FHLMC
Freddie Mac (FHLMC) Multifamily Mortgages
Freddie Mac (FHLMC) Multifamily Mortgages
Freddie Mac (FHLMC) multifamily mortgages represent a class of debt financing instruments collateralized by a first lien position on properties encompassing conventional multifamily residences, student housing complexes, senior living facilities, or affordable housing developments.
These mortgages are bifurcated in their disposition: a minority (approximately 10%) are retained within the FHLMC’s investment portfolio, while the substantial majority (roughly 90%) are securitized and subsequently sold to bond market participants.
The structure of these loans can incorporate either a fixed or floating interest rate, the latter potentially incorporating an interest-only accrual period.
Amortization schedules generally span 25 to 30 years; however, a balloon payment is typically required upon maturity, unless the loan is structured as a self-amortizing portfolio loan, thereby obviating the need for a final lump-sum payment.
| Loan Type | Property Type * | Min Loan Amount | Max LTV | Term Length | Amortization | Rates |
|---|---|---|---|---|---|---|
| FHLMC | A, AH, MH, SH | $1,000,000 | 80% | 5–30 Years | 30 Years |
*A = Apartment AH = Affordable Housing MH = Manufactured Housing SH = Senior Housing
Additional Information: | Parameters | Loan Features | Prepayment Penalties | Securitization | Rating Agencies | Loan Servicing
Related Links: | Affordable Housing Mortgages | Apartment Loans | Manufactured Housing Commercial Mortgages | Senior Nursing Facilities
Programs & Underwriting Parameters
Freddie Mac offers a diverse range of loan programs, necessitating a careful evaluation of the property’s investment strategy to align with the optimal financing option. A detailed overview of Freddie Mac’s various programs, coupled with a summary of their respective underwriting parameters, is provided below.
Program Plus Financing for Multifamily Properties-
Fixed-Rate Loan: This financing solution caters to the acquisition or refinancing needs of diverse multifamily projects. Loan amounts typically range from $5 million to $100 million, with potential interest-only periods. The maximum loan-to-value (LTV) ratio is capped at 80%, while maintaining a minimum debt service coverage ratio (DSCR) of 1.25x.
Floating-Rate Loan: Similar to the fixed-rate option, this product facilitates the acquisition or refinancing of various multifamily property types, excluding cooperative housing. Loan parameters mirror those of the fixed-rate loan, with typical amounts between $5 million and $100 million, interest-only options available, a maximum LTV of 80%, and a minimum DSCR of 1.25x.
Student Housing Mortgage: This specialized mortgage targets the acquisition or refinancing of purpose-built student housing facilities. Preference is given to properties with 12-month leases and parental guarantees. Conventional residence halls featuring shared bathrooms, centralized food services, or dining halls are ineligible. Loan amounts generally fall between $5 million and $100 million, and interest-only options may be considered. The maximum LTV is 80%, with a required minimum DSCR of 1.30x.
Lease-Up Loan: Designed exclusively for traditional multifamily properties undergoing stabilization following substantial completion of construction, this product is not applicable to student, senior, or affordable housing projects. Maximum leverage is contingent upon financial security: a 75% LTV is permitted with a 1.30x DSCR secured by a letter of credit or reserve; otherwise, the maximum LTV is 65% with a 1.25x DSCR.
Manufactured Housing Community Loan: This financing option supports existing, stabilized, high-quality, and professionally managed manufactured housing communities (MHCs), regardless of age restrictions. Loan amounts start at $1 million and may include interest-only periods. The maximum LTV is 75%, and the minimum DSCR is 1.25x.
Revolving Credit Facility: This product offers a 5-year secured line of credit applicable to a broad spectrum of multifamily property types. Borrowers have the flexibility to transfer assets in and out of the facility for purposes such as rehabilitation, upgrades, acquisitions, or refinancing. Typical loan amounts are $100 million or more, structured with interest-only payments. The maximum LTV is 75%, and the minimum DSCR is 1.45x.
Supplemental Loan: Intended for stabilized properties already encumbered by a Freddie Mac first lien mortgage, this loan provides additional capital. Loan amounts begin at $1 million, with potential interest-only options. The maximum LTV is 80%, and the minimum DSCR is 1.25x.
Value-Add Loan: This acquisition loan provides short-term, cost-effective financing for properties undergoing moderate upgrades. It features a floating interest-only rate, a maximum LTV of 80%, and a DSCR calculated based on a hypothetical 7-year fixed rate at prevailing market pricing.
based on 7-year fixed rate at current pricing.
Targeted Affordable Housing Financing Solutions
Our firm offers a comprehensive suite of financing solutions tailored to the specific needs of affordable multifamily housing projects. These programs leverage various incentives and structures to maximize value and ensure project viability.
Financing Options:
9% LIHTC Cash Loan: A direct lending product designed for properties utilizing 9% Low-Income Housing Tax Credits (LIHTC). This solution can accommodate forward commitments for new construction or substantial rehabilitation, acquisition or refinance of stabilized assets, and moderate rehabilitation initiatives. Loan-to-Value (LTV) ratios can reach up to 90%, with a minimum Debt Service Coverage Ratio (DSCR) of 1.15x. Repayment terms extend to a maximum of 35 years.
