Freddie has a designated a small balance loan team for the production, pricing, underwriting, closing, purchasing and funding of these loans. Arbor Commercial Mortgage, Greystone Servicing Corp. and Hunt Mortgage Group are approved to sell these loans to Freddie Mac, and the GSE is looking for more lenders.
"We believe our initiative will increase liquidity in the small multifamily loan space and provide stability and facilitate private capital investment in this somewhat fragmented and underserved market segment," said David Brickman, executive vice president of Freddie Mac Multifamily. “Historically, local lenders have financed small multifamily properties, and debt capital is not widely available across the country from national lenders with standard products.”
Freddie Mac anticipates the average loan to be about $2.5 million. According to data from Trepp, about 29% of the multifamily loan market is comprised of smaller loans with an average loan size of $1.2 million.
The securitization will be similar to the K-deal structure in that Freddie Mac will sell the first loss risk to private capital. The originating sellers must purchase the subordinate bonds on their loans, which they can then sell in whole or in part to third party investors.
The small balance loans will include full-term interest-only options, non-recourse, low interest rates, 80% loan-to-value ratios, 1.20 debt service coverage ratio for top markets and 60- to 120-day rate lock.
In an effort to expand the inventory of affordable rental housing in the U.S., Freddie Mac has launched a new multifamily lending program aimed at small rental property borrowers. The GSE will purchase and securitize small multifamily acquisition and refinance loans of $1 million to $5 million for assets that have least five apartment units.