Commercial Real Estate Direct Staff Report

Centerline Holding Co. has expanded its Fannie Mae lending program to include small-balance loans.

The New York company during the summer tapped Rick Warren, who previously was providing consulting services, to help banks set up lending platforms. Before that, he ran IndyMac's commercial lending operation.

Centerline has long originated loans under Fannie's Delegated Underwriting and Servicing program, and recently decided to broaden that platform to include loans with balances of less than $5 million.

So far, it is originating loans out of offices in Seattle, which covers the Northwest, and California, which covers the rest of the West Coast. It aims to add small-balance lending capabilities to New York and perhaps other markets. It will target markets in which it believes it can generate at least $75 million of volume annually.

While the origination of small loans is similar to that of Fannie's conventional DUS loans, they require a unique expertise. Centerline originates its loans through a network of mortgage brokers. In addition, most small loans require personal guarantees. But Centerline, just like for conventional DUS loans, is required to retain a risk piece of every loan it writes.

The company decided to move into the small-balance sector when it became evident that liquidity in that market had also dried up. Previously, a host of banks, finance companies and mortgage REITs provided such loans. But that's no longer the case.

"There aren't many people doing business" in the sector, Warren said. "Brokers and borrowers are scrambling to find lenders."

While banks are still a player, their presence is generally sporadic. Fannie, and its cousin, Freddie Mac, are often the only lending options available. Centerline's originations on the small-balance side are running ahead of its projections, Warren said.

Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.