Student Question

I was just wondering if the review over exam 1 will be up all semester or if there is a way I can download it in order to reference it for the final.

REPLY
I will keep the exam review links up all semester.

Student Question: Mortgage Markets

I have a question for you about this real estate mess that is going on with the market right now. What is going to happen to the people who are signed up for these ARM loans and the rates will be adjusting soon? They're not going to be able to refi because more than likely the value of the house is much lower than the loan they are stuck with. Are they going to be forced into foreclosure? It seems that is the only option for these people in this situation. I know on the Indymac Federal Bank website, they will consider re-writing your existing mortgage if you are in default and going to face foreclosure, but nothing is being done to prevent the problem from reoccurring in a year from now. So, if you have a loan that you know will be a problem in the future, I guess you have to default before you can get help? These loans were still being written two years ago and if you were signed up for a 3 yr ARM, the fun hasn't even started yet. I'm just curious on how you think the future is going to look for these people who are stuck.

REPLY
Yes, what you describe is at the core of this current financial crisis. Way too many people, borrowed way too much money, to buy way too expensive homes. This process was encourage by the Federal government (for several decades, Democrats and Republicans were in a competition to report the highest levels of home ownership during their terms in power) and by government sponsored enterprises, such as Fannie Mae. Federal tax deductible mortgage interest paid on first, and second, mortgages on homes also helps to encourage housing consumption.

The fact that many of these mortgages are adjustable rate is just the icing on the mess. As interest rates increase, you will see a sharp increase in default rates in adjustable rate mortgages. Now the Federal Reserve has to be very concerned about keeping interest rates fairly low which could cause problems with the value of the US dollar and inflation expectations.

These poorly underwritten and often adjustable rate mortgages are clogging-up the financial system because of the expectation that many more will default in the future, making these mortgage bad investments. Financial institutions, and all other owners, holding these mortgages or mortgage-backed securities cannot get them off their books (sell them) because no one wants to buy this junk. One of the few large scale sales of mortgage-backed securities from a while back realized an 80% discount (the purchase paid about 22 cents on the dollar).

My grandfather, who had a lot of old fashioned commonsense and was very conservative with his finances, had an old rule-of-thumb that you should not borrow more than 2 times your gross annual income to buy a house. Although this might be a little too conservative, especially in some of the higher cost of living areas, I would say a maximum of 3 times would be prudent. However, due to the run up in housing prices and lax lending standards, many people have borrowed 4 to 5 times, or more, their annual gross income.

I am afraid that we will continue to see and hear more about foreclosures. However, you don't need to fear that everyone will be out on the streets (this should not be a major concern as long as employment markets holdup). Many of the foreclosures will result in people downsizing to houses and mortgages that are more affordable (from 4 or 5 times gross income to around 2 or 3 times). The average house price in Arlington is around $150,000 so a family earning $50,000 could own a comfortable house under the 3x gross income rule-of-thumb. Finding affordable housing in other areas of the country will be a lot more difficult. If the old school rule-of-thumb of 2 to 3 will in-fact apply, then housing prices in high housing cost markets may have to adjust substantially.

If anyone out there is having difficulty with making mortgage payments, you should contact your mortgage company immediately. Foreclosure is a very expensive process for the mortgagee. It is usually a much better deal for the mortgagee to work something out with the mortgagor (the borrower), if possible. The Indymac website is a good example of a mortgagee willing to work with mortgagors to prevent foreclosures.

Week 6 Assignments

Week 6 (September 29, 2008):
*Read Chapter 3 view video/audio clips, do practice problems etc. (the usual routine for each chapter).
*Make sure you have the Exam 2 date on your calendar.

Student Question

My question is, if I am happy with my results from exam 1, 2, and 3, must I attend the final, or can that be the one I "miss"? I understand that you do not do makeups, which I am not asking for. I am just wondering if the scores from exam 1, 2, and 3 are sufficient for grading purposes, or must a student attend the final also? I have been in classes over the years that have gone both ways. Some professors require attendance at finals, some allow the final to be missed.

REPLY
If you are happy with your first 3 out of 4 exam grades, you do not have to take or attend the final exam.

