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Enhancements for Lease-Up Loans

June 11, 2014

We have enhanced our Lease-Up Loan offering to allow sponsors to rate lock and close earlier. In addition, we have reduced the credit enhancement requirement for all sponsors and loans, and eliminated it entirely for qualifying sponsors and loans. These changes give sponsors greater flexibility and make it easier for them to take advantage of current interest rates earlier in the process.

Our Lease-Up Loan is available through all Program Plus® Seller/Servicers and provides two executions for conventional, newly constructed properties:

Premier Lease-Up

For properties with a 65 percent or lower loan-to-value (LTV) in Tier 1 and 2 markets with a qualifying sponsor, the following terms apply:

  • Rate lock with as low as 40 percent occupancy.
  • Close at a minimum 55 percent occupancy and net operating income (NOI) equivalent to 1.0x interest-only debt coverage ratio (DCR), or 1.0x amortizing DCR in the case of an amortizing loan.
  • Interest-only is available in accordance with Freddie Mac policy.
  • No credit enhancement is required.

Standard Lease-Up

For properties with less than 75 percent LTV or that do not otherwise meet other Premier Lease-Up requirements, the following terms apply:

  • Rate lock with as low as 50 percent occupancy.
  • Close at a minimum 65 percent occupancy and NOI equivalent to 1.05x interest-only DCR, or 1.05x amortizing DCR in the case of an amortizing loan.
  • Interest-only is available in accordance with Freddie Mac policy.
  • A letter of credit or cash hold back is required and must be sized to 5 percent of the underwritten value for a loan with a LTV greater than 65 percent and up to 70 percent, or 10 percent of the underwritten value for a loan with a LTV greater than 70 percent and up to 75 percent.

See the term sheet for complete details on both Lease-Up Loan executions.

Stabilization

A property is considered stabilized when it has reached a minimum 90 percent occupancy and a 1.25x amortizing DCR for three months. Under the Standard Lease-Up execution, the credit enhancement is released once the property stabilizes. In the event that the property does not achieve stabilization within 12 months after loan origination, the credit enhancement will be used to right-size the loan with yield maintenance.

More Information

Program Plus Seller/Servicers are invited to join us for an informational call on June 19, 2014, at 2 p.m. EST. Sellers may also contact their Freddie Mac Production Representative for more information.

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