Since 2015, Freddie Mac Multifamily has financed over 17,000 loans totaling over $47 billion as part of its Small Balance Loan (SBL) program. While the government-sponsored enterprise (GSE) plans to remain active in the small loan space, it is making changes so the program isn’t siloed.
Freddie Mac will combine its SBL program with its conventional product in mid-April with the SBL system retiring at the end of the month for any new loans to make for a seamless transition.
“We are not stepping away from small loans. We are consolidating them into the conventional platform,” says Meg McElgunn, vice president of multifamily production and sales at Freddie Mac. “We’re still going to remain very active in the space, and we think this is a much more efficient and effective way of doing business going forward.”
She adds that small loans play a critical role in affordable housing, especially in the workforce housing space. One of the main multifamily goals the GSE needs to meet with regulator Federal Housing Finance Agency is for units in small multifamily properties, five to 50 units, affordable to low-income families.
“We want to meet the needs of the market. The last few years for the SBL program have seen overall volume less than it was five years ago,” McElgunn notes. “But it’s important for us to focus on workforce housing, and we want to make sure we’re supporting that aspect of the market out there right now.”
According to McElgunn, the transition to the conventional platform will provide more certainty of execution to both lenders and sponsors.
“The alignment allows us to capitalize on different resources and efficiencies. With Conventional Small, we’ll be using our conventional loan documents. We’ll use the conventional guide, the policies, and, in combining our team, it allows us to bring the conventional experience and that small loan expertise—folks who have been working on small loans for over the last 10 years—together,” she says. “There also are elements of credit strategy and risk management, finding a way to deliver a more streamlined approach throughout the life of a loan from production to underwriting to the asset management.”
Being a subproduct of conventional, the terms align with some slight nuances. While the SBL program financed properties with a loan amount ranging between $1 million and $7.5 million, the conventional small loan has a minimum of $2 million and a maximum of $10 million. Transitioning the program to conventional also doubles the number of Optigo lenders that can bring in loans since the SBL program had a specific lender designation.
“That will help us provide even more capital to the smaller workforce housing properties around the country,” McElgunn shares.