Small and Very Small Markets in Relation to the Freddie Mac SBL Program
The underwriting process for the Freddie Mac Small Balance Loan program divides cities across the country into Top Markets, Standard Markets, Small Markets, and Very Small Markets. Top Markets consist of the largest MSAs in the United States and therefore pose the least risk for Freddie Mac. In contrast, Small and Very Small Markets are composed of the smallest MSAs in the U.S. and are significantly riskier from an underwriting standpoint.
All cities and areas that are not specifically identified as Top Markets or Standard Markets are either classified as Small or Very Small Markets. Small Markets require that properties have a minimum debt service coverage ratio of 1.30x, while Very Small Markets require a minimum DSCR of 1.40x. Market tiers for the Freddie Mac SBL program were adjusted significantly in 2016, when nearly 50 Standard Markets were re-listed as Small Markets, in order to improve underwriting parameters and leverage for borrowers in the remaining Standard Markets. A full list of SBL Market Tiers can be found here.