Question

As a lender contemplating a non-recourse loan to an income-producing property, which of the following would...

As a lender contemplating a non-recourse loan to an income-producing property, which of the

following would be most important in your financial analysis?

a. Terminal cap rate

b. Net worth of borrower

c. Number of years used in DCF projection

d. Debt coverage ratio

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Answer #1

Answer-

The correct option is b. Net worth of borrower

The potential borrowers find non recourse loans attractive as they normally come with higher interest rates and are in general given to individuals and businesses who have very good credit histories.

In general the mortgages are non-recourse loans and can pledge home itself as collateral. This means if the borrower defaults on the mortgage loan, the bank can foreclose on the home by taking the possession and selling it to satisfy the loan.

The other options a,c and d are incorret as the non-recourse loans generally looks for collateral and does not take other parameters into consideration.

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