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Exam 3

Chapter 16

TermDefinition
commercial mortgage-backed securitites (cmbs), securitisations are part of a financing process by which clients move assets to a lower-risk vehicle to reduce the interest rates on their loans.
Permanent loan Long term mortgage financing
Non-recourse Loans that relieve the borrower of personal liability but do not release the property as collateral for the loan
Full recourse A loan on which an endorser or guarantor is liable in the event of default by the borrower.
Bankruptcy remote the relative position of one company as it relates to bankruptcy vis-a-vis others within a corporate group
partially amortized balloon mortgage require borrowers to make regular payments for a specific interval, then pay off the remaining balance within a relatively short time
spreads The difference between the expected yield on an investment and the yield on a riskless treasury security with a comparable maturity
lock-out A mortgage clause or provision prohibiting prepayment of the mortgage for a specified period of time after origination
step down withdraw or resign from an important position or office.
yield maintenance prepayment penalty A mortgage loan prepayment penalty computed as the present value of interest income to be lost by the lender due to the early prepayment. The idea is to make the whole the lender
defeasance penalty A clause that may be contained in commercial mortgages to protect lenders from prepayments in a declining interest rate environment. Must purchase US treasury securities if you prepurchase
prepayment premium (penalties) Charges, designed to discourage prepayment, incurred when a mortgage is repaid before maturity
Floating (i.e., adjustable) rate mortgage, A debt instrument whose interest rate changes over the life of the loan based on a market index such as the prime rate or LIBOR
prime rate the lowest rate of interest at which money may be borrowed commercially.
LIBOR, A common index of interest rates for income producing property, the London Interbank offering rate is a short term interes rate for loans among foreign bank
index A market determined interest rate that is the moving part in an adjustable interest rate
basis points one hundredth of one percent, used chiefly in expressing differences of interest rates.
installment sale financing generally a "disposition of property where at least 1 loan payment is to be received after the close of the taxable year in which the disposition occurs
joint venture an association of two or more personons or firms in order to carry out a single business project. often a partnership between a lender and a developer or investor to develop or purchase a specific property or properties
sale leaseback As a method of financing needed real estate, a property owner/user simultaneously sells the property to a buyer and leases the property back from the buyer
second mortgage secured by the borrower's property that has been pledged as collateral for the loan. at more risk than the first lender
mezzanine debt A method of obtaining additional leverage on top of a traditional first morgage. This debt is secured by the pledge of an equity interest in the borrower's partnership or business.
capital stack is the totality of Capital committed and available to defray the cost of developing and completing a Project. Typically this is the sum of the Senior Loan total commitment, the Investment, and the Developer’s capital invested in the project.
debt coverage ratio a measure of the extent to which NOI can decline before it is insufficient to service the debt, defined as net operating income over debt service
loan to value ratio loan / value
debt yield ratio a mortgage underwriting ratio for loans on income producing property. The ratio is defined as property NOI divided by the mortgage loan amount. It indicates the rate of cash flow to the loan amount should the lender become the owner
loan-to-cost ratio The higher loan / purchase price. Indicator of lender protectionthe LTC, the less protection the lender has against loss in the event of default
“skin in the game” to have incurred monetary risk by being invested in achieving a goal.
constraining the loan form of imperfection in the capital market. It causes difficulties for models based on intertemporal consumption. Many economic models require individuals to save or borrow money from time to time.
cost constrained a situation in which the cost of a good or service can negatively impact the decision to purchase said good or service.
cash flow constrained limited cash flow keeps you from doing something
Created by: drewmad5