Freddie Mac officials see a big opportunity in the small loans space.
The government-sponsored enterprise announced the launch of a new commercial loan initiative for purchasing and securitizing small loans on Thursday.The program will focus on loans between $1 million and $5 million with at least five units with the hopes of helping to bolster the nation’s affordable rental housing stock and serve an under-served part of the market with access to long-term debt capital.
Nashwa Moussa, senior director, says there is plenty of liquidity for Freddie Mac to get into the space to do battle with banks and Fannie Mae, which has had a small loan program for many years.
“And Fannie only has less than 5 percent of that market space,” she says. “There’s a huge opportunity in the secondary market space to enter it and provide some stability.”
The new program is designed to provide a consistent institutional provider in the space with both fixed-rate and hybrid adjustable-rate mortgages.
“The availability of debt from one market to the next is inconsistent,” she says. “You can’t guarantee the same parameters—competitive pricing in Duluth, [Minn.] is different from New York City.”
Moussa estimated about 30 percent of the multifamily debt market is comprised of small balance loans. The securitization for the small loans will be similar to the agency's K-deal securitization structure. The agency announced it had closed on the eleventh multifamily K-deal in Mid-September, issuing about $1.2 billion in certificates.
Greystone Servicing Corporation, Hunt Mortgage Group, and Arbor Commercial Mortgage were named as the servicers approved to sell the loans to Freddie Mac, while other lenders are also being considered, according to an agency news release.
Here are the terms as noted in the release:
- Loan amounts of $1 - $5 million for acquisition or refinance
- Partial or full term interest only available
- Up to 80% LTV
- 1:25x debt service coverage ratio minimum, and 1.20x in top markets
- 60-120 day rate lock
- Hybrid ARMs or fixed-rate balloon mortgage
Lindsay Machak is an Associate Editor for Multifamily Executive. Connect with her on Twitter @LMachak.