MYTH: The minimum population for the location of Fannie Mae-eligible properties is 250,000.

Fannie Mae does not have a minimum-population requirement. The smaller the market, however, the more difficult it is to get current sales and rental data. It's also harder to gauge the probabilities of new competitive properties coming on the market in a smaller area because raw land often is more plentiful.

Another challenge that comes with smaller markets is the amount of analysis required to understand economic factors that may impact credit risk, including employer or industry concentration and population or seasonal trends. Small loans in small markets equal higher risks. Be prepared for more-conservative underwriting in smaller markets.

FACT: Properties that meet minimum debt-service requirements also must exhibit a minimum occupancy level.

Although a property meets the debt-service-coverage minimum, it also must exhibit 90-percent occupancy for the 90 days preceding the loan-origination date. Properties that have less than 10 units may not have had more than one unit vacant for the preceding 12 months.

MYTH: Local borrowers must use third-party management companies.

Generally, local borrowers with two years of property-management experience and similar numbers of units are not required to employ a third-party management company. Nonlocal borrowers, defined as those living 100 miles from the subject property or farther, typically must employ third-party management companies, however.

FACT: Small loans with an age-restricted, student or Section 8 component are eligible.

Age-restricted properties are eligible for these Fannie Mae loans as long as there are no other senior-housing elements present, such as nursing care or meal plans. Properties with a student occupancy of 20 percent or less are acceptable. But be prepared to validate the student-occupancy makeup. Affordable-housing properties with Housing Assistance Payment Contracts, tax credits or regulatory agreements are not eligible for the Fannie Mae small-loan program. Properties that are rent-controlled or rent-stabilized or that have portable Section 8 vouchers are eligible, however.

Every Fannie Mae lender has its own credit culture, requirements and sensitivities. Certain lenders may have aversions to certain markets based on experience; this can be a primary reason brokers are confused about whether particular requirements are Fannie Mae's or a lender's.

Brokers should therefore demand constant communication from their lenders so they can manage transactions affected by Fannie Mae's -- or lenders' -- guidelines.

Rick Warren is a managing director at Centerline Capital Group and leads its small-loan-solutions team headquartered in Irvine, Calif. Launched in mid-2009 and aimed at a target market in the West Coast and Northwest, the small-loan-solutions team is a Fannie Mae Delegated Underwriting and Servicing lender, offering loans to $3 million in national markets and to $5 million in larger, high-cost markets. For more information, call (949) 442-2400.

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