FINANCE
FREDDIE MAC
Freddie Streamlines Acquisitions
BY JERRY ASCIERTO
AFFORDABLE HOUSING FINANCE • OCTOBER 2007
Freddie Mac recently rolled
out a new streamlined
acquisition - financing
product aimed at new borrowers
seeking acquisition
loans of Freddie Mac-financed properties.
The government-sponsored enterprise
(GSE) is hoping to
retain properties already
in its portfolio by offering
advantages to the new buyers
for sticking with
Freddie Mac. Whereas
most lenders offer incentives
for repeat customers,
this effort looks at repeat
properties.
“Most of the time,
mortgage bankers look at
retention of existing borrowers,”
said Phil Melton,
a director responsible for
affordable housing at
Collateral Real Estate
Capital, LLC, which agreed
to be purchased by BB&T
Corp. in August.
“Freddie Mac’s taken
that a step further and
said, ‘Let’s make it more
attractive for that acquirer
to continue using Freddie
Mac.’”
Benefits for the new borrowers
include reduced documentation
requirements. Borrowers won’t have to
provide appraisals, engineering reports,
or environmental reports, lowering the
cost of the transaction and speeding up
the cycle. The third-party report
waivers are the same that Freddie Mac
extends to existing borrowers for a refinance.
“Since [Freddie Mac is] already
familiar with the property, the costs go
down because you don’t have to order
some of the reports and you don’t have
to wait for them, either,” said Todd
Rodenberg, senior vice president and
agency lending director for KeyBank
Real Estate Capital. “The acquisition
can happen a lot faster this way.”
The GSE said this streamlined
process could result in transactions
being completed in half the time it takes
to originate most new loans. In the past,
a typical acquisition deal could be
turned around in 45 to 60 days. This
new process could result in a three- or
four-week execution, lenders said,
because many due diligence requirements
are eliminated.
“For both the buyer and seller, it
really takes away the financing contingency
associated with the transaction,”
said Melton. “It means cheaper pursuit
costs for the buyer and more certainty of
execution for the seller, so it’s a plus on
both sides.”
In addition to transaction speed,
Freddie Mac is also offering an economic
incentive equal to up to 1 percent of
the unpaid principal balance on the current,
existing loan. The borrower has a
choice between receiving that
incentive in cash, when Freddie
Mac buys the loan from the
lender, or through a lowered
cost on the new loan.
Freddie Mac-affiliated
lenders applauded the move,
saying it would help borrowers
achieve significant savings. “I’d
equate that 1 percent savings to
10 to 15 basis points on the rate
side. That’s pretty sizable,” said
Rodenberg. “I’ve seen deals
move from one source to another
for a lot less than that.”
Eligible properties include
garden, mid-rise, and high-rise
apartments and cooperatives
with minimum occupancies of
90 percent for 90 consecutive
days. The program features a
minimum debt-service coverage
ratio of 1.25x, and a maximum
loan-to-value ratio of 80
percent (75 percent for loans of
less than seven years).
Small loans
Lenders in Freddie Mac’s Program
Plus delegated network expect the company
to test a new approach to small
loan production through a pilot program
that seeks to offer better terms
and quicker deals by delegating more
authority to lenders.
The program should get under way
early in 2008 at a few of the larger
lenders in Freddie Mac’s network.
Large banks are natural partners in the
pilot, since local bank branches typically
dominate the small loan industry.
The company is looking to transform
its small loan business by delegating
more authority to lenders, much
like Fannie Mae’s 3MaxExpress small
loan program. The current process sees
Freddie Mac buying a bundle of small
loans through commercial mortgagebacked
securities. The new process
would have a lender promising to deliver
a certain amount of small loans in a
certain timeframe, and Freddie Mac
would specify the pricing up front.
“When we think about the delegated
work that we’re doing for targeted
affordable, we’re approaching that with
the understanding that we’re going to
leverage that for small loans,” said Mike
May, Freddie Mac’s senior vice president
of multifamily sourcing, earlier
this year.
“So we’re building the lender network,
building the underwriting
process, delegating the underwriting to
the lenders, and building the control
process to produce more small loans.”
Freddie Mac lenders believe that
the pilots will lead to a permanent
product rollout in 2008.
“It should jump-start their small
loan production,” said Rodenberg.
“They’ll do it on a flow basis, like what
they did on the single-family side.”
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