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房地产金融代写|ECOM138 Real Estate Finance

这是一个英国的房地产金融Short Essay问题代写

PART A: Short essays { answer 2 [50 marks overall]

Question 1 List the main terms likely to be negotiated in an ARM. Explain the role of these terms in pricing an ARM. [25 marks]

Initial interest rate, index, adjustment interval, margin, composite rate, limitations or caps, negative
amortisation, floors, assumability, discount points, prepayment privilege. These terms are features
that might be used in pricing an ARM and establishing the bearing of risk { interest rate, inflation,
and default risk. Anytime the process of risk bearing is analysed, individual borrowers and lenders
differ in the degree to which they are willing to assume different types of risk. Consequently, the
market for ARMs contains a large set of mortgage instruments that differ with respect to how risk
is to be shared between borrowers and lenders.

Question 2 Explain what a lender does when it underwrites a mortgage loan. [25 marks]

Underwriting is the process that a lender uses to assess the creditworthiness or risk of a potential
mortgagor. It has two key aspects: (i) qualifying the borrower, i.e., default risk appraisal and (ii)
qualifying the property, i.e., property appraisal. To qualify the borrower the key metric is loan-to
income (LTI), and the lender also assesses the borrower’s assets, credit history, estimated housing
expenses, and other obligations. Property appraisal means valuing the property to determine the
loan-to-value (LTV), which affects the riskiness of the loan to the lender.

Question 3 What types of rents are typical for income-producing properties? What options are
there for expenses? Explain how to compute the effective rent. [25 marks]

Types of rent:

• Flat rent { No rent change over lease term
• Step-up rents { Specified rent increases at specified times
• Indexed rents { Periodic rent adjustment (e.g., CPI)
• Rents adjusted based on revenue/sales performance { Percentage rent or percentage above a
breakpoint (overage)

Options for expenses:

• Gross (full-service) leases { Tenant pays rent only and property owner pays all operating
expenses

• Modified (full-service) lease { Direct pass throughs and/or non-operating expense pass throughs

• Leases with operating expense recoveries

Effective rent is used to compare different leases. First, one has to compute present value of rent
stream, and second, to convert present value to an equivalent level annuity. The annual amount of
this annuity is the effective rent.

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