Freddie Mac Multifamily Enhances Fraud Detection

Freddie Mac Multifamily has announced a series of policy and process enhancements that further strengthen underwriting due diligence, bolster fraud detection and deterrence, and mitigate other risks. Effective April 18, the changes include enhanced property inspection requirements and additional due diligence, among other measures.

“Freddie Mac remains focused on risk management and works to enhance our processes to better detect and deter fraud and misrepresentation,” said Ian Ouwerkerk, SVP of Multifamily Underwriting & Credit. “We take these issues seriously, and these enhancements are just the latest step in our effort to manage risk and improve our execution.”

Specifics to protect borrowers

The enhancements will appear in Freddie Mac’s Multifamily Seller/Servicer Guide, and take effect on April 18, and include the following changes:

  • Property inspections will require an increased number of unit inspections and higher lease audit sample sizes. Additional documentation will be required for lease audits to confirm actual tenant rental payments.
  • Stronger “Know Your Customer” requirements, including enhanced due diligence for first-time borrowers and borrowers with limited multifamily experience, additional liquidity verification and verification of real estate owned by the borrower.
  • Updated process to limit Freddie Mac Multifamily business with certain title companies when applicable.
  • Additional appraisal review and appraiser independence requirements to safeguard the independence, objectivity, and impartiality of appraisers.

The latest in process enhancements

The Freddie Mac Multifamily updates reflect another step in the government-sponsored enterprise’s (GSE) effort to enhance its processes. In November 2023, the company announced new measures to clarify multifamily documentation chain of custody requirements as loan due diligence moves from borrower to lender.

Historically, more than 90% of the eligible rental units funded by Freddie Mac Multifamily are affordable to families with low-to-moderate incomes earning up to 120% of the area median income (AMI). Freddie Mac securitizes about 90% of the multifamily loans it purchases, thus transferring the majority of the expected credit risk from taxpayers to private investors.

The state of multifamily

The recently released Freddie Mac Multifamily Apartment Investment Market Index (AIMI) decreased in Q4 of 2023, but increased over the full year, with the annual gain indicating that investment conditions were better in Q4 compared with one year prior. With mortgage rates persistently high, the AIMI fell nationally and in all 25 regional markets measured for Q4 of 2023, as did net operating income (NOI) over the same period. Despite the Q4 dip, AIMI finished 2023 up for the year nationally and in the majority of regional markets.

“The end of 2023 was a tale of two directions for AIMI,” said Sara Hoffmann, Senior Director of Multifamily Research at Freddie Mac. “The Index finished 2023 up overall for the year, but Q4 was down across the board. The market continues to adjust to the new reality of higher interest rates, which were offset by a steep contraction in property prices, while NOI was virtually flat when we look at 2023 as a whole. All in all, AIMI suggests that investors are paying less per dollar of property income compared with one year ago.”

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Eric C. Peck

MortgagePoint Managing Digital Editor Eric C. Peck has 25-plus years’ experience covering the mortgage industry. He graduated from the New York Institute of Technology, where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career in New York City with Videography Magazine before landing in the mortgage finance space. Peck has edited three published books, and has served as Copy Editor for
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