Student Question

From reviewing the syllabus for the class, I noted that only 3 exams will be used to determine a students grade. I know the final is cumulative. My question to you is this, if I am satisfied with my 3 exams during the course, must I take the final?

REPLY
You are correct, I take the highest 3 exam grades out of 4. If you are happy with your three exams grades, you do not have to take the final.

Job Opportunity

If anyone is interested, there is an interesting job opportunity in the real estate area. See http://realestateprogram.blogspot.com/2008/09/job-opportunity-at-windstar-properties.html.

Abbreviated Office Hours Today

I have an Undergraduate Assembly meeting today at 2 PM. Typically, I am back at the office around 3 PM, but these meetings vary in length. Please note this if you are planning to stop-in during office hours (2 to 4 PM) today. Sorry for any inconvenience.

TVM Tutorial Completion List Updated 9/22/08

I have posted a list of students that have completed the TVM Tutorial. The link to this list is on our homepage (just below the TVM Tutor information and before the weekly assignments). If you have submitted the TVM Tutorial, please check to see if you have a 'Y' next to your name.

Week 5 Assignments

Week 5 (September 22, 2008):
*Read Chapters 2 and 3 (lots of material in these chapters), view video/audio clips, do practice problems etc. (the usual routine for each chapter).
*Review Exam 1. Click on this link to download a WMV file from course homepage.
*Individual exam scores will be posted on WebCT.

ATTENTION!: If you go to WebCT (www.uta.edu/webct) and log-in with your UTA user name and ID, you should find our class and your Exam 1 score (as a %) posted a couple days after the exam.

Exam 1 review now posted

A 20-30 minute clip (wmv file) has been recorded and uploaded. You can find the link to the exam review on the course homepage (link to the course homepage is in the upper right corner of this blog) under the "Week 5 Assignments."

Please review the exam. I also encourage students who missed exam 1 to review this exam. Remember the final is cumulative.

After your review the exam, please feel free to contact me via e-mail or during office hours with any questions.

Exam 1 grades posted on WebCT

Exam 1 grades have been posted on WebCT.

The statistics for exam 1 are as follows:

Statistics: Exam1
Graded out of: 100.00
Number of records: 58 Highest grade: 100.00
Lowest grade: 42.86 Mean grade: 71.33
Median grade: 71.43 Standard deviation: 13.97

Your score reflects a 2 point (question) curve. I added 2 points to every one's raw score (your score out of 35, the total number of questions). You can think of this as being able to throughout 2 questions (but only 2) on the exam.

From a general review of the exams, it looks like some people did have trouble with the calculation problems. These types of questions will appear again, so you must keep working on it. Also, 12 people out of 70 did not take exam 1. I drop your lowest grade but the 12 people who missed the first exam must be very careful to make the remaining three exams.

Other than some missing people, the exam went very well. Thank you for your cooperation. Special thanks to Susan for her help. It is getting to be a pretty big crowd to handle. Thanks again.

I am currently working on the exam review which will be posted on the course homepage by Sunday night. I will make a second post when the review is activated.

Exam 1 grades and review procedure

My goal is to post an audio/video clip by Sunday night reviewing Exam 1 problem-by-problem. Unless there are technical problems, this should be achieved.

I will make a blog post post as soon as the Exam 1 review on-line. The link to the Exam 1 review will be found on the course homepage.

Exam 1 grades will be posted on webCT www.uta.edu/webct at about the same time the review is activated.

Last minute reminder...

Please bring your financial calculator. There is no sharing of calculators during any exams. Also, you may not use a cell phone or similar type of devices.

Just to be safe, bring an extra calculator or extra batteries if you have them handy.

Also bring Scan-tron, pencils, and UTA student ID.

Student question - Scan-tron

I didn't find a 882-ES scantron at the bookstore. I found a 882-E. Was their a typo on the syllabus or do I need to look again.

REPLY
It is most likely the same Scan-tron. We are using the single column Scan-tron (1 to 50 on side 1 and 51 to 100 on side 2).

Exam 1 in 24 Hours

Exam 1 (Saturday, September 20th from 10 AM to 11:00 AM Room 147)

*Must bring Scan-tron, financial calculator, pencils, and student ID to all exams.

Please arrive 10 minutes early so we can setup the classroom and start at 10 AM sharp.

