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Multifamily Viewpoints

$1 Billion and Counting…

By Steve Johnson
Published on September 10, 2015

Our Small Balance Loan (SBL) offering has reached a big milestone this week— funding more than $1 billion in loans less than one year since its launch. We also completed two securitizations (SB1 and SB2) last month, each worth more than $100 million, and expect to finalize SB3 later this month.

It’s amazing to think of how far we’ve come in such a short period of time, especially considering that— as a newcomer to this segment of the market— we built a stand-alone small multifamily loans business from the ground up including staff, systems and resources in production, underwriting, purchasing, legal, operations and servicing—all dedicated to small loans.

The Value of Fresh Thinking

In many ways, starting from the ground floor gave us an advantage. It was an opportunity to apply fresh thinking as we expanded our business into a new segment of the market. Our goal from the beginning was to set a new standard for the way small multifamily loans financing is done.

Small Balance Loans, 1 Billion and Counting

To do this, we leveraged the strengths of our existing business model— our people, their unparalleled knowledge of the market and our strong credit culture. We crafted loan products that are highly cost-competitive with features like coupon pricing and stepdown prepayments. We streamlined operational processes, loan documents and systems to meet the unique needs of small property borrowers. We built a Seller/Servicer network that consists of the most-experienced small loan lenders. Then, we put all of these elements to work to do what we do best: identifying great deals, selling them through our securitization model and delivering a best-in-class borrower experience.

The Freddie Mac Difference

In a segment that’s traditionally been served by regional and community lenders, we believe our approach offers many benefits to borrowers and renters:

  • We’re committed. We’re federally mandated to provide liquidity, stability and affordability to the rental housing market.
  • We’re nationwide. We finance multifamily properties throughout the country, not on a regional or niche-market basis.
  • We support market stability. Leveraging the strengths of our K-Deal securitization model for small loans means liquidity and stability in economic ups and downs.
  • We have a strong credit culture. We inspect every property (nearly 500 so far) and underwrite every loan in-house (nearly 400 so far), ensuring consistency but applying a human understanding of the unique elements of each deal.
  • We transfer risk. Private capital plays an integral role in our SBL offering, protecting the US taxpayer by taking a first loss position in the securitization capital structure.
  • We provide an industry-leading borrower experience. Our commitment to the borrower extends well beyond the closing table. As the master servicer on all of our Small Balance Loans, we ensure borrowers are always heard and treated professionally and fairly throughout the life of the loan.

What’s Next

As always, we strive to compete and perform as a truly private company in both efficiency of our operations and prudence of the risk-reward balance. We’re very excited to have reached $1 billion in loans so early in the game, but we’re not resting. We intend to continue innovating to ensure we have the best execution possible in the market.

We continue to improve our performance by leveraging new technology solutions and partnering with Seller/Servicers to better exchange information for a smoother overall loan process. And, most recently, we adjusted our market tiers and our credit approach for greater flexibility in meeting market demand. Expect us to continue to refine our approach even further as we continue to deploy more expertise throughout the country.

We’d like to specially thank our Seller/Servicers for their role in achieving this milestone. They have demonstrated a commitment by making their own investment in staff, time and resources to participate in this program. And they have provided incredible feedback throughout our journey that has been an essential part of this success. We look forward to continuing to work with them to transform the small loans space. Our first $1 billion is a great step toward that goal and we look forward to many more milestones to come.

2015 Customer Conference

On October 15 and 16 we will host our annual Customer Conference in Chicago, open to all staff of our approved Seller/Servicers and their outside counsel. This year, staff from our approved SBL Seller/Servicers is especially encouraged to attend. The event will include two breakout sessions dedicated to SBL—a session covering successes and lessons learned, and a session dedicated to operational business exclusively for our approved SBL Seller/Servicers.

Steve Johnson is senior director of multifamily production
Have a question or comment? Contact Steve

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