Magazine article Mortgage Banking

Freddie Mac: Opportunities in Small-Balance Lending

Magazine article Mortgage Banking

Freddie Mac: Opportunities in Small-Balance Lending

Article excerpt

Small multifamily properties represent sizable share of the rental market, but small-balance lending programs are inconsistent and the secondary mortgage market participates little compared with conventional lending, according to Freddie Mac, McLean, Virginia.

But the government-sponsored enterprise (GSE) hopes to change that. It launched a small-balance loan program last fall to provide liquidity to apartment properties with fewer than 50 units. Freddie Mac purchases and aggregates loans from $1 million to $5 million for these properties and securitizes each seller's deals when pool sizes reach $100 million to $125 million.

"The debt financing market for small properties will benefit from standardization, as the market for larger properties has," said Steve Guggenmos, senior director with Freddie Mac Multifamily Investments and Research.

Small-balance lending can involve higher risk than for large properties. Freddie Mac's report, Multifamily Research Perspectives: Small-Balance Loans, found similar historical default rates for small and large properties, but said losses in the event of a default are higher for small properties.

Small-balance loans also have fewer restrictions on prepayments. …

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