Blog

Freddie Mac Multifamily Loans – The Perfect Introduction

May 25, 2020

The Federal Home Loan Mortgage Corporation (Freddie Mac) is one of the largest players in the multifamily finance segment. It is a government-sponsored entity (GSE) similar to Fannie Mae. However, Freddie works with mortgages from smaller banks (“thrifts”) while Fannie deals with large banks. Freddie calls its multifamily loan business “Optigo.” Whatever you think of the name, you can’t ignore the huge impact Freddie has on the multifamily loan segment.

In this article, we’ll look at how Freddie Mac supports the marketing for financing multifamily properties. The discussion will include the current program guidelines and Freddie Mac multifamily loan rates.

What are Freddie Mac Multifamily Loans?

Freddie Mac multifamily loans are guaranteed loans made chiefly through the Conventional Loan Program (CLP). Under this program, more than 150 lenders nationwide originate, close, and sell conventional multifamily mortgage to Freddie. Freddie Mac collects fees in return for guaranteeing the loans. Note that these loan guarantees come from Freddie, not from the U.S. government. It pools the mortgages it buys, and issues mortgage backed securities backed by the pools.

The CLP targets properties in the $5 million to $100 million range, though exceptions are possible. The CLP offers term sheets on multiple loan types, including:

  • Fixed-rate loans
  • Floating-rate loans
  • Float-to-fixed loans
  • Structured pool transactions
  • HUD Section 8 transactions
  • Manufactured housing community loans
  • Student housing financing
  • Lease-up loans
  • Moderate rehabs

Other Freddie Mac Programs

In addition to the CLP program, Freddie Mac also operates the following multifamily programs:

  • Multifamily Small Balance Loan Program: This is a program for small multifamily buildings with 5 to 50 units valued at $1 million to $7.5 million.
  • Targeted Affordable Housing Program: For properties in underserved neighborhoods that low-income families can afford to rent. The program includes cash loans, tax-exempt loans, bond credit enhancements, and more.
  • Seniors Housing Loan Program: Mortgages for seniors housing properties, including assisted living, independent living, skilled nursing, and memory care property types.
  • Multifamily Green Advantage Program: For energy-efficient workforce housing in which at least 50% of units must be affordable at incomes from 80% to 150% of average market incomes.

Freddie Mac Multifamily Loan Guidelines and Rates

The guidelines vary by Freddie Mac program. Here is a summary of the Freddie Mac multifamily loan guidelines for each program. Unless otherwise noted, interest rates on 30-year loans are below 4.5%.

Freddie Mac Multifamily CLP Fixed/Floating Rate Program

Eligible Properties:

  • Standard multifamily housing
  • Co-ops
  • Student housing
  • Manufactured housing communities
  • Targeted Affordable Housing Cash Loan properties

Eligible Borrowers:

  • Nine months interest and principal liquidity.
  • Net worth not less than loan amount.
  • Minimum credit score of 650
  • No bankruptcies, deed-in-lieu, foreclosures, or defaults for seven years.
  • At least one year commercial or multifamily real estate experience.
  • Borrowers up to $6 million: Individuals (U.S. citizens only), limited liability
  • Limited liability corporations, limited partnerships, corporations, limited liability partnerships, REITs, certain trusts, or tenancy in common (TIC) with 10 or fewer tenants in common.
  • Must be a single purpose entity (SPE) or single asset entity (SAE). If TIC borrower, each tenant in common must be an SPE.

Amortization

30 years

Current Rate

Below 4.5% for 30-year loan

Impounds

Tax and insurance

Interest accrual

Actual/360 or 30/360

Interest-only available?

Partial

Loan size

$5 million to $100 million

Loan term

5 to 10 years; up to 30 years for non-securitized

Lock-out period

2 years following securitization

Maximum loan-to-value ratio

75% to 80%

Minimum debt service coverage ratio

1.20 to 1.40

Minimum occupancy

90%

Prepayment penalty

Step down or yield maintenance

Rate locks

Yes, six months from commitment

Rate type

Fixed; Floating based on 1-month LIBOR with cap;

Recourse/non-recourse

Non-recourse with carveouts

Replacement reserves required?

Yes

Supplemental loan?

