Fannie Mae, Freddie Mac to Tighten CRE Loan Rules Even More

Fannie Mae and Freddie Mac are working on newer and even stricter rules for commercial lenders and brokers after recent mortgage fraud schemes came to light. The updated parameters could be rolled out as early as this summer, the Wall Street Journal reported.

The changes come after Freddie announced new guidelines earlier this year. Expect a wide net to be cast as the latest flurry of real estate schemes have involved everything from doctored income statements to fake property sales at bloated prices.

Among the new requirements, lenders would have to “independently verify” borrowers’ financial information to make sure they have enough cash and verify their source of funds for apartment complexes and other multifamily properties, according to the outlet.

The new restrictions could also extend to the property itself, by requiring lenders to complete an independent due diligence on the appraised value of a property and evaluating its financial performance.

The new system would further replace the prior rules that gave lenders more bandwidth in what verifications they wanted, allowing them to skip costly audits.

Government-backed lenders Fannie and Freddie own or guarantee a combined 40 percent share of the residential and commercial mortgage market in the US as of September 2023, based upon their latest annual report.

The new rules are triggered by the surge in property prices in the three years before interest rates skyrocketed, which Federal investigators and real estate brokers say led to fraudulent valuations as commercial property prices have continually dropped since 2022.

Freddie has reportedly already started requiring rent receipts and is sifting through loan financials to identify any fraudulent documents, the Journal previously reported. Earlier this year, it stopped accepting new loans or appraisals from Dallas-based BBG, while Fannie Mae black-listed title insurers Riverside Abstract and Madison Title.

Lending is expected to slow down with the new guidelines, as the borrowing process becomes mired down in more paper and appraisals.

— Christina Previte