As part of its effort to support affordable rental housing and provide the underserved small rental property borrower with access to long-term debt capital, Freddie Mac Multifamily is now purchasing and securitizing multifamily loans of $1 million to $5 million.
Properties collateralizing the loans must have at least five apartment units.
‘We believe our initiative will increase liquidity in the small multifamily loan space, provide stability, and facilitate private capital investment in this somewhat fragmented and underserved market segment,’ says David Brickman, executive vice president of Freddie Mac Multifamily, in a release.
‘Historically, local lenders have financed small multifamily properties and debt capital is not widely available across the country from national lenders with standard products. We anticipate the average loan to be about $2.5 million and hope to grow our volume in the market segment every year.’
Brickman added, ‘With this country's growing gap between affordable housing demand and supply, it is critical to provide financing for smaller loans and properties, especially [because] this market segment disproportionately serves lower-income renters.’
Recent data from Trepp shows that about 29% of the multifamily loan market comprises smaller loans with an average loan size of $1.2 million.
Freddie Mac says it has assembled a team that is dedicated to the production, pricing, underwriting, closing, purchasing and funding of these loans. 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 comprise 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 investors.
To date, Arbor Commercial Mortgage, Greystone Servicing Corp. and Hunt Mortgage Group are approved to sell these loans to Freddie Mac. Additional lenders will be added as they are approved.
‘We are extremely pleased to partner with Freddie Mac on this new, national product offering,’ says Ivan Kaufman, chairman and CEO of Arbor, in a separate release. ‘Through our experience and success in the multifamily 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.
‘Therefore, we greatly appreciate Freddie Mac's creation of this new platform, which promises to further enhance the small balance finance offerings available to multifamily investors. This new platform also brings to Arbor yet another new loan product offering, ensuring our valued clients have access to a truly comprehensive lineup of multifamily finance solutions.’
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