Available subject to loan agreement

Freddie Mac Multifamily CLP Float-to-Fixed Rate Program

Same guidelines as the Freddie Mac Multifamily CLP Fixed/Floating Rate Program except for the following:

Floating-rate period:

  • 2 years
  • Interest-only, no cap required, locked-out/no prepayments
  • No supplemental loans during floating-rate period
  • Rate is LIBOR + 7-year floating pricing + 20 bps

Fixed-rate period:

  • 7 years
  • Interest-only subject to 7-year fixed-rate interest-only credit parameters with defeasance
  • Amortizing loan with defeasance
  • Securitization-ready
  • Rate is 7-year U.S. Treasury Note + 7-year fixed pricing + 20 bps
  • Supplement loans allowed after first year
  • Conversion is automatic

Freddie Mac Multifamily CLP Structured Pool Transaction

For borrowers with sizable multi-property portfolios. Loan component structure doesn’t assign properties to various loan components. You can choose between crossed or uncrossed collateralization.

Eligible products:

  • Conventional
  • Targeted affordable
  • Seniors housing
  • Student housing
  • Manufactured housing communities

Amortization

30 years

Current Rate

Below 4.5% for 30-year loan

Impounds

Tax, insurance, and replacement reserves

Interest accrual

Actual/360 or 30/360

Interest-only available?

Full or partial

Loan size

$400 million or higher

Loan term

Fixed rate up to 30 years; Floating rate up to 10 years

Lock-out period

2 years following securitization

Maximum loan-to-value ratio

75% to 80%

Minimum debt service coverage ratio

1.20 to 1.40

Minimum occupancy

Varies

Prepayment penalty

Variety of options

Rate locks

Early, index, and standard delivery locks

Rate type

Fixed based on U.S. Treasuries; Floating based on 1-month LIBOR with cap

Recourse/non-recourse

Non-recourse with carveouts

Replacement reserves required?

Yes

Supplemental loan?

Available subject to loan agreement

Freddie Mac Multifamily CLP HUD Section 8 Program

This program provides housing assistance to about 5 million low-income households.

Eligible properties:

  • Garden, mid-rise, and high-rise Section 8 multifamily housing
  • Project-based contracts
  • Project-based vouchers

Eligible Borrowers:

  • Must have experience managing and owning similar Section 8 properties

Subsidy (one of the following):

  • Long-term Section 8 contract, which is a new 20-year contract or an existing

contract that has a remaining term equal to or greater than the term of the

mortgage, or

  • Short-term Section 8 contract, which has a remaining term of less than the term of
  • he mortgage

 

Amortization

Up to 35 years

Current Rate

Below 4.5% for 30-year loan

Impounds

Tax and insurance

Interest accrual

Actual/360 or 30/360

Interest-only available?

Partial

Loan size

Based on individual project

Loan term

5 to 10 years; up to 30 years for non-securitized

Lock-out period

2 years following securitization

Maximum loan-to-value ratio

80% – 90%

Minimum debt service coverage ratio

1.15 – 1.20

Prepayment penalty

Defeasance or yield maintenance

Rate type

Fixed

Recourse/non-recourse

Non-recourse with carveouts

Subordinate financing?

Case-by-case basis

Freddie Mac Multifamily CLP Manufactured Housing Communities Program

Eligible Properties:

  • Stabilized, high-quality, and professionally managed manufactured housing communities (MHCs)
  • Up to 25% rentals
  • Predominantly families or all-ages
  • Underserved populations (rural and non-metro)
  • Minimum of five pad sites
  • The percentage of homes owned by the borrower, borrower-affiliate, or third-party investor cannot exceed 25% in aggregate
  • Homes must conform to the federal construction and safety standards
  • Septic systems and private wells are OK with considerations
  • Leases cannot contain options to purchase borrower-owned manufactured homes or pad site
  • Rules do not permit retail sales or financing by borrowing entity of any manufactured homes
  • Broken condominiums and RV campgrounds are not eligible

Eligible Borrowers:

  • Two or more years’ experience operating MHCs
  • Limited liability corporations, limited partnerships, corporations, limited liability partnerships, REITs, certain trusts, or tenancy in common (TIC) with 10 or fewer tenants in common.
  • Must be a single purpose entity (SPE) or single asset entity (SAE). If TIC borrower, each tenant in common must be an SPE.

