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How GSEs Entered the SFR Market and What it Means for Investors

Jeremy’s Blog

GSEs (Government Sponsored Entities) have long been around to boost both investment and credit in the housing market. Although privately held, these quasi-governmental entities allow access to capital at a generally low cost in order to increase the flow of credit to specific sectors of the American economy.

After the housing market crash in 2008, the single-family rental (SFR) asset class saw an expansion due to opportunistic purchases by investors. Institutional money began to flow into single family rentals – and companies with both the vision and capital took full advantage.

However, when it came to helping individual investors build a residential investment portfolio, a limited amount of financing could be found through the GSEs. With Fannie Mae, a real estate investor could potentially finance up to 10 residential investment properties (provided other criteria are met). After the 10th property, they were left to turn to other means of financing, such as private lenders. Although Freddie Mac does offer small balance loans for multi-family properties ranging from $1-$6 million in loan size, investors with more than 10 SFR properties still could not obtain GSE financing.

To fill this gap, specialized conduit lenders like CoreVest have entered the market to help smaller and mid-sized investors expand their rental portfolio. Through the securitization of our loans on the secondary market, we were able to offer competitive interest rates in the space and have thus become the largest portfolio lender for residential investment properties in a short period of time.

Late last year, Freddie Mac decided to enter the SFR market in a larger scale with a special focus on affordable housing. They decided to participate in two ways:

  1. Providing a credit wrap on securitizations of loans originated by SFR lenders
  2. Directly funding loans from designated seller/servicers

In terms of the credit wrap, CoreVest is proud to be the first ever partner for this program. Our 2nd securitization offering in 2017 included bonds credit-wrapped by Freddie Mac. This was possible due to our track record of over $3 billion in SFR loans closed as well as the relationship that we have developed with Freddie Mac through diligence and trust. With this partnership, CoreVest has the ability to offer even more competitive pricing on our conventional blanket loans.

For directly funded loans through seller/servicers, CoreVest was one of two inaugural approved originators for this program [see the past announcement here]. It is important to note, however, that this pilot program requires specific criteria in order to qualify.

Where it stands now, qualifying portfolios for Freddie financing must fit the following:

  1. $5M in loan size or greater
  2. Consisting of only SFRs and 2-4 unit investment properties
  3. Qualify for Freddie’s affordability matrix

With Fannie Mae’s limitation of only 10 investment properties, Freddie Mac’s participation provides for an exceptional resource for larger investors looking to expand their portfolios. But while the parameters may work for some investors, not all portfolios will meet these criteria. Aside from Freddie’s financing, CoreVest also finances rental portfolios ranging from $500K – $100M on 5 or 10 year terms. For inquiries on pricing portfolios, big or small, please call Jeremy Lee at 949.344.7886 or email jeremy@cvest.com

(Reference: https://www.investopedia.com/terms/g/gse.asp)

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