Concerns about fraud mean lenders looking to sell multifamily loans to the mortgage giant may be required to conduct more due diligence on borrowers and their properties as early as this summer.
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Concerns about fraud could lead to tighter rules for commercial real estate lenders that finance apartment complexes backed by mortgage giants Fannie Mae and Freddie Mac, wall street journal Report.
Federal regulators at Fannie Mae and Freddie Mac could roll out the rules as soon as this summer, requiring lenders who want to sell multifamily loans to the mortgage giants to conduct more due diligence on borrowers and their properties. Magazine Monday’s report quoted an anonymous source as saying he was “familiar with preliminary plans.”
Fannie Mae, Freddie Mac and their federal regulator, the Federal Housing Finance Agency (FHFA), declined to comment to Inman.
While Fannie Mae and Freddie Mac’s multifamily loan portfolios pale in comparison to their single-family loan holdings, they collectively owned or guaranteed $927 billion in multifamily loans as of June 30 , accounting for approximately 40% of the market. Magazine estimated.
Multifamily businesses: Small but growing
Freddie Mac’s multifamily mortgage portfolio is growing faster than its single-family guaranteed business. Source: Freddie Mac.
For example, multifamily mortgages account for only about 13% of Freddie Mac’s $3.5 trillion mortgage portfolio, but grew 5% in the second quarter of 2024 to $447 billion. As of June 30, Fannie Mae’s multifamily portfolio totaled $480 billion.
Much of the risk associated with Fannie Mae and Freddie Mac’s multifamily loan portfolio has been transferred to private insurance companies, and so far, the loans have performed well.
The serious delinquency rate for Fannie Mae’s multifamily portfolio was flat between the first and second quarters of 2024 at 0.44%. Afterwards, Fannie Mae’s multifamily business still had a net profit of $629 million in the second quarter.
But rising interest rates have exposed a growing number of fraudulent commercial mortgage lending schemes based on doctored financial reports and valuations, according to the Wall Street Journal. Federal prosecutors have been working with the FHFA Office of Inspector General to find out the extent of the problem.
The rules being drafted could require lenders that do business with Fannie Mae and Freddie Mac to verify financial information provided by borrowers and conduct a more thorough review of financial performance and valuations of properties used as collateral, according to the Wall Street Journal. Evaluate.
Even though Fannie Mae and Freddie Mac have been subject to government regulation for nearly two decades, they still make profits and continue to increase their net worth.
Fannie Mae and Freddie Mac create net worth
Source: Fannie Mae and Freddie Mac earnings reports.
Fannie Mae reported second-quarter profits of $4.5 billion and net assets rose to $86.5 billion, providing $95 billion in liquidity to fund 213,000 home purchases, 45,000 home refinances and 72,000 multifamily rentals.
Freddie Mac posted second-quarter profits of $2.8 billion and net assets rose to $53.2 billion, financing 212,000 home purchases, 45,000 refinancings and 92,000 rental units.
Much of the mortgage giant’s refinance and buy-to-let mortgage business has since disappeared as it expanded its single-family mortgage portfolio during the pandemic when mortgage rates were near record lows.
The Boom and Bust of Home Loans
Source: Fannie Mae and Freddie Mac earnings reports.
Fannie Mae backed $451 billion in home purchase mortgages in 2021, but its home purchase mortgage volume fell to $273 billion in 2023 and to $128 billion in the first six months of 2024.
Freddie Mac trailed Fannie Mae by $21 billion in home purchase mortgage lending in 2021, narrowing the gap in recent years, backing $265 billion in home purchase loans last year and in the first half of 2024 $127 billion.
Single-family mortgage loan portfolio flattens
Source: Fannie Mae and Freddie Mac earnings reports.
The decline in new business means Fannie Mae and Freddie Mac’s single-family mortgage portfolios are no longer growing. All told, Fannie Mae guaranteed payments on $3.6 trillion in mortgages as of June 30, while Freddie Mac’s single-family mortgage portfolio totaled $3.06 trillion.
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