Apartment loans during COVID19

Apartment Loan during COVID

Apartment loans during COVID19 Update:

Due to the current economic conditions brought about by the COVID19 event Fannie Mae and Freddie Mac have made temporary program changes.  Yes apartment loans are avaialble during COVID19. We have outlined those changes in this update.  You can find additional underwriting requirements and conditions in our web site.  The web site does not reflect the changes outlined below.

All loans not under a commitment prior to these changes will be subject to these changes.

Small Balance Loans through Fannie Mae and Freddie Mac – Special COVID19 Reserves:

Fannie Mae Small Balance Loan Program – over $1 Million, less than $6 Million):

  • Tier 2 Loans – Minimum Debt Service Coverage Ratio 1.25x, Maximum Loan to Value 80%.
    • 18-month principal and interest reserve. (all loans calculated on 30-year amortization)
    • 12-month real estate taxes, insurance reserve deposit and replacement reserve escrow.
  • Tier 3 Loans DSCR 1.35x, Maximum LTV 65%
    • 6-month principal and interest reserve
    • 6-month tax, insurance reserve and replacement reserve escrow.
  • Tier 4 Loans DSCR 1.55x, Maximum LTV 55%
    • Exempt

Freddie Mac Small Balance Loan Program – over $1 Million, less than $6 Million:

  • 12-month principal and interest reserve (all loans calculated on 30-year amortization)
  • Tax and insurance impounds for life of loan (standard escrow account setup).
  • Replacement reserves collected monthly for properties with greater than 50-units.

Other underwriting changes:

Fannie Mae:

  • Except commercial income to be excluded unless it is a grocery store or a restaurant that does delivery and is not impacted by COVId-19.
  • No other programmatic changes.

Freddie Mac:

  • Commercial income will not be counted unless the tenant is credit rated or considered critical to the supply chain.
  • Tenants will be approved on a case by case basis.
  • 5% Decrease to maximum LTV
    • 75% Loan To Value (LTV) in Top/Standard Markets
    • 65% in Small/Very Small Markets
  • .10x increase to the minimum Debt Service Coverage Ratio (DSCR)
    • 30x in Top Markets
    • 35x in Standard Markets
    • 40x in Small Markets
    • 50x in Very Small Markets
  • Cash Out Refinance guidance as of March 25, 2020
    • Top Market DSCR 1.30x; Maximum Loan to Value 75%
    • Standard Market DSCR 1.25x; Maximum Loan to Value 75%
    • Small Market DSCR 1.40x; Maximum Loan to Value 65%
    • Very Small Market DSCR 1.50x; Maximum Loan to Value 65%

*Cash out refinanced is defined as cash proceeds greater than 3% of the existing mortgage loan plus junior capital and prepayment penalties.

  • Markets of Concern

    • – cities with high reliance on oil or tourism: Houston, State of Oklahoma, Las Vegas, New Orleans and Orlando.
    • Reduce maximum Loan to Value by 5%
    • Increase the minimum debt service coverage ratio .05
  • Credit Exception Changes
    • No multiple asset entities (MAE) or individual borrowers
    • Credit score must be greater than 650
    • Certified Collections – If submitted 1st – 15th of month, preceding month required; 16th – end of month, current month required.
    • If Borrower has or will be requesting Forbearance on any of his/her existing loans, they will not be eligible to originate a new loan at the same time.
    • Liquidity Multiple (9x) – liquidity not less than the sum of nine months principal and interest.
    • Cash out – OK if 12-month debt service reserve at Closing is funded through cash out proceeds. Freddie Mac would like to see the sponsors meet the 9x liquidity without relying on cash out proceeds.
    • Acquisition/Cash Neutral/Cash In – The 12-month Debt Service Reserve will satisfy the 9-month P&I multiple. This means the sponsors do not need to provide the 12-month Debt Service Reserve, plus the 9x liquidity requirement.
Inspection Changes
  • Fannie Mae Inspections:
  • If the appraiser can comply with the Appraisal Guide requirements with a limited inspection, then the transaction is not a Pre-Review Mortgage Loan.
  • If the PCA Consultant or qualified inspector is restricted from accessing occupied units, then the site inspector should continue to inspect all vacant, down, and model units. Accordingly, if you can still adequately assess the Property condition and you properly document the assessment, then you are complying with the Guide, even if you are unable to inspect the minimum sampling of dwelling units.
  • Freddie Mac Inspections
    • Entering occupied units: NOT required at this time.
    • Vacant, down and offline units should remain available for inspections
      • Creative methods to verify occupancy of chosen units will be allowed
      • Verify data with tenant through door or while maintaining proper distance
      • Take photos through open doorway
      • Verification of running meters where applicable
      • Additional lease audits and utility bill review
      • Deferred Due Diligence Provision

In summary it is importnant to note that apartment loans are avaialble during COVID19.   Please contact our office if you have questions or a loan request to discuss.  Other Nationwide loan products for multifamily properties are available see Apartment Loans at our web site.  Mike Caffrey (913) 402-7077 or email: [email protected].