Freddie Guidance For Non-Recourse Guarantor Carve-Outs
Today Freddie Mac revised certain policies and requirements with regard to the non-recourse guarantor. This basically outlines financial requirements for sponsors or guarantors for Freddie deals. The strength of the sponsor and/or guarantor has become more important to all lenders in the last year and many lenders have specific hurdles. In the past Freddie has not had strict hurdles, but looked at the whole borrower situation in order to determine acceptable borrower strength. This new announcement makes their rules more formulaic.
These changes will go into effect for any loan for which the commitment is issued after March 31, 2010, or for which the early rate-lock application is submitted after March 31, 2010. The changes include:
General Net Worth and Liquidity Requirements For Guarantor
| Loan Amount (In Millions) |
Minimum Net Worth (In Millions) |
Minimum Liquidity |
| ≤ $15 | $5 | Min 100% ADS* or 10% loan amount |
| $15 – ≤ $30 | $10 | Min 100% ADS* or 10% loan amount |
| > $30 ≤ $50 | $15 | Min 100% ADS* or 10% loan amount |
| > $50 | 30% of loan amount | Min 100% ADS* or 10% loan amount |
*Annual Debt Service
Acceptable Guarantor
- An acceptable guarantor may either be a natural person, acceptable entity (non “natural person”), or a combination of both.
- If the guarantor is a revocable trust, the trustee must sign as both a trustee and as an individual.
Guarantor Covenants
- Non “natural person” guarantors must have covenants, or an acceptable alternative, for maintenance of the net worth and liquidity requirements.
- Compliance with covenants will be verified annually.
Additional Non-Recourse Carve-Outs For Portfolio Loans
- Involuntary bankruptcy if borrower fails to use commercially reasonable efforts to dismiss the filing.
- Willful acts of material waste to property.
