The
number of qualified lenders offering long-term, low-cost executions for stabilized
multifamily properties has decreased at a greater rate than the pool of
available transactions. There are even fewer choices for brokers who specialize
in small balance loans for multifamily properties. There is a small loan void,
and some lenders have stepped up their small loan initiatives to fill it by
offering long-term, low-cost loans to owners of small-cap multifamily
properties through Fannie Mae’s small apartment loan program.
But
confusion surrounds loan guidelines when brokers transition to Fannie Mae’s
small apartment loan programs from other product offerings. Keep in mind that
the elements crucial to Fannie Mae’s small apartment loan program guidelines
center on the underwriting process. To understand whether a Fannie Mae’s small
apartment loan program may work for particular clients and properties, it’s
worth separating fact from myth. Here are seven common traits and
misconceptions of which you should be aware.
Myth 1:
Equality in All Fannie Mae’s Small
Apartment Loan Programs:
Large
scale apartment loan programs have special asset classes, such as senior
housing and affordable housing that are not part of Fannie Mae’s small
apartment loan programs. This program considers small loans to be less than $3
million; in a few high-cost markets, these loans could be those of less than $5
million. If a loan doesn’t fit within the small loan program, it likely will
fit in a traditional loan program. Fannie Mae’s small apartment loan programs have
lower upfront costs or fixed fees than larger loans. This can amount to as much
as 75% cost savings. Small loan savings can be attributed to the reduced scope
of third-party reports and use of standard loan documents that in turn reduce
legal fees.
Myth 2:
Fannie Mae’s Small Apartment Loan Programs
are more Complex to Underwrite than Bank Given Loans
Small
mortgage loans can be underwritten in virtually the same manner as the product
of a bank, a life-insurance company or other portfolio. Although jargon may
obfuscate some lenders’ terms or features, Fannie Mae’s small apartment loan
programs’ approach to cash flow and financial performance trends is fairly
standard and clearly stated. More important, borrower strength, property
condition, market performance and trends are reviewed with similar criteria to
those of a portfolio lender.
Myth 3
The Minimum Population for the
Location of Properties to Avail Fannie Mae’s Small Apartment Loan Programs is
250,000
Fannie
Mae’s small apartment loan programs don’t have a minimum population
requirement. The smaller the market, however, the more difficult it is to get
current sales and rental data. It’s also harder to gauge the probabilities of
new competitive properties coming on the market in a smaller area because raw
land often is more plentiful.
Another
challenge that comes with smaller markets is the amount of analysis required to
understand economic factors that may impact credit risk, including employer or
industry concentration and population or seasonal trends. Fannie Mae’s small
apartment loan programs in small markets equal higher risks. Be prepared for
more conservative underwriting in smaller markets.
Myth 4
Local Borrowers Muse Use Third
Party Management Companies to Qualify for Fannie Mae’s Small Apartment Loan
Programs
Generally,
local borrowers with two years of property management experience and similar
numbers of units are not required to employ a third-party management company.
National borrowers, defined as those living 100miles from the subject property
for father, typically must employ third party management companies, however.
Fact 1:
Third-party
reporting receipt time is usually shorter for Fannie Mae’s small apartment loan
programs for larger loans. In addition, standard loan documents allow for a
more efficient generation of closing documents. Further, Fannie Mae’s small
apartment loan programs transactions are tend to be more homogenous than larger
loans and require less structuring. All these factors mean these loans often
can be underwritten in less time.
Fact 2
Properties that Meet Minimum
Debt-Service Requirements also must Exhibit a Minimum Occupancy Level
Although
a property meets the debt-service coverage minimum, it also must exhibit 90%
occupancy for the 90days preceding the loan origination date. Properties that
have less than 10 units may not have had more than one unit vacant for the
preceding 12 months.
Fact 3:
Fannie Mae’s Small Apartment Loan
Programs with an Age-Restricted, Student or Section-8 Component are Eligible
Age
restricted properties are eligible for these Fannie Mae’s small apartment loan
programs as long as no other senior housing elements present, such as nursing
care or meal plans. Properties with student occupancy of 20% or less are
acceptable. But be prepared to validate the student-occupancy makeup. Affordable
housing properties with tax credits or regulatory agreements are not eligible
for the Fannie Mae’s small apartment loan programs. Properties that are
rent-controlled or rent stabilized or that have portable section 8 vouchers are
eligible, however.
Every
Fannie Mae’s small apartment
loan program’s lender has its own credit culture, requirements and
sensitivities. Certain lenders may have aversions to certain markets based on
experience; this can be a primary reason brokers are confused about whether
particular requirements are Fannie Mae’s small apartment loan program’s or a
lender’s. Brokers should therefore demand constant communication from their
lenders so they can manage transactions affect by Fannie
Mae’s small apartment loan programs’ guidelines or lenders’.