 

Amortization

30 years

Current Rate

Below 4.5% for 30-year loan

Impounds

Tax and insurance

Interest accrual

Actual/360 or 30/360

Interest-only available?

Partial or full

Loan size

$1 million+

Loan term

5, 7 or 10 years

Maximum loan-to-value ratio

75% to 80%

Minimum debt service coverage ratio

1.25 to 1.40

Prepayment penalty

Step down or yield maintenance

Rate locks

Early rate, spread lock, index lock options

Rate type

Fixed; Floating based on 1-month LIBOR with cap;

Recourse/non-recourse

Non-recourse with carveouts

Replacement reserves required?

Minimum $50/site/year and $250/home/year

Supplemental loan?

Available subject to loan agreement

 

Freddie Mac Multifamily CLP Student Housing Loan Program

Eligible properties:

  • Purpose-built student housing properties: minimum of one bathroom for every two bedrooms, each unit must have a separate full kitchen
  • Stabilized properties with greater than 50% occupancy by student tenants
  • College/university has 8,000+ students
  • Property is less than two miles from college/university or on a public transportation route

Eligible borrowers:

  • Limited liability corporations, limited partnerships, corporations, limited liability partnerships, REITs, certain trusts, or tenancy in common (TIC) with 10 or fewer tenants in common.
  • Must be a single purpose entity (SPE) or single asset entity (SAE). If TIC borrower, each tenant in common must be an SPE.

 

Current rate

Below 4.5% for 30-year loan

Impounds

Tax and insurance

Interest-only available?

Yes

Loan size

$5 million – $100 million

Loan term

5 – 30 years

Maximum loan-to-value ratio

65% – 80%

Minimum debt service coverage ratio

1.30 – 1.45

Prepayment penalty

Greater of 1% or yield maintenance

Rate lock

Early and index rate locks

Rate type

Fixed or floating

Recourse/non-recourse

Non-recourse with carve-outs

Replacement reserves required?

$150/bedroom or $300/unit

Supplemental loans permitted?

Yes, subject to loan agreement

Freddie Mac Multifamily CLP Lease-up Loan Program

Covers the pre-stabilization period after construction is complete. The program is for acquiring or refinancing new properties. All transactions require a lease-up credit enhancement of at least 5% of the unpaid principal.

Eligible Properties:

  • Well-constructed properties showing robust lease-up trends in strong markets and good locations
  • Stabilization expected to complete within 12 months of closing
  • Manufactured housing community and student housing transactions are not eligible

Eligible Borrowers:

  • Borrowers must have experience with lease-up properties and/or new construction
  • Generally, have strong financial capacity
  • Real estate management expertise with good performance
  • Good credit history

Current rate

Variable

Impounds

Tax and insurance

Interest-only available?

Yes

Loan size

$5 million – $100 million

Loan term

5- 10 years

Maximum loan-to-value ratio

70% – 75%

Minimum debt service coverage ratio

1.30 – 1.45

Prepayment penalty

Yield maintenance before securitization

Rate lock

Triggered by 50% to 60% leasing and occupancy

Rate type

Fixed or floating

Recourse/non-recourse

Non-recourse with carve-outs

Replacement reserves required?

$150/bedroom or $300/unit

 

Freddie Mac Multifamily CLP Moderate Rehab Program

Low-cost loans advanced monthly during rehab period.

Eligible properties:

  • $25,000-$60,000 per unit for renovations, minimum of $7,500 interior work per unit
  • Minimum debt coverage ratio (DCR) 1.0 on interest-only loans
  • Not eligible — student housing, seniors housing, MHC, preferred equity with mezzanine financing and hard pay

Eligible borrowers:

  • Well-capitalized and experienced borrowers who have successfully finished rehabilitation projects of comparable scope
  • Must be familiar with the Freddie Mac loan process

Amortization

Based on borrower

Current Rate

Below 4.5% for 30-year loan

Impounds

Tax and insurance

Interest accrual

Actual/360 or 30/360

Interest-only available?

Only during rehab period

Loan size

Up to $60,000/unit

Loan term

Up to 3 years

Maximum loan-to-value ratio

80% of as-is value

Minimum debt service coverage ratio

1.20 to 1.30

Prepayment penalty

2% during rehab period

Rate type

Usually float-to-fixed. If float, capped.

