Freddie Mac has launched its first securitization of small-balance loans on multi-family properties.
The 44 mortgages backing the $108 million of SB1 Certificates are underwritten by Freddie Mac and originated by Greystone Servicing Corp.
Wells Fargo Securities, LLC will operate as sole lead manager and bookrunner.
The deal is expected to price this week and settle on or about Aug. 18.
Freddie Mac launched the small balance loan initiative at the end of October; it targets loans on multifamily properties with five units or more ranging from $1 to $5 million. Financing may be in the form of either hybrid adjustable-rate mortgages or fixed-rate mortgages. Underwriting guidelines are highly competitive with those of banks, allowing borrowers to finance as much as 80% of the value of a property and to pay only interest for a period of time.
Freddie Mac purchases and aggregates loans by seller and then securitize each seller's deals when pool sizes are approximately $100-$125 million.
Freddie Mac is guaranteeing senior securities issued by the FRESB 2015-SB1 Mortgage Trust, and is acting as mortgage loan seller and master servicer. The guaranteed securities have an assumed weighted average life of 3.54 years for the class A notes and 3.6 years for the class X1 notes.
As with its well-established “K” program backed by larger multi-family mortgages, the agency will transfer the first-loss risk in SB Certficaets deal to private investors via the sale of class B, X2 and R certificates, which will not be guaranteed by Freddie Mac.
"With SB-Deals, we are once again selling the first loss position, thereby selling substantially all of the credit risk associated with these small balance loans,” Mitchell Resnick, vice president of Freddie Mac Multifamily Capital Markets, said in a press release.
“We are introducing a new product to bond investors, one that will further assist Freddie Mac in providing affordable rental housing in the country."
According to the deal’s offering circular, the 44 mortgages backing the SB1 certificates are backed by properties in 10 states; California (28.4%) and New York (19%) and Pennsylvania (21.1) are the most heavily represented.
All of the loans are secured by first liens, but property owners have the ability to incur subordinated secured financing.