Bond Credit Enhancement with 4% LIHTC: This financing strategy supports properties benefiting from 4% LIHTC allocations. Similar to the 9% LIHTC Cash Loan, it facilitates forward commitments for new builds or significant renovations, acquisition or refinancing of existing properties, and funding for moderate rehabilitation projects. LTV is capped at 90%, while the DSCR ranges from 1.15x to 1.20x. Terms up to 35 years are available.
Bond Credit Enhancement with Other Affordability Components: A credit enhancement program designed for both fixed and variable-rate multifamily housing bonds. This encompasses bond refundings, substitutions, and new issuances incorporating 80-20 bonds, combination bonds, 501(c)(3) bonds, Section 8, Section 236, or tax abatement mechanisms. The maximum LTV is 85%, with a minimum DSCR of 1.25x. Repayment terms extend to 30 years.
Cash Loan with Other Affordability Components: A direct lending option for the acquisition or refinance of stabilized, affordable multifamily properties incorporating affordability components such as Section 8, Section 236, tax abatements, or other similar programs. This product offers both fixed and floating-rate cash mortgages. LTV is capped at 80%, with a minimum DSCR of 1.25x. Repayment terms extend to 30 years, potentially longer if structured with HUD risk-sharing.
Direct Purchase of Tax-Exempt Mortgages: This financing avenue facilitates the acquisition or refinancing of affordable multifamily properties utilizing 4% LIHTC, provided at least seven years remain within the initial LIHTC compliance period. LTV can reach up to 90%, with a minimum DSCR of 1.15x. Loan terms extend up to 18 years, with amortization schedules potentially reaching 35 years.
Preservation Rehabilitation Financing: A loan product specifically designed to finance the moderate rehabilitation of existing affordable multifamily properties utilizing new Low-Income Housing Tax Credits (LIHTC). LTV can reach up to 90%, with a minimum DSCR of 1.15x. Terms and amortization schedules can extend up to 35 years.
Supplemental Loan: A secondary financing option available for stabilized properties already encumbered by a Freddie Mac first lien mortgage. Loan amounts start at $1 million and may include interest-only options. LTV is capped at 80%, with a minimum DSCR of 1.25x.
Tax-Exempt Bond Securitization (TEBS): A structured finance product where a Sponsor transfers privately placed tax-exempt multifamily housing revenue bonds (and potentially related taxable bonds or loans) to FHLMC in exchange for FHLMC senior Class-A M certificates (sold to investors) and Subordinate Class-B M Certificates (retained by the Sponsor). The minimum pool size is $100 million, with a minimum DSCR of 1.05x.
Variable Liquidity Pricing: A variable-rate product offering liquidity pricing comprised of a fixed component for five years and a variable component that adjusts every 90 days. Extensions are available with repricing of the fixed component. This product is applicable to Targeted Affordable Housing (TAH) retail bond credit enhancement transactions (immediate funding and funded forwards) and Tax-Exempt Bond Securitization (TEBS) transactions. Maximum LTV is 80%, with a 5-year liquidity contract duration and a 10-30 year credit enhancement duration.
Seniors
Senior Housing Loan: facilitate the purchase or refinancing of properties catering to older adults, encompassing independent living, assisted living, skilled nursing, and memory care facilities. Eligibility necessitates that borrowers possess demonstrable experience in the ownership and operational management of similar facilities, and comply with stipulated ownership structure criteria. Interest rate options include both variable and fixed rates, with the added flexibility of securing a future rate through an advance rate lock agreement.
Small Balance
Small Balance Loans: The Freddie Mac small balance program provides financing of small balance loans using hybrid ARM or fixed-rate loan products, offering partial-term and full-term interest-only. This program also features a streamlined process and competitive pricing. The loan amount for this program is $1 million to $5 million.
Freddie Mac Residential Portfolio Loans
Freddie Mac Single-Family Rental (SFR) Pilot Program: Seeing the need for a product that can provide a financing option for single family rental home portfolios, Freddie Mac is testing out a new loan product called the Single-Family Rental Pilot Program.
Loan features
Term Length/Amortization: Freddie Mac loan terms generally range from 5 to 10 years. However, if the mortgages remain within Freddie Mac’s investment portfolio, terms can extend up to 30 years. Amortization periods can also reach 30 years, contingent upon the specific loan product chosen and the property’s condition and classification.
Recourse: Freddie Mac mortgages are structured as non-recourse loans, subject to standard carve-out provisions. This signifies that borrowers are not personally responsible for repaying the debt. In the event of foreclosure, the underlying property and its generated cash flow serve as the exclusive source for debt repayment. Nevertheless, should the borrower engage in actions detrimental to the property, lender, or investors, limited recourse may be triggered under specific circumstances. Such actions may encompass loan fraud, unauthorized property transfer or subordinate financing, voluntary or collusive actions leading to bankruptcy, or failure to maintain Special Purpose Entity (SPE) status, among other similar violations.
