The Freddie Mac Optigo Small Balance Loan Program offers cash-out refinances, though they are typically approved on a case-by-case basis. Overall, borrowers are more likely to be approved for cash out if they present a low risk for Freddie Mac. The most eligible borrowers for cash-out refinancing deals include those who are financing higher-quality properties in Top and Standard Markets, with DSCRs somewhat above the minimum requirements (1.20x - 1.25x for those markets).

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.

Unlike many types of multifamily financing, the Freddie Mac SBL program offers loans as low as $750,000. However, these ‘smaller’ Small Balance Loans come with additional requirements, due to the additional risk and expense they carry. Additional requirements include:

• Loans must be in a Top Market or Standard Market
• Eligible borrowers include:
  • Previous Freddie Mac Multifamily borrowers
  • Borrowers taking out multiple loans simultaneously
  • Borrowers who will are likely to engage Freddie Mac for 2+ additional loans within the next 12 months
  • Borrowers with significant multifamily experience in the area (2+ years local multifamily experience and 2+ multifamily properties owned)
  • Loans that were initially approved for $1 million+ but were later constrained by property NOI or other factors
• Properties must underwrite a vacancy of at least 5% and an expense ratio of at least 30%

Additionally:

• 10-15 bps will be added loans in Top Markets, while 15-20 bps will be added to loans in Standard Markets
• Cash-out refinances for these loans are typically subject to stricter leverage requirements (LTV/DSCR)
• Seller/servicers may not market Small Balance Loans less than $1 million
• Freddie Mac generally requires 3 additional business days for commitments and inspections

The Benefits of a Freddie Mac SBL Program Cash-Out Refinance 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% LTV
• Generous DSCR minimums, as low as 1.20x
• 30-year amortizations, keeping payments low for borrowers
• Partial and full-term interest-only loans offered
• 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)

The risks associated with a Freddie Mac SBL Program cash-out refinance include:

• The borrower must present a low risk for Freddie Mac in order to be approved for cash-out refinancing.
• The borrower must finance higher-quality properties in Top and Standard Markets, with DSCRs somewhat above the minimum requirements (1.20x - 1.25x for those markets).
• The borrower must pay an application fee of $4,500 for Top Markets and $8,500 for Standard Markets.
• Leverage and DSCR requirements become significantly stricter in small and very small markets (1.30x and 1.40x DSCR, respectively, and between 70-75% LTV).
• Certain limits on subordinate financing.
• Replacement reserves of up to $300/unit are often required.

The approval process for a Freddie Mac SBL Program cash-out refinance typically takes 45 to 60 days after application. Borrowers are more likely to be approved for cash out if they present a low risk for Freddie Mac, such as financing higher-quality properties in Top and Standard Markets, with DSCRs somewhat above the minimum requirements (1.20x - 1.25x for those markets).

For more information, please refer to the following sources:

• Freddie Mac Optigo Small Balance Loan Program
• Does the Freddie Mac SBL Program Offer Cash-Out Refinances?
• Small Apartment Loans: The Best Options for Borrowers

The borrower must provide financial reports that are aggregated for a Freddie Mac SBL Program cash-out refinance. This means that any reports must treat the individual buildings as one property, rather than a number of separate ones. Financial reporting must also be in line with Loan. This requirement also applies to the appraisal and the property condition assessment. The structures must all be considered one property.

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.