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Simple is Better: SBL Loan Document Updates

October 6, 2015

As part of our ongoing initiative to refine and streamline the Small Balance Loan (SBL) offering, our legal team has developed new SBL loan documents. These new documents are shorter and more user-friendly; they will be easier to prepare, review, and deliver to Freddie Mac.

With these changes, SBL Sellers and Single Counsel can provide borrowers with blank form documents for review instead of preparing draft documents, saving time and transaction costs.

Below is a summary of the key changes and a timeline for implementation.

Summary of Key Changes

  • All deal-specific terms are grouped at the front and the back of documents; if something is being added to the back of a document (Schedules/Exhibits), that addition is clearly identified on Page 1 of the document.
  • Variable terms are set out in an easy to read table format.
  • Most provisions that were previously added by rider are now incorporated into the loan agreement:
    • Recourse carveouts and other conditions that were added by rider are now in the loan agreement using an “If/then” model.  For example: “if your property has indirect access, then the following conditions/requirements apply…”
    • Whether a particular reserve is collected/deferred is specified in Article I of the loan agreement and then the mechanics of the reserve are addressed in Article IV.
    • Single-Asset Entity and Multi Asset Entity (SAE and MAE) requirements are specified in Article I.
    • All required operations and maintenance agreements and priority repairs are listed in Article I.
  • There will be a handful of unique scenarios that are still addressed using riders, including the following:
    • Tenants in Common
    • Condo 100% Owned by Borrower
    • Ground Lease
    • Partial Release of Unimproved Property
    • Tax Exemption
  • There is a new reserve concept, the “Special Purpose Reserve,” that will allow us to impose non-standard reserve conditions such as a debt service escrow without creating new provisions/riders.
  • Reporting requirements are broken out into annual requirements and ‘as requested by lender’ requirements.
  • Freddie Mac will no longer require annual reporting by guarantors or general partners in a general partnership; these will be ‘as requested by lender.’
  • In each case where borrower must send additional funds to lender (for insufficient escrows or for payment of other expenses incurred by Lender), we’ve standardized the period at 20 days (it varied between 15 and 20 days).
  • Permitted/prohibited transfers were not changed, except that we clarified that no transfer fee would be due for a requested easement approval.
  • The former stand-alone schedules of prepayment options for the notes are now built into the form notes.
  • State specific provisions in the notes and guaranty were moved to schedules and formatted using tables to make them easier to read and to delete the inapplicable provisions.
  • The guaranty has been simplified to remove optionality surrounding community property.

Implementation Timeline

  • Oct. 5 – 23, 2015: SBL Seller/Servicer and Single Counsel review period.
  • Oct. 30, 2015: Posting of final documents to
  • November 2015: Optional use of the new SBL documents.
  • December 2015: Mandatory use of new SBL documents for all Commitments/ERLAs with an Effective Date on or after Dec. 1. Waivers to use the old documents for December Commitments/ERLAs will be considered on a deal-by-deal basis.
  • January 2016: All deals should all be papered on the new, streamlined documents (except for a handful of ERL loans).

Copies of the loan documents have been provided to Single Counsel and the main contacts for our SBL Seller/Servicers.

Please direct all questions regarding the new documents to Filicia Davenport in our Multifamily Legal department.

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