A new agency program that has been created to finance multifamily loans is targeted at smaller apartment properties.
A previous report from Trepp LLC indicates that roughly 29 percent of the multifamily loan market consists of smaller loans.
So the Federal Home Loan Mortgage Corp.’s multifamily division announced that it has launched an initiative to purchase and securitize small multifamily loans.
Properties need to be at least five units, and loan amounts will range from $1 million to $5 million.
Loan-to-value ratios can go up to 80 percent, and debt service coverage ratios can be as low as 1.25 times. In top markets, the minimum DSCR is 1.20 times.
Loan types include hybrid adjustable-rate mortgages and fixed-rate balloon mortgages. Rate locks are for 60 to 120 days.
“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 Multifamily Executive Vice President David Brickman stated in the announcement. “We anticipate the average loan to be about $2.5 million and hope to grow our volume in the market segment every year.”
The McLean, Va.-based company said that it has designated a small balance loan tem to handle everything from production to funding of the loans.
Freddie plans to securitize the loans like it does with its K-deal structure — sharing the risk with investors.
Subordinate bonds on the loans must be purchased by the originating sellers, though the bonds can be sold to third-party investors.
Freddie said that Arbor Commercial Mortgage, Greystone Servicing Corp. and Hunt Mortgage Group are each already approved to sell the smaller loans to Freddie.
“With this country’s growing gap between affordable housing demand and supply, it is critical to provide financing for smaller loans and properties, especially since this market segment disproportionately serves lower income renters,” Brinkman said.
