CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

A mortgage real estate investment trust (REIT) offers the investor safety because:
A. All investment properties in a REIT portfolio have an underlying collateral agreement in the form of a mortgage.
B. The portfolio contains only mortgages and loans, which are relatively safe.
C. The trust has obtained mortgage financing from large, reputable financial institutions for use in purchasing investment properties.
Explanation: Mortgage REIT do not invest in real estate directly. They make real estate loans. Choice a. above is incorrect because it implies that the mortgage REIT holds properties. This is not true. Mortgage REITs hold mortgages secured by properties. Mortgage REITs offer investors relative safety because they invest only in mortgages and loans which are relatively safe.

User Contributed Comments 14

User Comment
lilbut ?? what about prepayment risk in the mortgages?
dbadidas8 I guess they are just relatively safe compared to real estate. Nothing is absolutely safe in these days.
Rotigga Mortgages and loans are definitely NOT safe. Look at the whole sub-prime mess today. Even Fannie and Freddie are in trouble, and their underwriting standards are the envy of the entire industry.
eb2568 ...yeah...mortgages are REAL safe these days!
StanleyMo subprime? lol
pochuevalex But in the LOS definition of REIP it is supposed that it can hold properties as well as mortgages!

A REIT is a type of closed-end investment company that sells shares to investors and invests the proceeds in various types of REAL ESTATE and real estate mortgages.

So A is also correct
MUTE Mortgage REIT do not invest in real estate directly. A REIT does. This question is about Mortgage REITs.
Mikehuynh I overlooked the word "mortgage". Therefore, picked C
viruss This is bullshit actually ... mortage are safe ? Yeah OK well could you please tell this to the EU with Spain current focus & USA subprime gift ;)
jnptrsn1 Viruss, welcome to CFA land
ankurwa10 why not C?
ankurwa10 how does one delete one's comment :P midnight here. studying for the whole day can have such effects. Apologies :)
abeeman924 "Subprime mortgages are safe" - everyone at Lehman pre-2007-08
xemex131 how does a. imply that the mortgage REIT holds properties..
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