FINA 4201 Midterm exam with correct answers

FINA 4201 Midterm exam with correct
answers

Residential Capital Stack - ANSWERS✔✔ Residential does not generate income

top - bottom = equity, 2nd mortgage junior debt, 1st mortgage senior debt



Commercial Capital Stack - ANSWERS✔✔ Commercial - any income generating properties

top - bottom = common equity, preferred equity, mezzanine, junior debt, senior debt

-The higher on the pole, the higher the risk and potential return

-Senior debt is highest priority



Common Equity - ANSWERS✔✔ Most risky because it is the first money that goes into
project and there's nothing else there



Residential Debt Comes From - ANSWERS✔✔ -banks

-lenders

-brokers

-primary market

-secondary market

-pension funds

-insurance companies

-REITs



Residential Equity Comes From - ANSWERS✔✔ Borrower

, Broker - ANSWERS✔✔ Provides loan but doesn't actually fund it. It is an intermediary
institution.



Primary Mortgage Market - ANSWERS✔✔ Where mortgage originates



Secondary Mortgage Market - ANSWERS✔✔ When mortgage originator sells mortgage to
an institution or an investor

-Helps bank mitigate risk because it allows them to take the mortgage off of their books by
selling it to someone else and they keep the liquidity

-Freddie Mac, Fannie Mae (biggest buyer), FHA, VA



Commercial Sources of Debt - ANSWERS✔✔ -banks

-lenders

-brokers

-pension funds

-insurance companies

-REIT



Commercial Sources of Equity - ANSWERS✔✔ -REIT

-private equity

-bank - REO (real estate owned)

-pension funds - CALPERS



REIT - ANSWERS✔✔ Real Estate Investment Trust

-Mortgage REIT/Debt REIT

-Equity REIT

-Hybrid REIT