2009-06-29, 12:53

Freddie Mac CME Program Offers Borrower-Friendly Terms

By: Multifamily Real Estate Industry Team
As the economic crisis and its related fallout continues to chug along, the GSE’s remain one of the main source of financing available for multifamily owners. Those in search of financing should consider Freddie Mac's new Capital Markets Execution (CME) program. CME was just launched in the last month or so. CME multifamily loans are offered on more favorable terms than Freddie's standard portfolio loans. CME loans enter a pool of loans from which Freddie sells loans to an institutional investor who securitizes the loans and then sells securitized bonds backed by the loans themselves.

Here are some specifics:

  • The CME program offers better interest rates than Freddie Mac's standard loan (up to 30 basis points lower).

  • The borrower may take out a Freddie Mac supplemental loan after only 12 months.
    The CME program also offers some flexibility on appraisals, as it allows for up to a 5 percent discrepancy in the appraisal amount for the property, with a commensurate reduction in the loan amount from the rate-locked amount. No breakage fees are due in such event.

  • On the down side, the CME loan documents are much less flexible than Freddie Mac's standard loan documents. So, if you have a standard template of loan modifications that you previously customarily used in Freddie Mac loans for your portfolio, those will generally not be accepted under the CME program. We have been advised that material provisions of “favored” borrower’s loan documents that are critical in nature for that borrower (such as those relating to the transfer provisions) will be considered.

  • Under the CME program, borrowers must be special purpose entities.

  • Finally, the CME documents provide for defeasance rather than yield maintenance (after the first 2 years).

The information below is from the CME program description on Freddie Mac’s website:

Asset Type Multifamily; age-restricted multifamily, multifamily with student concentration; purpose-built student housing; cooperative housing; Section 8 HAP

Borrowing Entity Borrowers must be a SPE if the loan is $5,000,000 or more

Loan Size* $5 to $100 million (FM may permit loans as low as $3.5m in strong markets)

Loan Terms 5, 7, and 10 year

Interest-Only Period Partial Interest-Only (IO) may be approved at the sole discretion of Freddie Mac; Full Term IO not available

Minimum DCR Acquisition: 5 to less than 7 years: 1.30x; 7 to 10 years: 75% Refinance: 5 to less than 7 years: 1.30x (1.35x for cash-out refi); & 7 to 10 years : 1.25x (1.30x for cash-out refi)

Maximum LTV Acquisition: 5 to less than 7 years: 70%; 7 to less than 10 years: 75%; greater than 10 years: 80% Refinance: 5 to less than 7 years: 65%; 7 to less than 10 years: 70%; greater than 10 years: 75%;

Maximum Amortization 30 years

Amortization Calculations Actual/360 standard; 30/360 available

Lockout Period 2 years

Prepayment Provisions Yield maintenance until securitized followed by 2-year lockout; defeasance thereafter. No penalty for final 90 days. If loan is not securitized within first 2 years then yield maintenance applies for the life of the loan.

Tax & Insurance Escrow Required

Replacement Reserve Deposit Required

Recourse Requirements Non-recourse except for carve outs

Supplemental Loan Availability Yes, available 12 months after closing only with a Freddie Mac Supplemental Mortgage; refer to Supplemental Mortgage term sheet for sizing parameters

Premium Availability Buyups permitted for up to 1% of loan amount

Application Fee Greater of $2,000 or 0.1% of loan amount

Note that this product is not available for new construction projects. Freddie Mac does not offer standard construction loans; however, there is Freddie’s Conventional Forward Commitment Program, which offers forward financing for the new construction or substantial rehabilitation of multifamily conventional, non-subsidized properties. Check out a basic termsheet for this program at http://www.freddiemac.com/multifamily/termsheet_conventional-forward.html.

(This entry posted by Mark Polston, a member of Womble Carlyle's Real Estate Development group)


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