Real Estate Finance & Mortgages Flashcards

What is the main role of Fannie Mae and Freddie Mac in residential finance?

Answer: Purchasing mortgages from lenders in the secondary market

These GSEs buy conforming loans from lenders, replenishing funds for new lending.

Which statement is true of an interest-only loan during its interest-only period?

Answer: Payments do not reduce the principal balance

Interest-only payments cover only interest, so principal stays unchanged.

When qualifying a borrower using rental income from a leased property, Fannie Mae guidelines generally count what share of gross rent?

Answer: 75%

Lenders typically use 75% of gross rent, applying a 25% factor for vacancy and maintenance.

Which mortgage clause lets the lender demand full repayment if the owner sells or transfers the property?

Answer: Due-on-sale (alienation) clause

The alienation or due-on-sale clause makes the loan due upon transfer of title, preventing assumption without consent.

An acceleration clause in a mortgage allows the lender to:

Answer: Declare the entire balance immediately due upon default

The acceleration clause lets the lender call the full loan due when the borrower defaults.

Positive financial leverage occurs when:

Answer: The property's cap rate exceeds the loan's mortgage constant

Leverage is positive when the property earns more on its total value than the cost of the borrowed funds.

Which item is NOT included as an operating expense when calculating NOI?

Answer: Mortgage interest

Mortgage interest is part of debt service and is excluded from NOI calculations.