Fannie, Freddie Mulling Tighter Rules For Multifamily Lenders
![Fannie, Freddie Mulling Tighter Rules For Multifamily Lenders Fannie, Freddie Mulling Tighter Rules For Multifamily Lenders](https://i0.wp.com/assets.inman.com/wp-content/uploads/2024/07/CME-1860x1046-88-1024x576.jpg?w=780&resize=780,470&ssl=1)
Concerns about fraud mean lenders who want to sell multifamily loans to the mortgage giants may be required as soon as this summer to do more due diligence on borrowers and their properties.
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Concerns about fraud could lead to stricter rules for commercial property lenders who provide funding for apartment buildings that are backstopped by mortgage giants Fannie Mae and Freddie Mac, The Wall Street Journal reports.
The rules — which would require lenders who want to sell multifamily loans to the mortgage giants to do more due diligence on borrowers and their properties — could be introduced by Fannie and Freddie’s federal regulator as soon as this summer, the Journal reported Monday, citing anonymous sources “familiar with the preliminary plans.”
Fannie Mae, Freddie Mac and their federal regulator, the Federal Housing Finance Agency (FHFA), declined to comment to Inman.
While Fannie and Freddie’s multifamily loan portfolios are dwarfed by their single-family holdings, together they owned or guaranteed $927 billion in multifamily loans as of June 30, representing about 40 percent of the market, the Journal estimated.
Multifamily business: Small but growing
Freddie Mac’s multifamily mortgage portfolio is growing faster than its single-family guarantee business. Source: Freddie Mac.
Multifamily mortgages make up only about 13 percent of Freddie Mac’s $3.5 trillion mortgage portfolio, for example — but grew by 5 percent during the second quarter of 2024, to $447 billion. Fannie Mae’s multifamily portfolio totaled $480 billion as of June 30.
Much of the risk associated with Fannie and Freddie’s multifamily loan portfolios has been transferred to private insurers, and so far the loans are performing well.
The serious delinquency rate on Fannie Mae’s multifamily portfolio was flat at 0.44 percent in Q1 and Q2 2024. Even after setting aside $248 million as a hedge against future losses, Fannie Mae’s multifamily business generated $629 million in Q2 net income, the company said in its latest earnings report.
But rising interest rates have exposed a growing number of fraudulent commercial mortgage schemes based on doctored financial reports and valuations, the Journal reported. Federal prosecutors have been working with the FHFA’s Office of Inspector General to uncover the extent of the problem.
The rules being drafted may require lenders that do business with Fannie and Freddie to verify financial information provided by borrowers, and conduct more thorough evaluations of the financial performance and valuations of properties that serve as collateral, the Journal reported.
Although they’ve been in government conservatorship for nearly two decades, Fannie and Freddie are profitable and continue to build their net worths.
Fannie Mae and Freddie Mac build net worth
![](https://assets.inman.com/wp-content/uploads/2024/08/Fannie-Freddie-net-worth-Q2-2024.png)
Source: Fannie Mae and Freddie Mac earnings reports.
Fannie Mae posted a $4.5 billion Q2 profit and grew its net worth to $86.5 billion, providing $95 billion in liquidity to finance 213,000 home purchases, 45,000 home refinancings and 72,000 units of multifamily rental housing.
Freddie Mac generated a $2.8 billion Q2 profit and grew its net worth to $53.2 billion, funding 212,000 home purchases, 45,000 refinancings and 92,000 rental units.
After growing their single-family mortgage portfolios during the pandemic when mortgage rates were near historic lows, the mortgage giants have since seen much of their refinancing and purchase mortgage business evaporate.
Boom and bust in purchase lending
![](https://assets.inman.com/wp-content/uploads/2024/08/Fannie-Freddie-purchase-loans-Q2-2024.png)
Source: Fannie Mae and Freddie Mac earnings reports.
Fannie Mae, which backed $451 billion in purchase mortgages in 2021, saw purchase mortgage volume decline to $273 billion in 2023 and $128 billion in the first six months of 2024.
Freddie Mac, which lagged Fannie Mae’s 2021 purchase mortgage business by $21 billion in 2021, has closed the gap in recent years, backing $265 billion in purchase loans last year and $127 billion in H1 2024.
Single-family mortgage portfolios flatten
![](https://assets.inman.com/wp-content/uploads/2024/08/Fannie-Freddie-SFR-portfolio-Q2-2024.png)
Source: Fannie Mae and Freddie Mac earnings reports.
The decline in new business means Fannie and Freddie’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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