Written by Fernando Martin| September 29, 2018
Freddie Mac Apartment Loans
The Federal Home Loan Mortgage Corporation (�Freddie Mac� or FHLMC) has multifamily mortgage products available for conventional (�market-rate�) properties, seniors housing, student housing, cooperative and targeted affordable housing. Through it�s various programs, Freddie Mac offers mortgages to experienced multifamily investors that focus on low- to median-income tenants. Like CMBS and Fannie Mae�loans, these mortgages are pooled, securitized, and sold to investors.
| Structures | Fixed-Rate, Floating-to-Fixed Rate (2+7), and Floating-Rate |
| Recourse | Non-recourse except for �bad boy� carve-outs |
| Interest-Only Period | Available on fixed and floating product, first 2 years on floating-to-fixed |
| Prepayment Penalty | Yield maintenance or defeasance for large Freddie loans, yield maintenance or declining for small balance loans |
| Loan Assumption | Available, with pre-approval and assumption fee |
| Rate Lock Available | Yes, Freddie Mac has various rate lock options, up to 120 days before closing |
| Loan Servicer | Originator, or may be transferred to a third party |
| Secondary financing | Yes, subject to requirements specified in the Loan Agreement |
| Insurance & Tax Reserve | Generally required (exception: small balance loans) |
| Capital Reserves | Generally required (exception: low-leverage small balance loans) |
Freddie Mac loans are priced based on the corresponding treasury and a spread, which takes into account the loan amount, term, LTV, and property location. Pricing considerations the borrower should be aware of are the following:
| Eligible Properties | Conventional apartments Affordable housing Cooperative housing |
| Loan Amount | $1,000,000 � $5,000,000 |
| Loan Terms | 5-20 years, up to 10 years fixed |
| Amortization | Up to 30 years |
| Minimum DSCR | Depends on leverage |
| Interest-Only | Part- or full-term available |
| Prepayment Penalty | Yield maintenance & declining |
| Rate Lock | Yes, for 60-120 days with additional fee |
| Eligible Properties | Conventional apartments Affordable housing Seniors housing Cooperative housing Targeted Affordable housing (i.e. LIHTC Year 4-10/11-15, Section 8)) Student housing |
| Loan Amount | $5,000,000 � $100,000,000 (larger and smaller loans considered on exception basis) |
| Loan Terms | 5-10 years (unless not securitized, then up to 30) |
| Minimum DSCR | 1.25x (depends on underwriting) |
| Interest-Only | Part- or full-term on fixed-rate products |
| Prepayment Penalty | Yield maintenance or defeasance with 2 year lock-out |
| Rate Lock | Yes, for 60-120 days with additional fee |
| Application Fee | Greater of $2,000 or 0.1% of loan amount |
| Eligible Properties | Conventional apartments Affordable housing Targeted Affordable housing Cooperative housing |
| Loan Amount | $5,000,000 � $50,000,000 |
| Loan Terms | 2 years floating, then 7 years fixed |
| Amortization | Up to 30 years |
| Minimum DSCR | Must pass Refinance Test using aggregated term (2 years floating plus 7 years fixed) with 2 years of interest-only |
| Prepayment Penalty | Yield maintenance or defeasance with 2 year lock-out |
| Rate Lock | Not available for this product |
| Application Fee | Greater of $2,000 or 0.1% of loan amount |
| Eligible Properties | Conventional apartments Affordable housing /�Targeted Affordable Housing Seniors housing Student housing |
| Loan Amount | $5,000,000 � $100,000,000 (larger and smaller loans considered on exception basis) |
| Loan Terms | 5-10 years |
| Amortization | Up to 30 years |
| Minimum DSCR | 1.25x (depends on underwriting) |
| Interest-Only | Part- or full-term on floating-rate products |
| Interest Rate Caps | Borrower may obtain coverage from a third-party provider approved with Freddie Mac |
| Prepayment Penalty | Declining with 1-2 year lock-out (various options available) |
| Rate Lock | Yes, for 60-120 days with additional fee |
| Application Fee | Greater of $2,000 or 0.1% of loan amount |
| Property Type | Conventional apartments Affordable housing Seniors housing Cooperative housing Manufactured housing Student housing |
| Location | Primary or secondary MSAs (populations of 200,000+); tertiary on a very limited basis |
| Occupancy | 90% for at least 90 days before closing on stabilized properties; 85%+ for at least 90 days on newly constructed or rehabbed properties |
| Units | 5+ units |
| Loan amount | $1,000,000 � $100,000,000 |
| Financials | Stable NOI (excluding unusual expenses) |
| Leases | 12-month leases; parental guarantees for student housing |
| Experience | Required |
| Net worth | 1.0x loan amount requested, unless waiver granted |
| Liquidity | 9 months debt service (after any required cash injections) |
| Credit | No recent bankruptcies, foreclosures, short sales, etc. |
| Structure | Single-Purpose Entity formed as a LP, Corporation, LLC, or TIC (with 10 or fewer tenants in common); GPs, LLPs, REITs, and certain trusts acceptable with additional requirements. |
| 80% | 80% for purchases, 75% for refinances (dependent on cash flow) |
| Term length | 5-10 years (securitized); up to 30 years (non-securitized) |
| Maximum amortization | 30 years (dependent on property location and age) |
| Minimum DSCR | 1.25x (depending on leverage and if interest-only period) |
| Third party reports required | Appraisal, environmental, structural engineering/property needs assessment, seismic zoning (if in areas within certain vicinity of fault lines) |
Freddie Mac securitizes its loans into bonds through what it calls a �K-deal� structure. Mortgage loans are underwritten, priced, and structured through Freddie�s Capital Markets Execution (CME) product, then are pooled and sold as commercial mortgage-backed securities. The securitized pool includes senior bonds guaranteed by Freddie Mac and subordinate bonds that are held by private investors who bear the risk of initial losses (i.e. are in the �first-loss position�). The senior bonds guaranteed by Freddie carry the equivalent of a AAA rating based on the quality of the underlying collateral. The unguaranteed mezzanine and subordinate bonds (about 15% of all of the bonds) sold to the private capital investors accounts for the majority of the risk. Each K-Deal represents about $1.2 billion in multifamily mortgage loans.
Typically serviced by the originator/underwriter, but may be transferred to third parties.
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