Fannie Mae blames multifamily fraudsters in part for setting aside $752M

Fannie Mae set aside $752 million for credit losses in its apartment complex lending business in part because of fraud or suspected fraud, denting profits amid an industrywide scrutiny of borrowers. 

“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,” the firm said in its annual report released Friday. The $752 million credit loss provision was for the year ended Dec. 31, following $495 million and $1.25 billion in 2023 and 2022, respectively, according to the report. 

Fannie Mae said it’s continuing to investigate more transactions in which fraud may have occurred and may “discover additional multifamily loans we have purchased that were affected by fraud.”

The provision for losses was also driven by declining multifamily values and an increase in delinquencies, the firm said in its fourth-quarter earnings. That left Fannie Mae with $2.5 billion net income in its multifamily business last year, against net revenue of $4.7 billion.

Fannie Mae, short for the Federal National Mortgage Association, and its sister organization Freddie Mac, have each previously highlighted concern over potentially fraudulent loans in their multifamily business. In October, Fannie Mae cautioned investors of uncertainty due to an ongoing investigation of transactions with suspected fraud.

Freddie Mac had earlier imposed a ban on business with one of its top broker partners as part of an industrywide crackdown on fraud. It’s since lifted those restrictions.

Lending against multifamily properties, which are typically apartment buildings, accelerated during the pandemic when interest rates plunged but then slowed as rates backed up. Combined with rising insurance costs, credit conditions for the multifamily sector have steadily worsened as delinquencies and defaults rose. 

Single-family lending makes up a larger portion of Fannie Mae’s business. Last year, the segment generated $14.4 billion in net income, against $24.4 billion in net revenue.