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SBL Update: Credit and Underwriting

March 18, 2016

One of our 2016 goals is to improve the transparency of our credit parameters, criteria, and process. Providing you with periodical SBL Credit and Underwriting updates is one of the ways we’re doing that. The items included in this update are a mix of changes and clarification to existing requirements that support the ultimate goal of improving the quality and speed of our execution.

If you have questions about the information included here, please contact your Freddie Mac Multifamily SBL Underwriting representative.

Topics in this update:

  1. Credit Exceptions and Risks
  2. Amperage and Load Test Requirement Change
  3. Eligibility of Targeted Affordable Transactions in SBL
  4. Less than $1 million UPB Criteria Guidance
  5. Inspection Data
  6. Noncontiguous Properties (a.k.a. Scattered Sites) and Multiple Parcels Under One Loan
  7. Program Credit and Underwriting Point of Contact
  8. Pending Market Adjustments for Select SBL MSAs/Counties

Credit Exceptions and Risks

We have developed an itemized list identifying programmatic credit exceptions that require a Small Balance Loan (SBL) Exception Form and prescreen with Freddie Mac during the quote stage. In addition, we have developed an itemized (non-exhaustive) list of separate non-programmatic exceptions that do not require prescreen approval but should be considered and properly mitigated in the Seller’s underwriting.

Amperage and Load Test Requirement Change

A change to streamline our amperage and load test requirements is in the works and will be released shortly. In the interim, SBL will support an exception to the amperage requirement provided that the SBL Physical Risk Engineer concludes that the amperage measured at the property between 30 and 60amps is sufficient based on property characteristics contained in the Physical Risk Report. Therefore, a separate certified load test conducted by an electrician would not be required if the Engineer deems the capacity sufficient.

Eligibility of Targeted Affordable Transactions in SBL

The following are not eligible for the SBL offering, pricing or underwriting parameters:

  • Transactions with a regulatory agreement with income and/or rent restrictions recorded on title
  • Properties with an HAP contract
  • Either 4% or 9% LIHTC transactions where restrictions are still recorded, including restrictions in the extended use period
  • Non-profit borrower

The following are eligible for SBL offering, pricing and underwriting parameters:

  • Transactions with a regulatory agreement with income and/or rent restrictions not on title (i.e. rent control in New York City)
  • Section 8 HAP tenant vouchers (“sticky vouchers”) with rents at market level (e.g. no overhang)
  • Tax abatement with rent or income restrictions not recorded on title
  • Less than 50% concentration of transitional leases guaranteed by a reputable non-profit with at least 3 years of experience

Less than $1 million UPB Criteria Guidance*

  • No external Seller marketing for loans below <$1MM
  • Top or Standard SBL Market only
  • $750,000 UPB floor
  • Loan Profile
    • Part of a group of loans to be delivered simultaneously or
    • Repeat Freddie Mac borrower or
    • Strong potential of 2 or more loans of future business within a year or
    • Initial application UPB was equal to or greater than $1 million but final Seller or Freddie Mac value or NOI was lower than initial application size
  • Experienced multifamily borrower with at least 2 multifamily assets owned other than subject and greater than 2 years of local ownership experience
  • Pricing Adder
    • 10 - 15 bps Top Market
    • 15 - 20 bps Standard Market
  • Add 3 business days to standard Freddie Mac turn times for inspections and Commitment generation
  • Cash-out transaction subject to additional LTV/DCR adjustment
  • Minimum underwritten vacancy of 5% and expense ratio of 30%

*Subject to change based on SBL volume

Inspection Data

Utilizing the “Inspection Date” in the SBL Pipeline is required. The date, along with basic property and loan information, is critical for inspections management. The date should be populated as soon as the anticipated inspection date is known. If that date changes, it should be updated accordingly as soon as possible. Failure to populate this data will result in transaction timing delays.

Noncontiguous Properties (a.k.a. Scattered Sites) and Multiple Parcels Under One Loan

The following are criteria that must be used to evaluate a property where buildings are located on non-contiguous parcels (i.e. scattered sites) and should be addressed in the SBL Exception Form submission during the quote process. There are few, if any, mitigating factors that offset these criteria. If the proposal is not complete as to these criteria, the decision should be based on an evaluation and consultation among the regional production and underwriting teams.

Contiguous but separate parcels under the same loan also need to be in accordance with the below criteria or an Exception Form is needed, although some flexibility exists for minimum number of units per building in these cases (see criteria item 8 below).


  1. Subject buildings are built within 10 years of each other
  2. Subject buildings are comparable construction types
  3. No individual property is more than 1 mile walking distance from at least one other subject building
  4. Properties do not have differing signage or marketing strategies
  5. Each unit type between scattered properties have:
    • Comparable interior improvements (appliances, etc.)
    • Unit configurations comparable (square feet, layout, etc.)
    • Comparable rents for comparable unit types (Building A 1 bed and building B 1 bed)
  6. Expense ratios at individual properties do not differ by more than 5%.
  7. Same superintendent/maintenance staff are utilized for all buildings.
  8. Each of the subject buildings has 5 or more units.
  9. Property financials have been historically aggregated or can easily be aggregated after origination.
  10. All properties will be owned at origination under a Single Asset Entity.
  11. Each third party report is consolidated into one report under one cover page. However, each report should clearly list addresses and parcels for all collateral and any material deviation between buildings should be clearly highlighted and differentiated into separate sections as needed.

Program Credit and Underwriting Point of Contact

SBLs will continue to be processed through the SBL regional production and underwriting channels. However, for programmatic credit or execution/processing questions or issues, please contact your Seller Underwriting representative.

Pending Market Adjustments for Select SBL MSAs/Counties

In the near future, SBL market adjustments to select MSAs/counties will be released. We are reclassifying select individual markets by moving them into a new SBL Market Tier. A majority of the update will consist of approximately half of the Standard Markets moving to Small Market. This shift will help improve pricing for the remaining markets in the Standard designation. The current Standard market population is too broad to allow for accurate differentiation. Other SBL Market promotion and demotion adjustments are under consideration.

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