Recourse/non-recourse

Non-recourse with carveouts

 

Freddie Mac Multifamily Small Balance Loans Program

Eligible properties:

  • Agreements (LURAs) in either the final two years of the initial compliance period or the extended use period
  • Cooperatives in Long Island and the five boroughs of New York City
  • Low-Income Housing Tax Credit (LIHTC) properties with Land Use Restriction
  • Properties with certain regulatory agreements that impose rent and/or income restrictions
  • Properties with local rent subsidies for 10% or fewer units where the subsidy doesn’t depend on the owner’s initial or ongoing certification of tenant eligibility
  • Properties with space for certain commercial uses
  • Properties with tax abatements
  • Properties with tenant-based housing vouchers
  • Seniors housing with no resident services

Eligible borrowers:

  • Up to $6 million — Individuals who are U.S. citizens; limited liability companies; limited partnerships; Special Purpose Entities; Single Asset Entities; tenancy in common with up to five unrelated members; and certain trusts
  • Between $6 million and $7.5 million – Single Asset Entities

Amortization

Up to 30 years

Current Rate

Below 4.5% for 30-year loan

Impounds

Tax and replacement reserve escrows deferred

Interest accrual

Actual/360 or 30/360

Interest-only available?

Partial; full may be available

Loan size

Up to $7.5 million

Loan term

Fixed rate 5 to 10 years; Hybrid ARM 20 years with up to 10 years initial fixed

Lock-out period

60 – 120 days

Maximum loan-to-value ratio

70% – 80%

Minimum debt service coverage ratio

1.20 – 1.40

Minimum occupancy

85% -90%

Prepayment penalty

Step down or yield maintenance

Rate locks

Yes, six months from commitment

Rate type

Fixed or hybrid ARM

Recourse/non-recourse

Non-recourse with carveouts

Replacement reserves required?

Yes, rating-based

Supplemental loan?

No

Freddie Mac Targeted Affordable Housing Loan Program

Freddie Mac provides guidelines for targeted affordable housing loans of the following types:

  • Bridge to Resyndication
  • Cash Loan for Affordable Housing Preservation
  • Flexible Tax-Exempt Loan
  • Green Advantage
  • HUD Section 8 Financing
  • Impact Gap Financing
  • NOAH Preservation Loan
  • Non-LIHTC Forwards
  • Seasoned Loan Pool Credit Enhancement
  • Seasoned Loan Securitization
  • TAH Express
  • Tax-Exempt Loan
  • Value Add

Freddie Mac Seniors Housing Loan Program

Eligible properties:

  • Assisted living
  • Independent living
  • Memory care
  • Properties with limited skilled nursing

Eligible Borrowers:

  • Experienced owner/operator of comparable facilities
  • Loan less than $5 million — Single Asset Entity (general partnership, limited partnership, limited liability company, corporation, or REIT)
  • Loan is $5 million+ — Single Purpose Entity (limited partnership, corporation, limited liability company)
  • If tenancy in common, each TIC must be an SPE

 

Amortization

Up to 30 years

Current rate

Below 4.5% for 30-year loan

Impounds

Tax, insurance, replacement reserve

Interest accrual

Actual/360 or 30/360

Interest-only?

Available

Loan size

$5 million+

Loan term

5 – 10 years floating rate; 30 years fixed

Maximum loan-to-value ratio

70% – 75%

Minimum debt service coverage ratio

1.30 – 1.65

Prepayment penalty

Defeasance or yield maintenance

Rate lock

Early, index, spread hold

Rate type

Fixed or floating

Recourse/non-recourse

Mostly non-recourse with carve-outs

Replacement reserves required?

Yes

Supplemental loans?

