It’s a common refrain from owners of small multifamily properties when a broker suggests using agency financing like Freddie Mac, according to Joe Back, vice president of FM Capital, a Florida-based commercial broker.
In Back’s experience, small multifamily property owners shy away from agency loans because they expect a slow, difficult process but this perception may be more myth than reality.
“When I present the terms and explain how straightforward the process is, there is disbelief; but building by building, owners are converting to agency loans,” says Back. He sources small loans for Arbor, a lender that offers Freddie Mac Multifamily Small Balance Loans.
Freddie Mac has become a leading source of small multifamily loans, with nearly $12 billion funded in about three and a half years, as it seeks to change what borrowers think about agency financing. So, what can borrowers expect?
Generally, small multifamily loans from traditional sources are structured with shorter terms and full recourse liability (a personal guaranty to repay the loan). While Freddie Mac does offer shorter terms for borrowers who want flexibility to cash in on quick value growth, it also offers longer fixed terms.
“Borrowers are interested in locking in a low interest rate for a longer term,” Back explains. “Freddie Mac’s small loans are a great match for that because they offer fixed rates up to 10 years. Combined with a non-recourse structure and step-down prepayment – instead of yield maintenance – this is a game changer.”
“When we started this program, we obsessed over eliminating all the little things that drive people nuts, waste time and cost money,” said Steve Johnson, who leads Freddie Mac Multifamily’s Small Loan Business unit.
To speed deal making, Freddie Mac adopted standardized loan documents that eliminate time and money spent on legal review as well as pre-approval underwriting that allows lenders to make faster decisions. In many cases, this allows loans to close in as few as 30 days.
Every City, Every Town
Freddie Mac’s founding mission to support liquidity, stability and affordability in all economic cycles means that its Small Balance Loans are available in all markets, big and small, nationwide. It works with a network of approved lenders who originate its small loans nationwide.