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November 07, 2019

Don’t Stop Believing – 5 Years of SBL

Steve Johnson
Article By
Steve Johnson, VP Small Balance Loan Business

Let’s take a quick trip down memory lane to 2014.

The official start of the Small Balance Loan (SBL) program at Freddie Mac preceded me by about 5 months. In that time, a tiny but mighty team assembled to begin working on creating financing for $1 million to $5 million apartment buildings, also known as Small Balance Loans. Up until then, borrowers outside of major metro areas didn’t have too many loan options for buildings with 50 units or less, and to be honest, no one was fully sure of the size of the market for those type of deals.

We accepted the challenge (and responsibility) of starting up a brand-new business line with the kind of fervor I usually reserve for my garage band. Our mission was to find a way to bring a lower cost of capital for B and C class buildings that support working families (Spoiler alert: We did it).

Our team ate, slept and breathed SBL – writing credit parameters, defining markets, figuring out our success metrics and onboarding our first lenders. We dotted our i’s and crossed our t’s, consulted with our counterparts and hoped for the best. Then we officially opened for business and that year we did a grand total of (insert drumroll here) – two loans. Not exactly the stellar results we were aiming for. Doubt crept in but we re-evaluated, kept pushing and remained patient. And then, the momentum started. The following year we did $2 billion and then $3.5 billion and up and up and up. And most amazing of all is that it turns out that SBL assets have been around 75% mission-based from the start.

Let me be clear: There were some rough times. There were some mistakes. But we always pushed on. In fact, one of my favorite things about the SBL team is the scrappy, trial-by-fire, start-up attitude that each of us possess. We think outside the box and innovate when things don’t work. Our lender partners and FHFA have supported that spirit from the beginning by being flexible and providing valuable input at every turn.

So in partnership with them, what have we done in five short years?

  • We started a program from scratch and are now an established player in the SBL landscape. We’ve helped grow the size of the small balance market to $55 billion-$60 billion a year, 10% of which we have market share for
  • We have proved that you can securitize SBL assets – to the tune of $25 billion
  • We’ve consistently beaten our Mission goals year after year
  • We have minimal losses on this unique asset type
  • We stabilized lending in this space by applying consistent process and processing
  • We’ve built a team that is dedicated, innovative, agile and thorough
  • We’ve connected an amazing network that has far exceeded all expectation in every way imaginable

For this and many other reasons, I like to say, that we (SBL, Lenders, Borrowers, Investors, Servicers) are the SBL Elite and the future is now.

People working at table
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