Understanding Freddie Mac’s Smart Execution Program

Freddie Mac’s Smart Execution offers a more streamlined due diligence process for Conventional and Targeted Affordable Housing (TAH) Loans that are $15 million or less. Unlike the Small Balance Loan (SBL) program, this new program is available to all conventional loan servicers. The approach is not required, but it allows for faster, easier decisions and will reduce costs for customers.  This report is a combination of a property condition assessment (PCA) and an environmental transaction screen (TSA) based on the most current ASTM guidance documents and Freddie Mac.

Like the Small Balance Loan (SBL) program, the Smart Execution requires a new report format based on the SBL form 1104 with additional analysis for units with sub-60 amp main disconnects, seismic analysis, asbestos, and radon. A Physical Risk Report will replace property condition assessments and environmental reports; however, should any environmental responses to the TSA questionnaire come back with a “yes” or “unknown” and the gap cannot be clarified, then further analysis must be completed by the consultant with the specific requirements following the Freddie Mac Environmental Phase 1 guidance documents.  A reserve schedule is also required on all projects as part of this new program.

Using this new format, properties may be assessed by a single specialist, saving the customer time and money. The field assessor is required to have specific credentials based on the Freddie Mac PCA guidance document including a Bachelors and/or Graduate Degree in architecture or a related engineering field from an accredited institution, five or more years of experience in either architecture, engineering (structural, mechanical, or civil) and/or construction/cost estimating, three or more years of experience performing multifamily property inspections and two or more years conducting similar work for financial institutions.  In addition, to be AHERA certified, one must have passed a 24-hour asbestos inspection course and have annual refresher courses where applicable.

The individuals responsible for the environmental portions of the report must have environmental expertise in relevant areas including: soil/ground water contamination, soil/ground water sampling, asbestos, PCB contamination, underground storage tanks, lead based paint, Federal, State and Local environmental and public health laws and regulations, and the development of operations and maintenance (O&M) plans. Environmental requirements are as follows:

• If the inspector is AHERA certified, they can sample asbestos per Freddie Mac’s Environmental Phase 1 guide. Otherwise, assessors will follow the SBL approach and an asbestos O&M is recommended.
• Should ACM sampling occur on the property, an asbestos O&M is only required should friable asbestos be found on property as part of the sampling and will remain present at the property after the origination date of the mortgage. Testing and sampling will be required should future demolition occur.
• Microbial growth O&Ms are only required should the Consultant determine that it is necessary based on the findings on-site.  Typically, this would be recommended should suspect microbial growth be found on the property or there has been a history of water intrusion into the buildings.
• Radon sampling is required to follow the Standard Freddie Mac Protocol consisting of one radon can per building (ground floor), or 10% of the ground floor; whichever is greater.
• A PCB O&M is to be recommended if the building is not owned by a utility and the equipment in focus was manufactured prior to July 2, 1979.
• Lead in water sampling is required on the property if the property is on a domestic water well and if the consultant cannot determine if the drinking water is in compliance with applicable Federal, State and local requirements, or the most recent testing is more than 6-months old at the time of the site visit.
• The required number of units to observe mirrors the SBL requirements: 10% overall, 50% of vacant and down units, and no less than three units.

This faster, simpler program offers a significantly reduced turnaround time: typically, ten business days versus the standard fifteen-day turnaround.