Freddie to Do Bigger Business in Small-Loan Space
- Dec 03, 2014
For multi-family lenders, small loans are big business. Small loans are estimated to make up almost 30 percent of the multi-family market. In an attempt to become more competitively involved in this space, Freddie Mac last month launched its Small Balance Loan (SBL) Program. The program marks the organization’s entrance into what they’ve called an “underserved” market, and mirrors Fannie Mae’s increased focus on SBLs in its 2.0 guidelines to become effective by the end of the year.
Freddie Mac will use the SBL program to further support affordable housing by providing a platform to purchase and securitize small multi-family loans. The program requires originating seller/servicers to purchase the B-pieces secured by their underlying loan, which in turn can be sold to other investors. To promote liquidity, Freddie Mac has simplified some underwriting and due diligence requirements that will facilitate more competitive pricing and streamlined deal cycles. Loans approved through the program are subject a number of conditions, including:
- The completion of the new Form 1104 (which requires a limited property condition assessment and environmental transaction screen assessment)
- The same requirements for assessor expertise and certifications as used for standard Freddie Mac due diligence
- The completion of a level 0 seismic analysis if the property is located within a seismic zone 3 or 4
Freddie Mac is actively expanding its current pool of approved seller/servicers, who will each be expected to deliver a minimum of $50 million in SBLs per quarter or $200 million per year. This is a significant offering of deals that has potential to greatly increase activity in the multi-family and affordable housing market. Despite simplified underwriting requirements, SBL lenders and borrowers must carefully assess the viability of the property and loan type to adequately protect against risks and liabilities when taking advantage of Freddie Mac’s promising new platform.