Securitization for Freddie Mac Small Balance Loans
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In the process of securitization, loans are pooled together and sold to investors. Many types of commercial and multifamily loans, including HUD/FHA multifamily loans, Freddie Mac and Fannie Mae multifamily loans, and CMBS loans are securitized. Securitization significantly increases the amount of money available for borrowers, as lenders can make a loan, sell it for securitization, and can use the proceeds to make another loan, beginning the process all over again.
In the case of Freddie Mac Multifamily securitizations, lenders sell the loans directly to Freddie Mac, which will place the loans in a third-party trust, after which they will be sold as bonds on the secondary market. Most classes of Freddie Mac bonds are guaranteed by Freddie Mac, though certain subordinate and mezzanine bonds are not. Unlike U.S. Treasury bonds, Freddie Mac bonds are not explicitly backed by the full faith and credit of the U.S. government, however, they are implicitly government-guaranteed, as most investors believe Freddie Mac would receive a bailout were it to struggle financially (as it did in 2008). In regards to the Freddie Mac SBL program, all (or nearly all) loans are securitized. For borrowers, this means that their Optigo Small Balance Loans will sometimes not be serviced by their original lender, though this is not always the case.
Related Questions
What is the process for securitizing Freddie Mac Small Balance Loans?
The process for securitizing Freddie Mac Small Balance Loans is as follows:
- Lenders sell the loans directly to Freddie Mac, which will place the loans in a third-party trust.
- The loans are then sold as bonds on the secondary market.
- Most classes of Freddie Mac bonds are guaranteed by Freddie Mac, though certain subordinate and mezzanine bonds are not.
- Unlike U.S. Treasury bonds, Freddie Mac bonds are not explicitly backed by the full faith and credit of the U.S. government, however, they are implicitly government-guaranteed.
For more information on Freddie Mac Small Balance Loans, please visit https://apartment.loans/freddie-mac-small-balance-loans/.
What are the benefits of securitizing Freddie Mac Small Balance Loans?
The benefits of securitizing Freddie Mac Small Balance Loans include:
- Increased amount of money available for borrowers, as lenders can make a loan, sell it for securitization, and can use the proceeds to make another loan, beginning the process all over again.
- Loans are sold directly to Freddie Mac, which will place the loans in a third-party trust, after which they will be sold as bonds on the secondary market.
- Most classes of Freddie Mac bonds are guaranteed by Freddie Mac.
- Freddie Mac bonds are implicitly government-guaranteed.
What are the risks associated with securitizing Freddie Mac Small Balance Loans?
The primary risk associated with securitizing Freddie Mac Small Balance Loans is that the loans are not explicitly backed by the full faith and credit of the U.S. government. However, they are implicitly government-guaranteed, as most investors believe Freddie Mac would receive a bailout were it to struggle financially (as it did in 2008). Additionally, borrowers should be aware that their Optigo Small Balance Loans may sometimes not be serviced by their original lender, though this is not always the case.
What are the requirements for securitizing Freddie Mac Small Balance Loans?
The requirements for securitizing Freddie Mac Small Balance Loans include collateral, undergoing a rigorous assessment, B-piece purchase, loss sharing, repurchasing of delinquent SBLs and origination of at least $50 million per quarter. Additionally, loans must be in a Top Market or Standard Market, eligible borrowers must have previous Freddie Mac Multifamily experience, borrowers must have significant multifamily experience in the area, properties must underwrite a vacancy of at least 5% and an expense ratio of at least 30%, 10-15 bps will be added loans in Top Markets, 15-20 bps will be added to loans in Standard Markets, cash-out refinances are typically subject to stricter leverage requirements, seller/servicers may not market Small Balance Loans less than $1 million, and Freddie Mac generally requires 3 additional business days for commitments and inspections. In terms of credit, borrowers for the Optigo Small Balance Loan program will usually need to have a FICO credit score of at least 650, and capacity, which is defined by DSCR, varies between 1.20x (for amortizing loans in Top Markets) to 1.50x (for full-term interest-only loans in Small Markets).
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What are the advantages of securitizing Freddie Mac Small Balance Loans over traditional financing?
Securitizing Freddie Mac Small Balance Loans has a variety of advantages over traditional financing. According to Apartment.Loans, securitization significantly increases the amount of money available for borrowers, as lenders can make a loan, sell it for securitization, and can use the proceeds to make another loan, beginning the process all over again. Additionally, Freddie Mac bonds are implicitly government-guaranteed, as most investors believe Freddie Mac would receive a bailout were it to struggle financially (as it did in 2008).
In terms of the Freddie Mac SBL program specifically, according to Multifamily.Loans, the program offers a variety of advantages, including up to 80% LTV allowance, a streamlined application process, non-recourse loans, interest-only options, 30-year amortizations, and assumable loans with approval and a 1% fee.