or government-sponsored entities.

Question 10

Ginnie Mae ________.

Accepted Answer

Ginnie Mae creates securities that can be backed by a single project loan on a completed project or one or more project loans, allowing for the pooling of loans for investment purposes. This process helps to facilitate investment in the housing market.

Question 11

Commercial mortgage loans are ________, which means that if the borrower fails to make the contractual payments, the lender can only look to the income-producing property backing the loan for interest and principal repayment.

Accepted Answer

Nonrecourse loans provide lenders with limited recourse in case the borrower defaults on the loan. This means that the lender can only look to the income-producing property to recover their investment and cannot hold the borrower personally liable for any shortfall in repayment.

Question 12

________ are predetermined penalties that must be paid by the borrower if the borrower wishes to refinance.

Accepted Answer

The answer of ________ are predetermined penalties that must be...

Question 13

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

Accepted Answer

Call protection for commercial mortgage loans can take the form of prepayment lockout, defeasance, prepayment penalty points, and yield maintenance charges. Therefore, option D, which includes all of these choices, is the best answer.

Question 14

________ is a security backed by one or more commercial mortgage loans.

Accepted Answer

CMBS stands for Commercial Mortgage-Backed Securities, which are securities backed by one or more commercial mortgage loans. This type of security is typically sold to investors as a way to provide regular income in the form of interest payments from the underlying mortgage loans.

Question 15

CMBS can be issued by ________.

Accepted Answer

CMBS (commercial mortgage-backed securities) can be issued by private entities such as banks, investment firms, and real estate companies. Ginnie Mae, Fannie Mae, and Freddie Mac issue residential mortgage-backed securities (RMBS) but not CMBS.

Question 16

CMBS ________.

Accepted Answer

CMBS (Commercial Mortgage-Backed Securities) can be backed by seasoned commercial mortgage loans, newly originated loans, and can also be backed by loans from a single borrower. This diversity in backing assets allows for a variety of investment products within the CMBS market.

Question 17

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

In a non-recourse loan, which is common in commercial mortgage lending, the lender's only option for repayment in the event of default is to seize and sell the property securing the loan. The lender has no recourse to pursue the borrower's other assets for any remaining unpaid balance.

Question 18

Which of the below statements is TRUE?

Accepted Answer

CMBS deals, also known as fusion or hybrid deals, indeed combine multiple borrower loans from conduit deals with a large or "mega" loan, allowing for diversification and risk distribution within the securities. RMBS are typically backed by residential properties, not large commercial ones like malls or office buildings, making statement A incorrect. Statement B inaccurately describes conveyance deals; it confuses the process of creating mortgage-backed securities with the specific roles of investment banks and mortgage bankers.

Question 19

Which of the below statements is FALSE?

Accepted Answer

Investors should not always be confident about estimates of market value and resulting LTVs reported for properties as they are subject to change due to various factors such as changes in market conditions or unexpected circumstances.

Question 20

Which of the below statements is TRUE?

Accepted Answer

The statement "The higher the DSC ratio, the more likely it is that the borrower will be able to meet debt servicing from the property's cash flow" is true. The DSC ratio measures the property's ability to cover debt servicing, and a higher ratio indicates a greater ability to meet debt obligations. Statements A, C, and D are false. The correct definition of NOI is the property's income minus all operating expenses (including replacement reserves), and a DSC ratio less than 1 means that the cash flow from the property is not sufficient to cover debt servicing.

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

A ________ is a contractual agreement that prohibits any prepayments during a specified period of time, called the lockout period.

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

A commercial mortgage loan is originated either to ________.

Commercial mortgage loans are for mortgage loans for ________.

With ________, the borrower provides sufficient funds for the servicer to invest in a portfolio of Treasury securities that replicates the cash flows that would exist in the absence of prepayments.

Which of the below statements is FALSE?

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

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

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

Ginnie Mae ________.

Commercial mortgage loans are ________, which means that if the borrower fails to make the contractual payments, the lender can only look to the income-producing property backing the loan for interest and principal repayment.

________ are predetermined penalties that must be paid by the borrower if the borrower wishes to refinance.

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

________ is a security backed by one or more commercial mortgage loans.

CMBS can be issued by ________.

CMBS ________.

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.

Which of the below statements is TRUE?

Which of the below statements is FALSE?

Which of the below statements is TRUE?