Filtering Out the Facts Associated with Fannie Mae’s Small Apartment Loan Program

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:

Fannie Mae’s Small Apartment Loan Programs Take Less Time to Process

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’.