The Freddie Mac Small Balance Loan (SBL) Program is a program launched in 2014 by Freddie Mac Executive Vice President David Brickman to assist small business owners in securing liquidity for their investments. The program offers a platform dedicated to selling loans for smaller rental properties, with loans ranging from $1 million to $7.5 million. It offers competitive pricing, less documentation, a streamlined underwriting process, and either hybrid ARM or fixed-rate loan products.

The program was created to compete with Fannie Mae, who traditionally had the small-balance market cornered. It offers a number of benefits for servicers and sellers, including a simplified pricing process, a simplified SBL insurance assessment, less documentation, a reduction in due diligence requirements, and easier third party reporting. More information about the benefits of the program can be found here.

The Benefits of Freddie Mac Small Balance Loans include:

• Flexible loan sizes, starting at just $750,000 and going up to $7.5 million
• Low interest rates, starting from just 4.51%
• High leverage, up to 80% Loan-to-Value (LTV)
• Generous Debt Service Coverage Ratio (DSCR) minimums, as low as 1.20x
• 30-year amortizations, keeping payments low for borrowers
• Partial and full-term interest-only loans offered
• Cash-out refinancing offered for eligible borrowers
• Multiple fixed rate term options (with up to 10-year terms) and hybrid ARM options (with 20-year terms)
• Soft step-down prepayment penalties allowed
• 60-120 day rate commitments offered
• Loans are fully assumable with 1% fee and Freddie Mac approval
• Financing is non-recourse (with individual exceptions for certain loans)

Eligible property types for the Freddie Mac SBL Program include multifamily and apartment properties with five or more units, properties with commercial space that does not comprise more than 25% of the property’s gross income, independent living properties for seniors without resident services, Low Income Housing Tax Credit (LIHTC) properties with land restrictions in the extended use period or the final 24 months of the initial restriction period, other regulatory restrictions that limit income/rent, tax abatement properties, tenant-based housing voucher properties, buildings with local rent subsidies for 10% or less units, and cooperatives located in New York City or Long Island. In contrast, properties that are ineligible for the SBL program include LIHTC properties with more than 24 months left on their Land Use Restrictive Agreement, Tax-exempt bonds Interest Reduction Payments (IRPs), properties with a greater than 50% concentration of student or military housing, properties with Section 8 contractors or other project-based HAP contracts, and Master lease HTC (Historic Tax Credit) properties.

Sources:

• What Types of Properties Can Be Purchased or Refinanced with Freddie Mac Small Balance Loans?
• Is the Freddie Mac SBL Program Available for Affordable Properties?

The Freddie Mac® SBL Program requires servicers and sellers to 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.

In addition, 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.

The Freddie Mac Small Balance Loan (SBL) program offers apartment financing in amounts between $1 million and $7.5 million. It offers loan-to-value (LTV) ratios up to 80% and debt service coverage ratios (DSCRs) as low as 1.25x. The SBL program offers a wide selection of fixed and variable rate terms from 5 and 20 years, with 30-year amortizations. It also offers an early rate lock option to avoid interest rate risk.

Source: Freddie Mac® SBL Program and Freddie Mac

You can apply for the Freddie Mac® SBL Program by contacting an approved seller or servicer. You can find a list of approved sellers and servicers here. You will need to provide documentation such as financial statements, rent rolls, and other information to the approved seller or servicer. Once approved, you can begin the process of securing a loan.