Freddie Mac Expands Into Small Apartment Mortgages

Freddie Mac is building a business to originate small apartment loans, between $1 million and $5 million, as part of its mandate to support affordable housing.

The average loan will be about $2.5 million, the McLean, Virginia-based company said today in a statement. The mortgage giant plans to originate as much as $1 billion of such debt in 2015, according to David Brickman, the head of multifamily operations at Freddie Mac.

The initiative follows Freddie Mac’s move into financing manufactured-housing communities earlier this year as it broadens its reach in the apartment segment to provide affordable options for low-income families. Local lenders have historically been the primary source of capital for smaller loans, which account for about 30 percent of the multifamily mortgage market, according to Brickman.

“It is critical to provide financing for smaller loans and properties, especially since this market segment disproportionately serves lower income renters,” Brickman said in the statement.

The average size of an apartment loan from Freddie Mac is $15 million, Brickman said in a telephone interview. They can be as large as $540 million for a single building, he said.

Freddie Mac plans to package the smaller loans into bonds to be sold to investors. Private investors will take the first loss on the deals, similar to the lender’s program for larger mortgages. The offerings would start out at about $100 million, according to Brickman.

Underwriting guidelines for smaller loans will be similar to those in place for larger mortgages, he said.

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