Agency Small Loans: Government-sponsored enterprise (GSE) multifamily loan programs for properties with loan amounts between $1M and $7.5M. Both Freddie Mac SBL and Fannie Mae Small Loans offer non-recourse financing with 5-10 year terms, but the details determine your proceeds and exit flexibility.
Why Does the Agency Choice Matter?
Most borrowers shop for the lowest rate. That's the wrong optimization target.
The difference between Freddie Mac SBL and Fannie Mae Small Loans isn't the rate—it's the DSCR floor, the prepayment structure, and the execution model. These factors can swing your proceeds by $250,000+ and determine whether you can sell in Year 3 or you're trapped until maturity.
What Are the Key Differences?
| Factor | Freddie Mac SBL | Fannie Mae Small Loans |
|---|---|---|
| Loan Size | $1M - $7.5M | $1M - $6M (up to $9M in select markets) |
| Min DSCR (Top Markets) | 1.20x | 1.25x |
| Max LTV | 80% | 80% |
| Prepayment | Yield Maintenance | Declining Balance (5-4-3-2-1) or YM |
| Execution | Delegated (Lender approves) | Dual Review (Fannie reviews) |
| Market Tiers | Top/Standard/Small/Very Small | National (no tier adjustment) |
| Recourse Carve-outs | Standard "Bad Boy" | Often broader |
The Proceeds Test: Why DSCR Is Everything
This is the killer. The 0.05x DSCR difference between programs isn't a rounding error—it's hundreds of thousands of dollars.
The 1.20x vs. 1.25x Math
| Metric | Freddie Mac (1.20x) | Fannie Mae (1.25x) | Difference |
|---|---|---|---|
| Property NOI | $100,000 | $100,000 | — |
| Max Annual Debt Service | $83,333 | $80,000 | $3,333 |
| Max Loan (at 6.5%, 30yr) | $1,090,000 | $965,000 | $125,000 |
The Cost of Fannie: On a $100k NOI property, choosing Fannie Mae over Freddie Mac costs you approximately $125,000 in loan proceeds. On a $200k NOI property? That gap widens to $250,000. This isn't rate shopping—it's program selection.
What About Higher NOI Properties?
| Property NOI | Freddie Loan (1.20x) | Fannie Loan (1.25x) | Proceeds Gap |
|---|---|---|---|
| $100,000 | $1,090,000 | $965,000 | ~$125,000 |
| $150,000 | $1,635,000 | $1,448,000 | ~$187,000 |
| $200,000 | $2,180,000 | $1,930,000 | ~$250,000 |
| $300,000 | $3,270,000 | $2,895,000 | ~$375,000 |
The Takeaway: If you're DSCR-constrained (most deals in this rate environment), Freddie Mac SBL almost always delivers higher proceeds. The math doesn't lie.
The Execution Test: Delegated vs. Dual Review
Freddie Mac SBL uses a Delegated Underwriting model. Your lender has authority to approve the loan without sending it to Freddie Mac for review.
Fannie Mae Small Loans can require Dual Review—your lender underwrites, then Fannie Mae reviews and may request additional documentation or changes.
| Execution Model | Freddie Mac SBL | Fannie Mae Small Loans |
|---|---|---|
| Decision Authority | Lender (Delegated) | Fannie Mae (Final Review) |
| Timeline | 45-60 days typical | 60-75 days typical |
| Stip Resolution | Lender resolves directly | May require Fannie signoff |
| Rate Lock Timing | Earlier in process | Often later (after Fannie review) |
The Timeline Trap: Dual Review adds 2-3 weeks to your timeline. In a volatile rate environment, those weeks can cost you. If Treasuries spike while you're waiting for Fannie's signoff, your proceeds get cut—and you can't lock until they approve.
The Exit Test: Prepayment Structures
This is where Fannie Mae can win—if you plan to sell or refinance before maturity.
Yield Maintenance (Freddie Mac)
| Advantage | Near-zero penalty if rates rise above your note rate |
| Disadvantage | Brutal if rates fall—can be 5-10% of loan balance |
| Predictability | Impossible to calculate until you're ready to prepay |
Declining Balance (Fannie Mae's "Soft Step")
Fannie Mae often offers a 5-4-3-2-1 declining balance structure:
| Year | Prepayment Penalty | On $2M Loan |
|---|---|---|
| Year 1 | 5% of balance | $100,000 |
| Year 2 | 4% of balance | $80,000 |
| Year 3 | 3% of balance | $60,000 |
| Year 4 | 2% of balance | $40,000 |
| Year 5 | 1% of balance | $20,000 |
When Fannie Wins: If you expect to sell in Year 3-4 and rates are falling, Fannie's 3% step-down beats Freddie's Yield Maintenance (which could be 6-8% in a falling rate environment). The predictability lets you model your exit.
