As found in the CPE Daily Newsletter on October 13, 2014:
Freddie Mac Multifamily has named three nationwide lenders to launch its new Small Balance Loan product aimed at providing more affordable housing by giving small rental property owners access to long-term debt capital.
The loans, which will initially be offered by Arbor Commercial Mortgage, Greystone Servicing Corp. and Hunt Mortgage Group, are designed for multi-family acquisitions and refinancing, and will offer both fixed-rate mortgages and hybrid adjustable-rate mortgages ranging from $1 million to $5 million.
“We believe our initiative will increase liquidity in the small multi-family loan space and provide stability and facilitate private capital investment in the somewhat fragmented and underserved market segment,” David Brickman, Freddie Mac Multifamily executive vice president, said in a news release. “Historically, local lenders have financed small multi-family properties, and debt capital is not widely available across the country from national lenders with standard products.”
Freddie Mac anticipates the average loan to be about $2.5 million and expects the volume to grow yearly. About 29 percent of the multi-family loan market is comprised of smaller loans with an average loan size of $1.2 million, according to 2012 data from Trepp.
The securitization will be similar to the K-deal securitization structure, in which Freddie Mac sells the first loss risk to private capital. For a Small Balance Loan securitization, the collateral will be comprised of small balance loans, and the originating sellers must purchase the subordinate bonds on their loans, which they can then sell in whole or in part to third party lenders.
Freddie Mac said it has a designated Small Balance Loan team for the production, pricing, underwriting, closing, purchasing and funding of these loans.
“Through our experience and success in the multi-family small balance loan business, we have a comprehensive understanding of the level of expertise needed to execute this product and recognize the importance of properly serving this growing market,” Ivan Kaufman, chairman & CEO of Uniondale, N.Y.-based Arbor Commercial Mortgage, said in a statement. “We greatly appreciate Freddie Mac’s creation of this new platform, which promises to further enhance the small balance finance offerings available to multi-family investors.”
Arbor said it is one of a few multi-family lenders offering both Freddie Mac and Fannie Mae Small Loans. Earlier this year, Arbor was named as a Program Plus Seller/Servicer for all conventional loan products.
“As a veteran small loan lender, Arbor brings a great deal of knowledge and talent to this program and we look forward to working with them in serving the multi-family small loan market,” Brickman said in a news release.
Additional lenders will be added to the program as they are approved, he said.
Last year, New York-based Greystone began its own initiative to offer a lending product to the affordable housing market. It launched Greystone Affordable Loan Program to provide long-term, fixed, forward rate-lock financing for multi-family affordable housing properties. Designed to complement Freddie Mac, Fannie Mae and FHA lending platforms, it offers 15- or 30-year term non-recourse mortgages for loans of minimum $1 million.
Hunt provides real estate financing solutions for conventional and affordable multi-family housing. In July, Centerline Capital Group of New York officially became Hunt Mortgage Group. Centerline had been acquired by El Paso, Texas-based Hunt Cos. Inc. in November 2013. The acquisition significantly expanded Hunt’s affordable housing asset management business.