Rate Lock: Borrowers secure the interest rate prior to loan closing, with the specific type of rate lock determined by the timeframe required before closing. Freddie Mac provides four distinct rate lock options to accommodate varying borrower needs.
Loan Assumption: Freddie Mac mortgages are assumable, provided the prospective assuming borrower (i.e., the purchaser) meets the original underwriting criteria. This typically occurs when the borrower intends to sell the commercial real estate securing the loan, and the property purchaser desires to assume the existing loan. Upon completion of the property sale and loan assumption, the purchaser assumes ownership of the property and becomes bound by the original loan terms. Consequently, the original borrower/seller is released from their obligations pertaining to the property and the existing loan. This structure benefits the borrower/seller by circumventing defeasance or other prepayment penalties, while affording the buyer the opportunity to assume a loan potentially offering more favorable terms than currently available in the market. Loan assumption is particularly advantageous in environments characterized by high interest rates or restricted credit availability. Freddie Mac has streamlined its loan assumption procedures to expedite the process for both buyers and sellers.
Prepayment Penalties
FHLMC fixed-rate mortgages offer two prepayment penalty options: Yield Maintenance and Defeasance, both featuring a mandatory two-year lockout period. Yield Maintenance involves a complete loan payoff and note cancellation. Conversely, Defeasance substitutes the underlying property with alternative collateral, typically U.S. Treasury bonds, transferred to a Successor Borrower, a special purpose entity (SPE). Both structures can expose borrowers to substantial financial penalties if prepayment occurs significantly before the loan’s maturity or if U.S. Treasury bond yields decline sharply. Therefore, borrowers should carefully consider their anticipated holding period and future market conditions when selecting the loan term.
FHLMC floating-rate mortgages offer four prepayment penalty structures, including a flat 1% fee and three declining fee schedules.
Yield Maintenance: The objective of Yield Maintenance is to ensure bond investors receive the same yield they would have earned had the borrower adhered to the original payment schedule until maturity. The prepayment penalty calculation is typically outlined in the loan documents. While specific wording may vary across institutions, the calculation generally involves two components: 1) the outstanding principal balance and 2) a prepayment penalty. This penalty is usually determined by calculating the difference between the loan’s interest rate and the yield on a U.S. Treasury security with a comparable maturity, discounting the remaining loan payments to reflect the time value of money. It’s important to note that yield maintenance provisions often include a minimum prepayment penalty, typically around 1%.
Defeasance: Defeasance does not involve loan repayment or note cancellation. Instead, substitute collateral, typically bonds or other securities, arranged by a defeasance firm, replaces the real estate as security, enabling property sale or refinancing. The cash flow from these substitute securities, generated through coupons and maturing securities, covers all future loan payments. When the yield on the substitute collateral exceeds the loan’s interest rate, purchasing securities to cover the remaining principal and interest (P&I) payments becomes more cost-effective. Unlike yield maintenance, defeasance provisions do not have a minimum penalty floor. However, third-party administrative fees for defeasance typically range from $50,000 to $100,000, depending on the loan’s size and complexity. For detailed information, consult the Defeasance Rider within the loan documents.
Securitization/Loan Pools (K Deals)
Once a loan receives funding, it’s aggregated into a substantial security pool, with a minimum value of $1 billion. This pool is then transferred to a bond issuer or depositor, who subsequently places it within an independent trust. This trust undertakes a securitization process, transforming the loan pool into marketable bonds. Following this, the Federal Home Loan Mortgage Corporation (FHLMC) acquires the senior, guaranteed tranches of these bonds issued by the trust. FHLMC then further securitizes these bonds through the Freddie Mac Trust, creating K Certificates, which carry Freddie Mac’s guarantee. These K Certificates are subsequently offered to investors on the open market, typically attracting institutional investors such as life insurance companies, pension funds, asset management firms, mutual funds, and commercial banks, particularly for investment-grade pools. Conversely, the subordinate and mezzanine tranches of the bonds, lacking Freddie Mac’s guarantee, are sold directly to private investors by the third-party trust. Investment decisions regarding the purchase of specific bonds or certificates are driven by the investor’s desired level of credit risk exposure, anticipated yield, and duration profile.
Rating Agencies
Due to the implicit alignment with Freddie Mac’s AAA creditworthiness and the organization’s established track record of significantly lower default rates compared to industry averages, the mortgage-backed securities issued by FHLMC are not independently assessed by major credit rating agencies such as Moody’s and Standard & Poor’s.
Loan Servicing
Mortgage servicing for Freddie Mac loans can be handled either by the originating lender or an external entity. The Master Servicer undertakes routine loan administration, encompassing payment collection, escrow management, financial analysis, collateral inspection, and the evaluation of borrower requests. Delinquent loans are typically transferred to a Special Servicer, which executes advanced resolution strategies. These strategies include modifying loan terms such as maturity dates, restructuring debt, initiating receiverships, pursuing foreclosure on secured properties, managing real estate acquired through foreclosure, and ultimately disposing of those assets. To maintain service quality and address capacity constraints, Master Servicers may delegate specific tasks to Primary or Sub-Servicers. Freddie Mac currently holds an above-average performance rating for both its Master and Special Servicing operations.