Freddie Mac has funded more than $1bn in small balance loans (SBL) on multifamily properties since launching the initiative in October of last year.
Freddie Mac purchases and aggregates the loans — typically ranging in size between $1-$5m — by seller and then securitizes them into Freddie Mac SB Certificates.
The company considers the process one of its “credit risk transfer programs,” as the government-sponsored enterprise sells the first loss position, equating to most of — if not all — the credit risk.
For example, on the first securitization, a $108m, 44-loan deal originated by Greystone (FRESB 2015-SB1 Mortgage Trust), Freddie Mac guaranteed the entire AAA position (90%) only, while Greystone sold off the Class B, X2 and R certificates to private investors.
A second, $109m, 42-loan securitization is anticipated to settle this week, backed by 42 loans originated by Arbor Commercial Mortgage.
And, as first reported in Real Estate Capital, about $200m worth of SBL loans originated by Greystone are slated to be bundled together and securitized as Freddie Mac SB Certificates in October, marking the largest deal yet.
The SBL initiative is meant to better serve less populated markets and provide additional liquidity to smaller apartment properties. Close to one-third of renters live in smaller properties with five to 50 units, many of which range from affordable to very low-income.
“With this country’s growing gap between affordable housing demand and supply, it is critical to provide capital to this market,” said Stephen Johnson, Freddie Mac senior director of Multifamily Production for SBL, in a statement announcing the $1bn milestone.
Loan-to-values stretch up to 80% with a minimum 1:25x debt service coverage ratio (1.20x in top markets). Additional options include partial or full-term interest only; 60-120 day rate locks; and Hybrid ARMs or fixed-rate balloon mortgage structures.
Since the initiative was launched, Freddie Mac has on-boarded and trained 10 Seller/Servicers, inspected nearly 500 properties and underwritten/funded nearly 400 loans with an average balance of $2.5m.