Greystone said Thursday that it has closed the first two transactions originated under Freddie Mac's small balance commercial mortgage loan initiative.
The transactions refinance over $4.6 million in loans secured by smaller rental properties in Los Angeles, California. The loans include a $1,983,000 for a six-unit property and $2,639,000 for a 10-unit property.
Freddie Mac launched the 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.
Once Freddie Mac has guaranteed enough loans under the small-balance program, it will securitize them, as it does with larger multi-family mortgages in its well-established “K” program. As it does with the K deals, the agency will transfer the first-loss risk to private investors. However, the subordinate tranche of small-balance deals will be purchased by the originating sellers, which they can then turn around and sell the securities to other investors. By comparison, with K-deals, Freddie sells the subordinate B-piece directly to third-party investors.
"With almost a third of the multifamily debt market consisting of properties financed by small balance loans, with our participation, we want to increase the debt finance options in this sector that is a rich source of affordable rental housing,“ Nashwa Moussa, senior director of Freddie Mac Multifamily, said in a press release. “We look forward to closing more small balance loans with Greystone."
In addition to Greystone, Arbor Commercial Mortgage, Hunt Corp and Hunt Mortgage Group were initially approved by the agency as small business loan sellers/servicers.