Dive Brief:

• Government-sponsored mortgage loan provider Freddie Mac Multifamily has announced a set of new policies and process enhancements for its loan recipients, centered around underwriting fraud detection and deterrence and other risks.  
• Under the enhanced rules, property inspections at properties with Freddie Mac mortgages will require a larger number of unit inspections and higher leased audit sample sizes. More documentation will also be required in lease audits for the purpose of confirming tenant payments.
• First-time borrowers and borrowers with limited multifamily experience will also require additional due diligence, and all borrowers will need additional liquidity and owned real estate verification. 

Dive Insight:

Other changes to Freddie Mac Multifamily’s processes include an updated system to limit the GSE’s business with certain title companies, as well as additional appraisal review and independence requirements for appraisers, meant to preserve impartiality and objectivity.

"Freddie Mac remains focused on risk management and works to enhance our processes to better detect and deter fraud and misrepresentation,” said Ian Ouwerkerk, senior vice president of multifamily underwriting and credit at Freddie Mac, in a press release. “We take these issues seriously, and these enhancements are just the latest step in our effort to manage risk and improve our execution."

The new policies and enhancements took effect on April 18, and have been published in the latest edition of Freddie Mac’s Multifamily Seller/Servicer Guide, according to the corporation. 

While Freddie Mac did not refer to any specific companies in its policy updates, its fellow GSE, Fannie Mae, notified its lenders in February that it would no longer accept loans from Riverside Abstract and Madison Title, two Lakewood, New Jersey-based title insurers, according to a report by Bisnow. The firms are allegedly linked to deals by New York City-based investor Boruch Drillman, who pleaded guilty in a mortgage fraud conspiracy in December. 

Loan issues

These changes come as multifamily mortgage delinquencies are on the rise, and $525 billion in multifamily loans is expected to mature by 2029. 

Government-sponsored entities, including Freddie Mac and Fannie Mae, accounted for 58% of loan originations in 2023, and the GSEs and mortgage-backed securities currently account for $1 trillion in debt outstanding. However, only 3%, or $28 billion, in multifamily and healthcare debt held by the GSEs is expected to mature in 2024.

The April 18 change is one of the latest steps in Freddie Mac’s efforts to improve its processes. In November, it introduced new rules to clarify multifamily documentation chain of custody requirements. The agencies now require loan documentation to pass directly from the borrower to the lender without the use of a broker.

This change followed a report that Freddie Mac was investigating Meridian Capital, a New York City-based brokerage, for allegedly fabricating numbers in order to help clients get larger loans, according to the Bisnow report. Freddie Mac has since halted business with Meridian, according to the Wall Street Journal.