Freddie Mac High-Leverage Loan Execution

Freddie Mac offers the High-Leverage Loan execution for conventional fixed-rate mortgages. Borrowers who choose this execution will be able to obtain financing for up to 85 percent loan-to-value (LTV). We have the flexibility of looking at transactions that have a combined debt coverage ratio below 1.10x, even as low as 1.0x for the right deal. This option is intended to improve the process and reduce the cost of obtaining higher-leverage financing by eliminating the need to pursue additional proceeds or mezzanine financing from third-party sources.

Freddie Mac will underwrite the loan taking into account that it will be originated with two notes and two mortgages. Freddie Mac will purchase the larger first mortgage through its normal funding process, and CWCapital will purchase the smaller second mortgage directly from the seller/servicer. The loan term and amortization will be the same for both pieces; however, each note will have a separate interest rate. We offer matching or shorter yield maintenance periods for the second mortgage. The borrower will make payments to the seller/servicer. The seller/servicer will remit the first mortgage payments to Freddie Mac and the second mortgage payments to CWCapital.

Eligible Loans

Conventional cash

Eligible Properties

• Stabilized garden-style, low-, mid- and high-rise apartments
• Market-rate only – no student, military, or Section 8 tenant concentrations greater than 25%, no tax credit, manufactured or seniors housing

Eligible Borrowers

• Single asset entity
• Net worth and liquidity commensurate with the requested financing amount as determined by Freddie Mac

Eligible Lenders

Program Plus® lenders

Combined Loan Amount

$3 million to $22.5 million

Maximum Combined LTV

85%

Minimum Combined DCR

1.10x, will consider below 1.10x based on the exit scenario and strength of the borrower, property, and market

First Mortgage LTV

75% maximum

Second Mortgage LTV

The greater of 10% or $500,000 (maximum $2,500,000)

Term

• 7 to 10 years (may add 1-year extension period with fixed-to-float option)
• Each first and second mortgage will have equal terms running concurrently

Amortization

Up to 30-year amortization schedule on each first and second mortgage

Prepayment Provisions

Each mortgage subject to applicable yield maintenance premium. Two options for length of yield maintenance on the second mortgage:

• Coterminous with the first mortgage
• 5-year yield maintenance period, 1% thereafter

Subordinate Financing/Supplemental Mortgages

No additional debt allowed while second mortgage is outstanding

Recourse Requirements

Nonrecourse except for standard carve-out provisions

Minimum Occupancy

90% for 90 days prior to loan closing

Third-Party Reports

• Appraisal, Environmental Report and Engineering Reports are required.
• In addition, radon testing is required for all properties. Wood destroying organism/termite reports shall be required for all wood-frame properties that are not currently the subject of an infestation warranty. A Probable Maximum Loss “PML” report is required for pre-1997 properties located in earthquake zones 3 or 4.

Replacement Reserves

Fully funded at underwritten amount, not less than $150 per unit

Real Estate Tax Escrow

Funded escrow required

Property Insurance Escrow

Funded escrow required

Transfers/Assumptions

Permitted with Freddie Mac’s and CWCapital’s approval

Application Fee

• Greater of $2,000 or 0.1% of the first mortgage amount payable to Freddie Mac
• Additional $5,000 transaction fee payable to CWCapital

Interest Rate

• Separate interest rates on the first and second mortgage locked simultaneously
• Fixed-rate
• 30/360 or actual/360 interest calculation
• For fixed-to-float mortgages, the gross spread for the extended one-year floating term on the second mortgage is calculated at 150% of the gross spread for the fixed-rate period. The gross spread for the extended one-year floating term on the first mortgage is 250 basis points. The index for both mortgages during the extended one-year floating term is the 1-month Freddie Mac Reference Bill®. The servicing fee remains unchanged during the extended term.

Servicing Fee

Sliding scale based upon loan amount, separate servicing fee on each first and second mortgage

Delivery

Standard Delivery

Commitment

• Freddie Mac will enter into a commitment with the seller for the first and second mortgages.
• Freddie Mac will assign the second mortgage commitment to CWCapital prior to funding.

Closing and Funding

• The seller will originate the first and second mortgages.
• Freddie Mac will purchase the first mortgage from the seller.
• CWCapital will purchase the second mortgage from the seller.

Documentation

• The preliminary underwriting package must include the trailing 12-month monthly residential rental collections exclusive of other income.
• Duplicate full underwriting packages required. For an acquisition, include the purchase and sale agreement. For a non-seasoned property, include a certified breakdown of construction costs.
• Multiple copies and the originals of the final delivery packages required.

Other Terms and Conditions

Seller/servicer and CWCapital enter into a Servicing Agreement, which states the seller/servicer will service the second mortgage in accordance with the Guide with certain modified requirements. For example, submission of quarterly property financials, both Freddie Mac and CWCapital approval of assumptions, releases of collateral, etc.