Chapter 8 Flashcards
An auto dealership is an example of:
Select one:
a. industrial
b. commercial
c. recreational
d. investment
Correct Answer: commercial
Rationale: An auto dealership is considered a commercial establishment
Relevant section(s) of the textbook: 8.1 Industrial, Commercial, Investment (ICI) Mortgage Market
The correct answer is: commercial
This type of ESA is required if there is a possible history of contamination on a property.
Select one:
a. Phase 1
b. Phase 3
c. Environmental Site Assessment
d. Phase 2
Correct Answer: Phase 2
Rationale: In Phase II all necessary sampling and testing is conducted in order to establish the nature, quantity, location and extent, of any material, substance, or event, that is considered to be of environmental concern, as defined by the pertinent regulations identified in Phase I.
Relevant section(s) of the textbook: 8.1 Industrial, Commercial, Investment (ICI) Mortgage Market
The correct answer is: Phase 2
This is an investment in a pool of amortized residential mortgages insured through CMHC under the National Housing Act (NHA).
Select one:
a. Private mortgages
b. Mutual funds
c. Mortgage investment corporations
d. Mortgage backed securities
Correct Answer: Mortgage backed securities
Rationale: A mortgage-backed security is an investment in a pool of amortized residential mortgages insured through CMHC under the National Housing Act (NHA). NHA MBS issuers are approved by CMHC and must be a chartered bank, a trust company, an insurance company, a caisse populaire (meaning “people’s bank” in French), a credit union, or a loan company.
Relevant section(s) of the textbook: 8.2 Private Lending
The correct answer is: Mortgage backed securities
The term ICI refers to:
Select one:
a. industrial, commercial, institutional
b. industrial, condominium, investment
c. industrial, commercial, investment
d. industry, commercial, investment
Correct Answer: industrial, commercial, investment
Rationale: The mortgage market in Ontario can be divided into two major areas of specialization: ICI (industrial, commercial, investment), often just referred to as commercial, and residential. In either specialization there can be sub-specializations. In other words, a commercial mortgage agent may focus on financing industrial complexes as opposed to apartment buildings.
Relevant section(s) of the textbook: 8.1 Industrial, Commercial, Investment (ICI) Mortgage Market
The correct answer is: industrial, commercial, investment
The rate of return typical on a private first mortgage is approximately:
Select one:
a. 3% to 6%
b. 7% to 9%
c. 13% and higher
d. 6% to 10%
Correct Answer: 7% to 9%
Rationale: for a first mortgage, a private lender will traditionally charge in excess of 7% interest, and as high as 9% interest, while on a second mortgage interest rates of 13% and higher are typical, making second mortgages the vehicle of choice among most private lenders
Relevant section(s) of the textbook: 8.2 Private Lending
The correct answer is: 7% to 9%
If a private lender is not sophisticated enough to complete a risk analysis for a potential private loan, who should they seek assistance from?
Select one:
a. mortgage administrator
b. default insurer
c. lawyer
d. mortgage agent
Correct Answer: Mortgage agent
Rationale: The first challenge is assessing the risk or determining the probability that the borrower will repay the mortgage loan on the terms that are set out in the mortgage contract. This requires the private lender to understand the underwriting process (the process of assessing the merits of an application) as well as being able to analyze the borrower’s credit, income and debt service ratios. If the private lender is not sophisticated enough to complete these analyses, then they will have to rely on their mortgage agent to make a recommendation.
Relevant section(s) of the textbook: 8.2 Private Lending
The correct answer is: mortgage agent
Select one:
a. V/R=I
b. I/R=V
c. IxV=R
d. R/V=I
Correct Answer: I/R=V
Rationale: Whereas I represents the Income, or NOI, R represents the Rate of Return, or Yield, and V represents the Value of the building. For
Relevant section(s) of the textbook: 8.1 Industrial, Commercial, Investment (ICI) Mortgage Market
The correct answer is: I/R=V
A non-qualified syndicated mortgage is overseen by:
Select one:
a. Ministry of Finance
b. MBLAA
c. OSC
d. Securities Act
Correct Answer: OSC
Rationale: NQSMIs are syndicated mortgages that do not meet the definition of “qualified syndicated mortgage.” Effective July 1, 2021, responsibility for regulation of NQSMI transactions is split between the Ontario Securities Commission (“OSC”) and FSRA.
Relevant section(s) of the textbook: 8.2 Private Lending
The correct answer is: OSC
If a mortgage lender takes possession of a property under a power of sale or foreclosure, there may be liability under:
Select one:
a. Environmental Protection Act
b. Environment Canada
c. Environmental Protection Agency
d. Municipal bylaws
Correct Answer: Environmental Protection Act
Rationale: if a mortgage lender takes possession of a property under a power of sale or foreclosure, there may be liability under the Environmental Protection Act with regards to remediation. Lenders financing any type of property that has the potential for contamination, such as a strip plaza with a dry cleaner, should obtain legal advice from a lawyer to determine their potential liability.
Relevant section(s) of the textbook: 8.1 Industrial, Commercial, Investment (ICI) Mortgage Market
The correct answer is: Environmental Protection Act
Ho0w does a mortgage investment corporation obtain funds to lend to borrowers?
Select one:
a. Selling memberships
b. Taking deposits
c. Selling shares
d. Syndicating its mortgages
Correct Answer: Selling shares
Rationale: A mortgage investment corporation (MIC) is a corporation that enables small investors to invest in a diversified pool of mortgages on residential real estate with the benefit of using the corporate form by purchasing shares in the corporation.
Relevant section(s) of the textbook: 8.2 Private Lending
The correct answer is: Selling shares
