Freddie Mac Picks Lenders for Small Loan Product
- Nov 11, 2014
Washington, D.C.—Freddie Mac has tapped three lenders as the first ones to sell loans to the company as part of its new Small Business Lending product: Hunt Mortgage Group, Greystone Servicing Corp. and Arbor Commercial Mortgage. Under the program, the lenders will provide small multifamily loans between $1 million to $5 million to borrowers nationwide.
The initiative provides approved lenders with a dedicated platform to originate and sell loans on smaller rental properties, which the GSE hasn’t done previously. Freddie Mac initiative will then purchase and securitize the loans, which are on properties with least five apartment units.
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 investors.
The market is actually fairly large. Nearly a third (29 percent) the multifamily debt market is made up of smaller loans, with an average size of $1.2 million, according to Tripp (the data is from 2012).
Historically, local lenders have financed small multifamily properties, and debt capital isn’t widely available across the country from national lenders with standard products. Freddie Mac anticipates that the average loan in the initiative will be about $2.5 million. Though this Freddie Mac’s first product targeting the small loan market, the GSE has rolled out other new products recently, such as the direct purchase of tax-exempt loans, which it started a few months ago.