Student Question: TVM Tutorial

If I drop the online version and still complete the tutorial will it be valid when I take the face-to-face version [in Spring 09]?

REPLY
No. Unfortunately not. You have to complete the course to get credit for the TVM. This is necessary because the Department will reference this course to see if you passed the course before they give you credit for the TVM in another course (FINA 3313 or another section of REAE 3325). Sorry!

Student Question: TVM Tutorial

I listened to the Review Packet audio clips. Can I possibly still finish the TVM tutorial and get credit for that? I've already finished half of it. Thank you for your help.

REPLY
The TVM Tutorial deadline isn't until later in the semester. I encourage you to complete (or do as much as you can) of the TVM tutorial because TVM is an important topic on EXAM 1. JAH

Exam 1 information

Exam 1 will have 35 multiple-choice style questions. 10 of the 35 questions will require calculations (most likely TVM calculations).

Don't forget your Scan-tron, UTA student IDs, calculator, and pencils on Saturday!

Student Question: END vs BEGIN Mode

For some reason my mind just went completely blank on how to enter compound interest in the financial calculator. On Problem Set #2, #2 I was thinking that I needed to find the nominal interest rate but then that didn't sound right. I was putting in the effective rate of 12% and the number 12 to get a nominal rate of 11.38655 which I didn't think was right.

Occasionally, we might need to change our calculators to BEGIN mode when cash flows occur at the beginning of a period. Again, you need to refer to your calculator manual to set it to BEGIN mode. Some calculators display a BEGIN or BEG on the screen to indicate BEGIN mode.

However, it you do set it to BEGIN mode, make sure you reset your calculator to END mode. It would be a disaster to go to the first exam and forget that your calculator is set on BEGIN mode.

REPLY
Problem Set 2 number 2

2. An investor can buy a tract of farmland today that he believes will sell for $50,000.00 in eight
years. His required rate of return for this type of investment is 12% per annum compounded
monthly. How much should he pay for the land today? (assume that there are no taxes or other
periodic costs involved)

N=96 (8 x 12)
I%=12/12
PV=? solving for
PMT=0 or empty
FV=50,000

To solve this problem we simply need to divide the interest rate by the compounding periods per year. If N (the number of periods) is in months then I% needs to be in the same units (months in this case). N and I% always have to match up. If N is in years, then I% is in years. If N is in months, I% has to be in months.

The above assumes that your calculator is set to 1 payment per year. If you set you calculator to 12 payments per year, then the calculator will divided what ever you enter into I% (12 in this case) by 12. That is the only thing that the payment per year function does. It just divides I%.

BEGIN MODE VS END MODE
You do want to make sure that your calculator is on END mode normally. By far, most problems will indicate that cash flows occur at the end of the period. You need to figure out how to set your calculator to END mode because each calculator is different. When you take the calculator out of the box, I am 99.9% sure that is set to END mode by default. Some calculators might even display 'END' on the screen.

Occasionally, we might need to change our calculators to BEGIN mode when cash flows occur at the beginning of a period. Again, you need to refer to your calculator manual to set it to BEGIN mode. Some calculators display a BEGIN or BEG on the screen to indicate BEGIN mode.

However, if you do set it to BEGIN mode, make sure you reset your calculator to END mode. It would be a disaster to go to the first exam and forget that your calculator is set on BEGIN mode.

It is good that you are working these things out now (before Saturday!).

TVM Tutor Hours

Mr. Yongho Seo is the Finance TVM Tutor and he has already set office hours. His office is located in room 404 Business Building and his phone number is (817) 272-3835. If you have any problems locating Seo during the listed hours (below), call the Department Office at 817 272-3705 or stop by room 434 to let the staff know.

Monday 2:30-5 PM
Tuesday 10:00-12:30 PM
Wednesday 4:30-7 PM
Thursday 2:30-5 PM

Please use this service! The TVM proceeds (fees) goes to providing this help to you.

Some timely student questions...

A student e-mailed some interesting questions last week. You do not need to agree, but I thought I would share the thoughts on our blog.

1.) How important is finance to the U.S./the world?

Very important. With the decline of defined benefit pension plans and the increase in defined contribution retirement plans, most people are relying on the financial markets for their retirement and general financial security. For most of us, how we manage our retirement investments and the return on these investment will dictate the quality of life we will have during retirement (or even if we can afford to retire).


