McLEAN, VA—Freddie Mac has unveiled the details of a new program in which it will purchase and securitize small multifamily loans of $1 million to $5 million for assets that have least five apartment units. The GSE has a designated Small Balance Loan team for the production, pricing, underwriting, closing, purchasing and funding of these loans, which are expected to further expand the inventory of affordable rental housing in the US.
So far the GSE has tapped Arbor Commercial Mortgage, Greystone Servicing Corp. and Hunt Mortgage Group as lenders in the program. It is currently looking to add to that list of names, Nashwa Moussa, director at Freddie Mac tells GlobeSt.com.
"We will be adding lenders as they are reviewed and approved," she says, noting the GSE is "actively looking for sellers and servicers with experience in this space. Small loan creds can be rather rare as typically it is local lenders that provide financing to small multifamily properties. It is not, in other words, a skill set found at many national shops that offer standardized products.
Besides understanding the space, lenders will have show they can repurchase the obligations, Moussa says. "They will also be expected to buy the B piece upon securitization. So this is not just a matter of being able to originate a small loan but also being able to take on a whole range of obligations."
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.
Freddie Mac anticipates that the average loan will be about $2.5 million. About 29% of the multifamily loan market is comprised of smaller loans with an average loan size of $1.2 million, according to 2012 data from Trepp.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
