About $200m worth of multifamily, small balance loans (SBL) originated by Greystone are slated to be bundled together and securitized as Freddie Mac SB Certificates in October, Real Estate Capital has learned.
The securitization will mark the largest since Freddie Mac announced the SBL origination initiative in October 2014, having up until now anticipated loan pool sizes in the $100-$125m range.
The first securitization was a $108m, 44-loan deal, FRESB 2015-SB1 Mortgage Trust, also originated by Greystone and securitized earlier this month. A second, $109m, 42-loan securitization is anticipated to settle this week, backed by 42 loans originated by Arbor Commercial Mortgage.
“The velocity of our small loan business is driving the numbers up,” said Rick Wolf, who heads Greystone’s small balance lending division. “Greystone has been an investor in small balance loans, primarily through Fannie Mae, for more than 10 years. If you are going to originate hundreds of loans you need the structure to run that business efficiently and effectively, and we have that.”
Through the SBL and SB certificate program, which Freddie Mac considers one of its “credit risk transfer programs,” the government-sponsored enterprise sells the first loss position, equating to most of — if not all — the credit risk. On FRESB 2015-SB1, for example, Freddie Mac guaranteed the entire AAA position (90%) only, while Greystone sold off the Class B, X2 and R certificates to private investors.
Loan sizes, for acquisition or refinance, typically range between $1-$5m on properties with five or more units, with loan-to-values stretching up to 80% and 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.
“When we heard Freddie was launching this initiative we jumped right in,” Wolf said. “They have done a great job developing an appealing product, and we’ve participated extensively in the process and its development. They didn’t go and do it all in a windowless room. There was back and forth for about 10 months.”