Walker & Dunlop disclosed that it may have to repurchase millions of dollars of loans after Freddie Mac discovered borrowers committed mortgage fraud.
The finance and advisory firm revealed in its most recent earnings report and call with analysts that it has received requests from Freddie Mac to repurchase two loan portfolios with $100 million in unpaid balance because of fraudulent documentation submitted by the borrower.
The company has already entered into forbearance with Freddie Mac for one of the loan portfolios. It said it expects to enter into forbearance on the second portfolio of loans, totaling $49.3 million. But if it fails to reach an agreement, Walker & Dunlop could be required to repurchase the loans.
The firm has hired an outside counsel to investigate suspect transactions in which borrowers may have committed fraud, according to sources familiar with the matter. As part of this process, Walker & Dunlop has put some of its originators who worked on the deals on leave as it looks into the matter, sources said.
Walker & Dunlop did not return a request for comment.
The moves come in light of the federal government’s continued investigation into commercial mortgage fraud. The Department of Justice and the Federal Housing Finance Agency have discovered a variety of schemes in which borrowers were able to obtain mortgages for far more than their properties were worth through inflated financials or purchase prices.
So far, the lender’s role in these schemes has been less scrutinized than borrowers. The ease with which borrowers were able to obtain loans has raised questions about the lender’s due diligence and underwriting.
Walker & Dunlop ranked as the largest Fannie Mae multifamily lender in 2024 with $7 billion in volume.
Agency lenders such as Walker & Dunlop originate loans and sell them to Fannie Mae or Freddie Mac. If a borrower commits fraud, the lender is usually responsible for covering Fannie or Freddie’s legal costs or has to repurchase the loans.
Walker & Dunlop said it expects to use $20 million of its own capital as collateral to indemnify Freddie. It expects to take credit losses tied to the troubled loans in the fourth quarter, the firm’s CFO said in its earnings call with analysts in November.
“While our portfolio performance is exceptional, and we feel extremely good about the credit quality of our book, we continue to investigate, in collaboration with the GSEs (Government Sponsored Enterprises), specific incidences of borrower fraud that took place largely as a result of changes in industry practices in the aftermath of the pandemic,” said Walker and Dunlop’s CFO, Greg Florkowski in the earnings call in November.
The firm’s fraudulent loans represent a small fraction of the firm’s overall business. Walker & Dunlop reported a total transaction volume of $15.5 billion in the third quarter.
Walker and Dunlop did not disclose the names of the borrowers it alleges committed fraud.
The firm has made at least three loans to embattled Mordechai Weiss or his wife, Basya Weiss.
The Monsey-based Mordechai Weiss is a target of the DOJ and FHFA’s investigation, according to sources familiar with the matter. Weiss is also the subject of a lawsuit by a lender of a Houston apartment deal over a sham deal where the lender alleges Weiss, along with his title insurer, used a fake purchase to obtain a $69 million loan.
Walker & Dunlop loans to Weiss’s properties have also led to litigation and foreclosures.
Fannie Mae is seeking to foreclose on a $12 million loan for a multifamily property in Rochester, New York. (Walker & Dunlop originated the loan, sold it to Fannie Mae and then repurchased it in December 2024, according to court documents).
In Greenbelt, Maryland, Freddie Mac initiated a foreclosure on a $35 million Walker & Dunlop loan tied to Weiss’s 178-unit multifamily property. Fannie Mae has also sought to foreclose on a $13.5 million Walker & Dunlop loan on a rent-controlled multifamily property in East Orange, New Jersey, according to court documents.