2.) Has financed changed much over the years? How have events like the Iraq war and Sept. 11 changed finance?

Regarding your question about Sept 11 and the Iraq war, I am amazed at how well the financial markets stood up and bounced back from the September 11, 2001 terrorist attaches, especially considering the physical damage to Wall Street itself. I believe this is a sign of the strength and level of sophistication of the US financial markets. However, there are serious challenges today. Maybe even more challenging than the recovery from 911.

Finance has evolved and change tremendously over the decades. Take for example, residential real estate finance. The old model of residential real estate finance was depicted in the movie, It's a Wonderful Life, the Christmas classic starting James Stewart as George Bailey. George Bailey's job was managing a Savings and Loan (S & L). The original S & L financial institutions simply collected deposits from a local community and made residential mortgage loans to that same community. These old time S & L held the mortgages in-house and therefore needed to make 'good' loans or live with 'bad' loans.

Today we have a sophisticated secondary mortgage market that has its advantages, but also some disadvantages. Very quickly, the new model of real estate finance provides tremendous liquidity to the mortgage markets. Primary lenders, such as the remaining Savings and Loans and many other types now, can sell their mortgages to secondary market, most likely to Fannie Mae (FNMA). FNMA creates large mortgage 'pools' from primary lenders from across the country. FNMA thensecuritizes these mortgages making nice diversified mortgage investments for investors from around the world. Quiet different from the simple Bailey S & L model.

However, we are currently realizing some problems with this modern system. Because primary lenders are most often selling mortgages to the secondary mortgage market, and not holding these mortgage long term, primary lenders now have a big incentive to generate fees from mortgage originations and shift the risk of mortgage default (bad loans) to secondary mortgage market investors. We have originated a lot of bad loan over the last 10 to 20 years and we are paying the price. With changes and innovations comes new challenges.

I am concerned with the financial responsibilities that the US tax payers are taking on by bailing-out some of these companies, such as Bear Sterns, Fannie Mae, and Freddie Mac [nowAIG too]. These bailouts will be a tremendous financial burden, present and future. Also, I am worried about the signals these decisions send. If we keep bailing out people who make bad investments or companies that make bad choices, there is no incentive to stop making bad investments and decisions. Do a deal, makes some money off fees, and if the deal goes well, everyone is happy. If the deal goes bad, not a problem-you get bailed out.

The Iraq War is also a financial strain on our economy but there could be future benefits, including economic, if there are improvements in this region. If chaos breakout in Iraq, we will loose the investment that we have already made and might be forced to reinvest here again in the future. Unfortunately, this issue is such a political hot button it is difficulty for most people to think about this objectively. From a financial perspective, I think we need to do the best that we can here. Especially considering the economic burdens we are taking on at home, I don't think we have a choice.

As opposed to Iraq, there are no foreseeable benefits to these bad loans and mortgage market bailouts, except for some managers, debt holders, and even some stockholders of these bailed-out companies (for example, FNMA preferred stockholders have not been bailed out yet but some are speculating that they will be in the future).

It is a shame. Despite the transparency, sophistication, and strength (especially in times of crisis like 911) of the US financial markets, it seems like we cannot avoid a major self-inflicted financial crisis about every 10-years or so. I attribute this perpetual problem to moral hazards and a little bit of human nature.

Review materials answers

These answers are posted on the course homepage, but just in case you have not found them...

Answers to "Review Materials for Real Estate Fundamentals" Practice Problems

TVM Problem Set 1:

1.    $24,464,43
2.    $25,093.31
3.    $1,738.91
4.    $4,755.19
5.    $675,764.89
6.    $14,381.74

TVM Review: Problem set 2 Answers:

    1)      10% compounded semi-annually (1.05^2 = 1.1025; 1.0238^4 = 1.0984)
    2)      19,236.15
    3)      98,111.31
    4)      5,575.46
    5)      22,601.66
    6)      15.94%
    7)      6,357.56

TVM Review: Problem set 3 Answers:

