At Freddie Mac, we often say we serve our mission in good economic times and bad, in markets large and small. During a time marked by record rent increases, our Multifamily Small Balance Loan (SBL) program is an important reminder of that commitment.

Simply put, the Small Balance Loan program finances hard-to-reach affordable rental properties. The program provides financing to multifamily properties with 5 to 50 units, many of which are in underserved areas that need this support the most. These rentals often support our nation’s workforce — nurses, firefighters, teachers, active-duty military and construction workers — providing housing that helps them live close to their jobs affordably. That’s why we call it “workforce housing.”

In addition, the owners of these properties are often small, family-owned businesses. Often, these properties do not benefit from government subsidies such as tax credits, abatements or soft funding to keep them affordable. They are not profit generators. In fact, dislocations such as the pandemic and today’s current market volatility have driven even the typical lender willing to finance these properties out of this market.

Since launching the program more than eight years ago, we have financed nearly $40 billion in SBL loans. In that time, we have worked with approximately 10,000 different borrowers and financed approximately 550,000 apartment units, with the vast majority affordable to low- and very-low-income renters. In fact, we have financed 480,000 units affordable to low-income renters making 80% of the area median income (AMI) or less. Approximately 180,000 of those units were affordable to very-low-income renters, who earn 50% or less than AMI.

Additionally, SBL financing reaches borrowers who own properties in highly diverse communities. To date, 53.8% of all loans in the SBL program exist within overall minority tracts.

How the SBL Program Meets a Market Need

Smaller properties can be an important way to close the gap between the supply of, and demand for, affordable rental housing. These properties share common characteristics: they are safe and affordable with limited amenities, but exist in locations near employment centers. Almost all small balance lending supports low-income renters. New construction on small properties is almost nonexistent, as is funding for substantial property rehabilitation. As a result, financing often enables the preservation of this “naturally occurring affordable housing.”

For more information on how Freddie Mac is preserving and rehabilitating multifamily properties — and how that work benefits underserved communities — read our Equitable Housing Finance Plan.

After almost eight years, we’ve completed deals in all 50 states through our specialty network of 12 Optigo® SBL lenders. The small size of this network allows us to finance quality loans and provide a high level of service to both lenders and borrowers. Lenders must first meet our standards for both originating and servicing loans, which includes both minimum financial requirements and satisfactory annual audits. Every property is inspected on a recurring basis. By holding borrowers to accepted standards, this program provides oversight that may not otherwise be required through other lending sources.

SBL Program Performance

All these factors contribute to the SBL program’s strong risk performance — less than 1% of loans are more than 60 days past due. It’s why we built an end-to-end execution process designed to best support this collateral type and transfer risk to the private sector.  

One of the strengths of our SBL network is its ability to provide countercyclical support, as evidenced during the pandemic and across 2022. Although the market was challenging, last year we funded 1,552 SBL loans for a total of more than $4.3 billion. This equated to 47,841 rental units affordable to low-income families.

Providing safe, affordable housing is the primary focus of Freddie Mac’s SBL program. It is a source of liquidity for smaller properties that provide affordable housing options to workforce and low-income residents. As the need for affordable rental housing continues to outpace supply, programs that connect multifamily market operators committed to finding housing solutions will have tangible effects on renter communities nationwide.

©2024 by Freddie Mac.