Fannie and Freddie Tighten Rules to Combat Multifamily Mortgage Fraud

Fannie Mae and Freddie Mac are set to introduce stricter lending rules in response to a federal crackdown on commercial mortgage fraud.

Stricter requirements: The new guidelines will mandate lenders independently verify financial information and sources of funds for borrowers of multifamily properties. This includes thorough due diligence on property valuations and financial performance, aiming to curb the current lax verification processes that rely heavily on unverified borrower-provided data.

A perfect storm: Rising interest rates have led to a decline in property values, exposing more fraudulent mortgage schemes. This regulatory shift, spearheaded by federal authorities like the FHFA, aims to curb fraud in commercial real estate. Fannie Mae and Freddie Mac, which guarantee about 40% of the $2.2 trillion in multifamily mortgage debt, are leading these efforts.

Zoom in: The crackdown has led to Fannie and Freddie effectively blacklisting brokerage firms like Meridian Capital Group, which had been implicated in falsifying client financials to secure larger loans. Additionally, major brokers are tightening their practice, preferring direct business over brokered deals.

➥ THE TAKEAWAY

Why it matters: Experts say regulations, still in their early stages, could be introduced as soon as this summer. If implemented, the new rules would mark significant changes in Fannie and Freddie's loan monitoring practices, potentially slowing down multifamily deal activity in the market.

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