    1)      ANN: 15 – 25,288.30 25-20,519.45  MO: 15-2,067.95 30-1614.72
    2)      14,043.41
    3)      Yes, NPV = 10,850.30
    4)      13.22%
    5)      PMT = 103,873.36 
            a.       Balance end of year 5 equals 961,283.21
            b.      Balance end of year 15 equals 801,472.49
    6)      PV = 854,972.16
    7)      79,612.63 + 220,436.31 = 300,048.94
    8)      PMT = 638.58 (724.26 – 638.58 = 85.68)
    9)      IRR = 16.2%; NPV = 1,306.20
    10)  68,640.81

Student Question: TVM related --> I or I%

Dear Dr. Hansz,

I am having a problem on one of the study questions at the end of chapter 14. The study question is number 10. Your answer that you have provided is $1,184.72 the answer I am coming up with is $380.67. I input the following information into my calculator:

PV = $135,000 N = 360 (12 x 30) I = 0.0083 (0.10 / 12) FV = 0. Could you please help me understand what I am doing wrong, I would greatly appreciate it.

Thank You,

Shannon

Andrew Hansz

Shannon, I don't have the problem in front of me but I think I might see the ...

Sep 14 (1 day ago)

Andrew HanszLoading...

Sep 14 (1 day ago)

Reply

Shannon,

I don't have the problem in front of me but I think I might see the problem in your answer below. Your calculator needs the interest rate (I) as a percentage (10%/12). Your answer indicates that you entered the interest rate a decimal (.10/12). Just enter I as 10/12.

Could you please try this and get back to me so I know that this was in fact the issue? Thank you, Dr. Hansz

Dr. Hansz, I tried what you suggested and it did work, thank you. But, I have one question about that, why would you leave the 10% as a whole number when dividing by 12 instead of changing the 10% into the decimal form first. Shannon

Shannon,

It is just the TI and HP calculator convention. It might even show I% on your calculator key. Basically, the calculator is automatically changing it to a decimal format for you.

May I post this question the class blog? I have a feeling someone else might have a similar issue. Now is the time to figure these things out!

Cheers,

Dr. Hansz

Week 4 Assignment

Week 4 (September 15, 2008): Exam 1 Week
*Read Chapter 15. Make sure you understand mortgage payments, mortgage balances, and loan amortization.
*Make sure you have the exam 1 date (see below), time, and location in your schedule.
*Exam 1 on Saturday, September 20th at 10 AM in room 147 Business Building. The exam will cover chapters 1, 13, 14, and 15. Also, this exam will have emphasis on TVM.
*Please bring your UTA photo ID, a Scan-tran answer sheet (as specified in the syllabus), pencils, and your calculator (see additional exam instructions below).
Exam 1 will be 50 or fewer multiple choice style questions.

Strategies for Success

For each chapter

• Read the assigned text chapter and view any video clips posted on the class website as homework.

• Download the chapter notes (found on my website) and review the notes.

• Try the end of chapter problems.

• Download the answers to selected end of chapter problems (found on my website) and review your answers.

• Take notes during the video clips and rewrite/organize your notes afterwards.

• Read the text chapter a second time.

• Download and complete the chapter true/false questions and discussion questions.

Other study suggestions

• Make flashcards.

• Read your notes into a tape recorder (and playback).

• Take notes as you read the text.

• Combine (rewrite) your class notes and text notes into a single set of notes.

• Study several hours per day everyday (do not wait until the night before the exam).

• Study with a friend or small group (discuss terms and topics, try problems together, and quiz each other). You could meet virtually in Second Life!

• Do the case studies accompanying the text found on the student CD (not a requirement).

General comment

• To protect your privacy, exam scores and final grades will not be posted in public spaces, e-mailed, or released over the phone. I will post grades on WebCT.

Exam 1: One Week Notice

Exam 1 is coming:

Exam 1 (Saturday, September 20th from 10 AM to 11:00 AM Room 147)

*Must bring Scan-tron, financial calculator, pencils, and student ID to all exams.

Please arrive 10 minutes early so we can setup the classroom and start at 10 AM sharp.

WebCT: Grade Reporting Only!

The class roster has been loaded into WebCT today. If you log on to your WebCT account (with your UTA user name and password - same as your e-mail account) you should see your name on WebCT. Please log on to WebCT and contact me if your name does not appear (this means that you might not be registered for the course!).

