Freddie Mac Small Balance Loan Program
In 2014, Freddie Mac Executive Vice President David Brickman announced the company would be offing a new Small Balance Loan (SBL) program to assist small business owners in securing liquidity for their investments. Since then, the program has exploded, offering a record $8.3 billion of loans in 2018. The program ensures approved sellers and servicers have a platform dedicated to selling loans for smaller rental properties. Qualifying projects include multifamily properties with loans that that range from $1 million to $7.5 million. Some of the key benefits and features of the Freddie Mac SBL program are outlined below. Freddie set this program in motion to compete with Fannie Mae, who traditionally had the small-balance market cornered.
Servicer & Seller Requirements
In addition to the property requirement, servicers and sellers must also meet a specific set of guidelines. These include collateral, undergoing a rigorous assessment, B-piece purchase, loss sharing, repurchasing of delinquent SBLs and origination of at least $50 million per quarter.
As with most any loan, collateral is a major part of the agreement. Collateral supports the SBL repurchase requirements, the B-piece, and the loss share obligations listed above. However, prior to securing any SBL, you must first undergo fairly rigorous underwriting. As you could imagine, Freddie Mac is determined to avoid any new crises.
Servicer & Seller Benefits
Luckily for us, with this program comes a long list of goodies and benefits for servicers and sellers. These benefits include a simplified pricing process, a simplified SBL insurance assessment, less documentation, a reduction in due diligence requirements and easier third party reporting. Did we mention, better pricing? Yep!
The goal is to make the process as easy as possible for SBL sellers and servicers without reducing the quality of the loans. Competitive pricing, less documentation, a streamlined underwriting process, and either hybrid ARM or fixed-rate loan products are the benefits of this program. For owners of multifamily properties, SBL could very well be the ticket towards better investments in the future.