Freddie Mac Adds New Underwriting Standards to Combat Fraud

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In its most substantive rule update since implementing new measures last November to remove brokers from the due diligence chain in loan documentation, Freddie Mac (FMCC) is now adding additional strengthened underwriting standards surrounding property inspection and fraud detection, the government-sponsored enterprise announced Monday afternoon.

The policy changes, which will take effect Thursday, involve increasing the number of units and sample sizes for property inspections and lease audits on Freddie Mac-backed multifamily loans. Freddie Mac will also require additional documentation for lease audits to confirm tenant rental payments under its new enhancements, which will appear in Freddie Mac’s Multifamily Seller/Servicer Guide. 

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“Freddie Mac remains focused on risk management and works to enhance our processes to better detect and deter fraud and misrepresentation,” Ian Ouwerkerk,  senior vice president of Freddie Mac’s multifamily underwriting and credit department, said in a statement.  “We take these issues seriously, and these enhancements are just the latest step in our effort to manage risk and improve our execution.”

The latest Freddie Mac guide update also includes stronger due diligence requirements for first-time borrowers and sponsors with limited multifamily experience. The McLean, Va.-based GSE’s new enhanced underwriting safeguards also subject borrowers to provide  additional verification on their real estate assets and liquidity.

Freddie Mac has also updated its procedures to limit multifamily business with certain title insurers when applicable. It will also now require additional appraisal review and appraiser independence requirements to “safeguard the independence, objectivity and impartiality of appraisers”, the GSE said in its announcement. 

The latest rule changes from Freddie Mac come on the heels of its November 2023 guide update where the GSE tightened its underwriting requirements by ensuring all loan documentation be delivered directly from borrowers to Freddie Mac lenders, Commercial Observer first reported at the time. The update came in the wake of Freddie Mac clamping down on Meridian Capital Group in early November after a loan negotiated by the brokerage firm was called into question. 

Andrew Coen can be reached at acoen@commercialobserver.com