Freddie Mac Optigo Small Balance Loans Term Sheet
This term sheet is intended to help investors understand the terms and components of the Freddie Mac Small Balance Loan.
Eligible properties include market-rate and certain affordable properties with 5+ units. Properties with more than 50% student or military housing, as well as Section 8 HAP properties are not eligible. Properties may be non-continuous (i.e. located on different lots), as long as they are located within 1 mile of each other and each building has 5+ units. Additionally, several other requirements apply.
For-profit entities are eligible for the SBL program, non-profit entities are not. Borrowing entities should generally be organized as Single Asset Entities (SAEs) though smaller loans can be offered to limited liability companies (LLCs), limited partnerships (LPs), Special Purpose Entities (SPEs), and certain trusts. Principals must have a combined net worth of at least 100% of the loan amount, and a liquidity of at least 9 months of principal and interest payments post-closing.
Minimum Loan Amount
The minimum loan amount for the SBL program is $750,000. However, loans between $750,000 and $1 million are subject to additional requirements, as are loans above $6 million. Most loans are $1 million+.
Maximum Loan Amount
The maximum loan amount for the SBL program is $7.5 million.
All Small Balance Loans have 30-year amortizations. Terms include:
- Hybrid ARMs: 20-year terms with 5, 7, or 10-year fixed-rate period.
- Fixed-Rate Loans: 5, 7, and 10-year options available.
Loan To Value Ratio
- 80% for purchases and refinances in Top and Standard Markets
- 75% for purchases and 70% for refinances in Small and Very Small Markets
- 65% for full-term interest-only loans in Top and Standard Markets
- 60% for full-term interest-only loans and Small and Very Small Markets
Hybrid ARM and Fixed-Rate Loans:
- 1.20x for Top Markets
- 1.25x for Standard Markets
- 1.30x for Small Markets
- 1.40x for Very Small Markets
Full-Term Interest-Only Loans:
- 1.35x for Top Markets
- 1.40x for Standard Markets
- 1.40x for Small Markets
- 1.50x for Very Small Markets
Step downs or yield maintenance. Step downs are structured like so:
Hybrid Adjustable-Rate Loans:
- 5-Year Fixed/15-Year Floating: 5, 4, 3, 2, 1
- 7-Year Fixed/13-Year Floating: 5, 5, 4, 4, 3, 2, 1
- 10-Year Fixed/10-Year Floating: 5, 5, 4, 4, 3, 3, 2, 2, 1, 1
- 5-Year Fixed: 5, 4, 3, 2, 1
- 7-Year Fixed: 5, 5, 4, 4, 3, 2, 1
- 10-Year Fixed: 5, 5, 4, 4, 3, 3, 2, 2, 1, 1
Loans offered through the Freddie Mac SBL are generally non-recourse. Despite this, they are subject to “bad boy” carve-outs. This means that the loan will become fully recourse if a borrower engages in certain “bad boy” activities, such as fraud or intentionally declaring bankruptcy.
Third Party Reporting Requirements
60-120 day early interest-rate locks are available, done at the time of application. Index rate locks are not available for Small Balance Loans, though they are available for other Freddie Mac multifamily products.
Fees and Escrow
- Application fees of $4,500 for Top Markets) and $8,500 for Standard Markets
- Replacement reserve escrows are required, but can generally be deferred
- Insurance escrows are also required, but can generally be deferred
- Real estate tax escrows are deferred for transactions with LTVs of less than 65%
Replacement reserves are required and will be based on the streamlined Property Condition Report that is required during the loan approval and underwriting process. Required reserves generally vary between $200 and $300 unit.
Supplemental financing, including mezzanine financing, is generally not permitted.
Loans are fully assumable, subject to approval and a 1% fee.