Fannie Mae Admits Multifamily Loan Fraud Losses in SEC Filing

The signs were there. Reports of instances of alleged multifamily loan fraud through Freddie Mac and Fannie Mae. The latter finally offered an admission of the problem in its latest 10-Q filing with the Securities and Exchange Commission.

“We have discovered instances of multifamily lending transactions in which one or more of the parties involved engaged in mortgage fraud or possible mortgage fraud, and we continue to investigate additional multifamily lending transactions in which we suspect fraud may have occurred,” they wrote.

In June 2024, the Department of Justice prosecuted Aron Puretz, who “pleaded guilty today to engaging in an extensive, multi-year conspiracy to fraudulently obtain over $54.7 million in loans and to fraudulently acquire multifamily and commercial properties.” Freddie Mac was one of the targets.

Last year, Boruch Drillman pleaded guilty to “an extensive multi-year conspiracy to fraudulently obtain over $165 million in loans and fraudulently acquire multifamily and commercial properties.” Fannie Mae was a target.

In the Under Risk Factors of its new filing, Fannie Mae said it had experienced financial losses due to mortgage fraud and could experience more. The company had identified “certain gaps” in how it processes multifamily fraud risk and oversees multifamily seller/servicer counterparties.

Fannie Mae said in answer to the shortcomings it had “implemented changes to reinforce and clarify our requirements for multifamily sellers and servicers” and continued to “further reduce the risk we face from fraudulent practices.” They are also pursuing “contractual remedies against multifamily lenders where we find breaches of the selling representations that lenders are required to provide on loans they sell to us, as well as against multifamily borrowers and sponsors.”

Reportedly, Fannie Mae ceased doing business with some in the industry like title insurers Riverside Abstract and Madison Title, although the two firms hadn’t been charged with wrongdoing, according to The Real Deal.

“Until we complete our work to improve our processes for managing multifamily loan origination fraud risk and oversight of multifamily seller/servicer counterparties, we may face a higher risk that we will be unable to detect or prevent fraudulent multifamily lending transactions, which could negatively affect our financial results and condition,” they added.

This isn’t the first time Fannie Mae has assessed fraud, though previous times typically were warnings to consumers, like the existence of identity theft rings or potential red flags for mortgage fraud.