When Freddie Wins: If rates rise above your note rate, Yield Maintenance approaches zero. Fannie's step-down is still 3-5% regardless of rates. In rising rate environments, Freddie's prepay is cheaper.
The Recourse Trap: Bad Boy Carve-Outs
Both programs are "non-recourse," but that's a legal fiction. The Bad Boy carve-outs create personal liability for specific actions.
| Carve-Out | Freddie Mac | Fannie Mae |
|---|---|---|
| Fraud/Misrepresentation | Full Recourse | Full Recourse |
| Environmental Contamination | Full Recourse | Full Recourse |
| Bankruptcy Filing | Full Recourse | Full Recourse |
| Waste of Collateral | Loss Recourse | Full Recourse (often) |
| Transfer Without Consent | Loss Recourse | Full Recourse (often) |
| Failure to Maintain Insurance | Loss Recourse | Full Recourse (often) |
The Fannie Carve-Out Creep: Fannie Mae's guaranty documents often have broader carve-out triggers. "Loss Recourse" (you're liable for losses) vs. "Full Recourse" (you're liable for the entire loan balance) is a massive difference. Read your Form 6025 (Freddie) or Fannie's guaranty document carefully—or have your attorney do it.
The Market Tier Factor
Freddie Mac classifies every zip code into four market tiers with different LTV and DSCR limits. Fannie Mae applies more uniform national standards.
| Market Type | Freddie Mac | Fannie Mae |
|---|---|---|
| Major Metro (NYC, LA, Chicago) | 80% LTV, 1.20x DSCR | 80% LTV, 1.25x DSCR |
| Secondary Metro (Austin, Nashville) | 80% LTV, 1.20x DSCR | 80% LTV, 1.25x DSCR |
| Small Market (100K-500K MSA) | 75% LTV, 1.25x DSCR | 75% LTV, 1.25x DSCR |
| Very Small Market (<100K MSA) | 70% LTV, 1.30x DSCR | May not lend |
The Rural Play: Freddie Mac will lend in Very Small Markets (with haircuts). Fannie Mae may decline entirely. If your property is in a smaller MSA, Freddie may be your only agency option.
When Should I Choose Freddie Mac SBL?
Choose Freddie When:
- You need maximum proceeds — The 1.20x DSCR floor wins on loan dollars
- You're in a Top/Standard Market — Full 80% LTV, lowest DSCR
- You plan to hold to maturity — Yield Maintenance doesn't matter
- You expect rising rates — Yield Maintenance approaches zero
- You need faster execution — Delegated model = fewer bottlenecks
- You're in a small/rural market — Freddie may be your only agency option
When Should I Choose Fannie Mae Small Loans?
Choose Fannie When:
- You plan to sell in Year 3-4 — Predictable step-down prepay
- Rates are falling — Step-down beats Yield Maintenance
- You're LTV-constrained, not DSCR-constrained — DSCR difference doesn't affect proceeds
- Sponsor has credit/liquidity concerns — Fannie can be more flexible
- You need prepayment certainty for modeling — Know your exit cost in Year 1
The Decision Matrix
| Scenario | Winner | Why |
|---|---|---|
| Maximum cash-out refinance | Freddie | Lower DSCR = higher proceeds |
| Plan to sell in Year 3 | Fannie | Predictable 3% prepay |
| Rising rate environment | Freddie | Yield Maintenance → $0 |
| Falling rate environment | Fannie | Step-down caps your penalty |
| Small/rural market | Freddie | May be only agency option |
| Need fastest close | Freddie | Delegated = fewer delays |
| Sponsor has thin liquidity | Fannie | Sometimes more flexible |
The Bottom Line: For most cash-out refinances in today's DSCR-constrained environment, Freddie Mac SBL delivers higher proceeds. Fannie Mae wins on exit flexibility if you plan to sell before maturity. Don't shop the rate—shop the structure.