Yes

Important Forms and Documents

Freddie Mac requires many forms for its CLP program. Some of the important ones include:

  • Benchmarking Data Consultant Engagement Certification
  • Borrower Quarterly Certification – Value Add Transaction
  • Cooperative Corporation Certification
  • Debt Service Reserve Rider to Loan Agreement
  • Deferred Rate Cap Agreement and Reserve Fund Rider to Loan Agreement
  • Ground Fault Interrupter No Disbursement from Repair Reserve Rider to Loan Agreement
  • Letter of Credit in Lieu of Reserve Fund for Insurance Premiums or Taxes Rider to Loan Agreement
  • Loan Agreement
  • Radon Rider to Loan Agreement
  • Rate Cap Agreement Reserve Rider to Loan Agreement
  • Rental Achievement Cash Reserve Rider to Loan Agreement
  • Rental Achievement Letter of Credit Rider to Loan Agreement
  • Repair Reserve Fund – Stab-Lok Inspection Rider to Loan Agreement
  • Replacement Reserve – Additional Deposits Rider to Loan Agreement
  • Replacement Reserve – Deferred Deposits Rider to Loan Agreement
  • Replacement Reserve Fund – Deferred Deposits – Co-op Borrowers Rider to Loan Agreement
  • Replacement Reserve Fund Monthly Deposit Cap Rider to Loan Agreement
  • Required Averaged Capital Expenditures Rider to Loan Agreement
  • Required Yearly Capital Expenditures Rider to Loan Agreement
  • Riders to Loan Agreements
  • Section 8 Housing Assistance Payments Reserve Rider to Loan Agreement
  • Seller’s Certification of Outstanding Items
  • Seller’s Certification Regarding Certificates of Occupancy
  • Seller’s Counsel’s Certification
  • Seller’s Title Insurance Certification
  • Survey Certificate
  • Value Add Student Housing Debt Service Reserve Rider to Loan Agreement

You can find the full library of required documents at the Freddie Mac website.

Is a Freddie Mac Multifamily Loan Right for Me?

The same considerations apply to Freddie Mac and Fannie Mae. See the Assets America discussion here.

How the Process Works

Although there are many documents to complete, the actual process has just a few main steps:

  1. Contact a lender authorized to make Freddie Mac multifamily loans.
  2. Discuss the various programs available and study the term sheets of each one that interests you.
  3. See if you prequalify for a Freddie Mac multifamily loan. You’ll have to submit the following:
    1. Current Rent Roll/Occupancy Report (with move-in and lease-end dates)
    2. Interior/Exterior Photos of the Property (or property website)
    3. Personal Financial Statement (including a schedule of real estate owned)
    4. Real Estate Resume (if you don’t currently own multifamily properties)
    5. Trailing 12 Month Operating Statement
  4. If you decide to apply, make a due diligence deposit (typically up to $15,000) to pay for:
    1. Appraisal
    2. Environmental engineering report
    3. Structural engineering report
    4. Zoning report
    5. All lender and agency inspections
    6. Title search
  5. Submit all the required forms.
  6. If you receive approval, schedule the closing. It usually takes about 45 to 60 days to close on a Freddie Mac multifamily loan.
  7. Prepare for the closing, where you’ll likely spend up to another $10,000 or more on the following:
    1. Legal costs
    2. Securitization costs
    3. Origination fees
  8. Close on the loan.

How Assets America® Can Help

Freddie Mac may not be the right answer for many multifamily projects. As discussed above, there are several reasons to seek a different lender. We are Assets America® and we broker real estate loans beginning at $5 million. If you require a multifamily loan, contact us for an in-depth review of what we can offer. We move fast with less red tape, so contact us today.

Video:  Freddie Mac Multifamily Transaction Managers

Frequently Asked Questions

What is the origination fee on Freddie Mac multifamily loans?

Typically, the origination fee on a Freddie Mac multifamily loan is at least 1%. Application fees may exceed $20,000, and there are more closing costs as well. The lender sets the origination fee.

What can I change on the Freddie Mac documents?

Naturally, you can fix any incorrect information you put on a Freddie Mac document. In addition, you may want to change some of the loan terms, such as fixed vs adjustable rate, loan term, and loan amount.

Does Freddie Mac own my loan?

Typically, Freddie Mac would not own a Freddie Mac loan. You can go onto the Freddie Mac website and use its self-service loan look-up tool. Normally, the sponsor will be pool and securitize your loan.

What aspects of the loan can you negotiate?

You may be able to negotiate the prepayment penalty aspects of your loan. In addition, you may be able to demonstrate you have the required experience even if it’s a marginal call. Your lender will let you know which items are negotiable and which aren’t.

Related Articles