Most important, please never contact me through the WebCT e-mail function. I only log on to WebCT to enter grades so I do not check the WebCT regularly. Please always use the e-mail reae3325online@gmail.com.

Video/Audio Clips

Someone mentioned having some difficulty view the video clips. She is using Internet Explorer and we suspect that it is due to a weak Internet connection at home. Please vote on the poll question to the right. I would like to know if anyone else is having difficulty. If you indicate that you are having difficulty in the poll, please follow-up by sending me an e-mail describing the problem.

If you are having difficulty and you think it is due to a weak Internet connection, please try an alternate computer and/or Internet connection. You might even consider watching the video clips in the campus computer labs. Remember to bring headphones as the students sitting around you might not appreciate the real estate lecture as much as you do!

We ran this class last Spring semester with 30 student and did not have any problems with the video/audio clips. However, we do have 70 students using the website this semester and this could cause some new challenges.

REMINDER ->Bullet point 6 from the course homepage:
VIDEO CLIP VIEWING INFORMATION: You must have a reliable computer, Internet connection, and a recent version of MS Internet Explorer (IE) browser (video clips can be viewed in IE only). For video clip viewing, the Firefox browser will not work. I cannot help you with any technical problems so please look into your available resources before registering for the course. If you have trouble with your computer, Internet connection, or browser, this distance learning format will not be convenient to you. You can reach the University HelpDesk at (817) 272-2208 or e-mail helpdesk@uta.edu. Or, visit the HelpDesk in person at the first floor of the Main Library (the best way if you are on campus).

Office Hours

I met with a couple of you this week during office hours. It was nice meeting several of you and it helps me to have some faces to put with the e-mails and the names on the roster. Feel free to stop in during office hours 2 to 4 PM Tuesdays and Thursday. You can just say hello or bring your questions. See you all soon at Exam 1 which is just around the corner!

Also, if you would like to post a picture of yourself and a second picture of anything (within reason, please remember this is a public website and blog!) on the course homepage, please feel free to e-mail me the pictures. I will update our photo slide show this weekend. This is not mandatory if you are camera or web shy.

Housing Affordability: Arlington Ranks #7

The Star Telegram (9/10/2008, C1) published a recent article summarizing a nationwide study of housing affordability by Coldwell Banker. Arlington was ranked number 7 with an average price of $143,775 for a 2,200 square foot, 2.5 bathroom house. Killeen, Texas was number 9 and Fort Worth was ranked 11th. The highest average price for a similar house was $1,841,667 in La Jolla, California.

Hopefully this get out to business owners looking to start-up or relocate businesses. Housing prices is a competitive advantage for Arlington.

Student Question: TVM Tutorial

Where can I find the TVM tutorial?

Answer: You purchase the TVM tutorial at the UTA bookstore. A student posted a comment to a prior post indicating that the TVM costs around $12. You must purchase the TVM tutorial because the Department requires that you submit an original Certificate with your TVM work. The Certificate is included in the TVM tutorial purchase.

Check it out...

As real estate students, you might be interested in a couple posts from the REAE@UTA program blog.

http://realestateprogram.blogspot.com/2008/09/competitive-advantages-of-cities.html

http://realestateprogram.blogspot.com/2008/09/history-of-world-over-last-13000-years.html

Also note that Thomas Friedman will be on-campus this Thursday. Check out the details at:

http://realestateprogram.blogspot.com/2008/08/lexus-and-olive-tree-author-tom.html

Student Question: TVM Prior Completion

Please excuse me if this is a stupid question but what am I suppose to do with the Prior completion form I printed from the website?

From bullet point 4 at the top of our course homepage (or see syllabus):
TVM ANNOUNCEMENT: You must complete the Time Value of Money (TVM) Finance Tutorial to receive credit for this course. The TVM Finance Tutorial is a Department requirement of all REAE 3325 and FINA 3313 students. If you have already completed the TVM Finance Tutorial in FINA 3313 you DO NOT have to do it a second time. You may submit a TVM Finance Tutorial prior completion sheet to Mr. Daniel Nguyen, Department of Finance and Real Estate, Room 424 COBA, Box 19449, Arlington TX 76019-0449. Click here to down load a pdf of the TVM Prior Completion Form.