SBL Underwriting

I'm looking at an underwriting analyst position with a team that does Freddie Mac SBLs. I've seen some older topics on this, but they didn't necessarily answer all of my questions.

Did anyone on here personally start in a role like this or know someone who has? If so, what are the exit opportunities? Assuming I end up not wanting to be an underwriter. Also, what can I expect in terms of compensation?

Thanks!

Comments (22)

Jul 11, 2019

I would advise against SBL. Its a niche product and the skills don't really transfer over well to other areas of CRE. I personally don't understand a business model that intentionally restricts loan amounts and larger business. For example, you'd have to turn down a $10MM loan. That is idiotic to me. Hold out for a position in conventional lending $5MM+.

Most Helpful
Jul 11, 2019

Lol no one turns down $10M loan to hold out for $5M loan

Lenders will do both SBL and conventional loans, if it's a $10M loan, it goes to the conventional product, but it can only qualify for SBL if it's a small property under $7.5M and 50 units.

SBL is not a niche product, it's $20B business every year, probably larger than whatever CRE product you are doing. Everyone wants to do SBL if possible because it's a more attractive product than conventional. SBL offers 15, 20, and 30 years hybrid loan terms, And you get to lock the note rate just like residential single family mortgage.

And the reason why Fannie Freddie offer SBL is because they don't count against FHFA cap. SBL is the most profitable product for agency seller, we are paying $7M commissions to agency sellers for every $500M SBL they have us

    • 2
Jul 11, 2019

You are correct, lenders do both, but if your specific team only does SBL, you will turn it down and it will go to another team. That limits you personally. No one cares about $1MM loans that generally take just as much effort to close as a $50MM loan. You will never read about a $1-5MM deal in the news because it's insignificant. It may collectively be a $20B business but conventional lending is multiple times more than that.

Jul 12, 2019
buggylovesfinance:

I would advise against SBL. Its a niche product and the skills don't really transfer over well to other areas of CRE. I personally don't understand a business model that intentionally restricts loan amounts and larger business. For example, you'd have to turn down a $10MM loan. That is idiotic to me. Hold out for a position in conventional lending $5MM+.

Some fine points but SBL is about volume and this makes it much more lucrative than many other areas of CRE debt. A producer pulling in 80 deals per year average size $6-7MM will earn a fuckton, especially because he doesn't have to cut his fees to earn that deal. MUCH more favorable spread/fees in SBL

Jul 12, 2019

The average loan size is likely nowhere near $6-7MM given that the max loan size is $7MM. The average is probably closer to $2-3MM. And in SBL, you see a lot of deals that fall through the cracks even late in the game because you're dealing with unsophisticated borrowers. You do 2-3x more work than you would on the conventional side, but you're not getting 2-3x more pay.

Jul 11, 2019

I can tell you SBL is basically government subsidy for small loans and it will continue to grow for many years

Without SBL, without the government paying CBRE/walker&dunlop 20-60k per SBL loan, there will be much less liquidity for the underserved SBL market, loans will be more expensive, and rents will be higher. SBL is win win for both the borrowers and community banks. Borrowers get to enjoy cheaper loans, and community banks can sell their seasoned SBL loans to free up their balance sheet and capital for new business.

Jul 11, 2019

I'm not debating which ones make more fees for the company. I'm saying from the perspective of an employee, why would anyone choose small loans over conventional? Why would you limit yourself to a tiny box when you can do large loans across more product types? Who would want to spend their career doing tiny $1MM loans with no variety in product type? That absolutely limits your exit opps. There is no debate there. Most people I know have used positions in SBL as a stepping stone to something better if that was the only option they had at the time. It's not like SBL employees make more than Conventional employees. You could argue that conventional staff has higher comp as they produce more business in dollar amount, but I don't know the stats so I won't argue that.

Jul 11, 2019

Can you give any insight into what kind of roles those people exited to?

Jul 11, 2019

If you actually want to start buying your own multifamily, SBL would be very good experience as you see how these little $3mm deals are put together. The first deal you buy is most likely not going to be a deal that's financed with a $10mm Fannie or Freddie loan.

Yes the larger deals are sexier and get in the headlines but $20mm agency loans are usually layups as the borrowers are strong, the sellers are strong and there fewer curveballs vs. SBL. Your exit ops for underwriting large agency loans are staying in underwriting or moving to a capital markets role at some large institutional multifamily investor where you have no equity. I think your better positioned to buy your own deal if you're in sbl.

Freddie sbl underwriting is probably a grind though. Your often dealing with class c, less sophisticated buyers, mom and pop sellers or borrowers that don't have great financials, etc. plus they seem to be understaffed as it seems to take longer and longer to get commitments from Freddie...

    • 2
Jul 11, 2019

I started in SBL and am now on a team that specializes in construction & transitional loans. I'm curious as to what knowledge you actually think one could gain in SBL that would better position you to invest in a small multi deal.

I'm not trying to be combative and I certainly don't think any of us in debt brokerage are doing God's work. I just remember being totally in awe about how much money these SBL originators were making (while legitimately knowing nothing about real estate!). As for the underwriters- sure, dealing with bad (stupid) borrowers could be a headache and handwritten rent rolls are a bitch to read. But ultimately I do not think there is any material knowledge to be gained.

    • 1
Jul 12, 2019

oof

Jul 12, 2019

Agreed. I'm not saying Freddie sbl underwriting is super analytical or complex but the borrowers are typically local, entrepreneurial type people that are way more relatable than an institutional or even a mid-market regional investor. If you're underwriting a Freddie sbl deal, it's much more likely you're thinking "shit, I can do this..." than if you're underwriting $20mm Fannie loans. You see how average people (or less than average as there are a lot of stupid borrowers in the sbl world) put deals together, do a massive cash out refi on a 40-unit class c deal, etc. I cut my teeth in debt fund world and mostly worked on larger ($20mm+ deals). It wasn't until I moved to the broker side until I realized how easy it is to get 80% non recourse financing on a $3mm multifamily deal. Now I'm buying a $3mm deal and financing with Freddie sbl....

    • 1
Aug 3, 2019

How are SBL commissions calculated? Are they a percent of the loan? Or do the GSE's pay a flat fee?

Jul 11, 2019

Is this for hunt real estate capital?

Jul 11, 2019

Nah. It's for a CBRE/JLL/C&W type.

Jul 11, 2019
Comment