Fannie Mae discloses losses from multifamily loan fraud in SEC filing

Fannie Mae has acknowledged in its recent 10-Q filing with the Securities and Exchange Commission that it has uncovered instances of multifamily loan fraud. The company stated that it is currently investigating multiple lending transactions where fraud or potential fraud may have taken place. This admission comes after reports of fraudulent activities involving Freddie Mac and Fannie Mae have surfaced.

In one case, the Department of Justice prosecuted Aron Puretz for orchestrating a scheme to fraudulently obtain over $54.7 million in loans and acquire multifamily and commercial properties. Similarly, Boruch Drillman was involved in a conspiracy to fraudulently secure over $165 million in loans and acquire properties, with Fannie Mae being one of the targets.

Within their risk factors section, Fannie Mae disclosed that it has suffered financial losses due to mortgage fraud and may continue to do so. The company admitted to identifying gaps in their processes for addressing multifamily fraud risk and overseeing sellers and servicers. To mitigate these risks, Fannie Mae has implemented changes to reinforce requirements for sellers and servicers and reduce fraudulent activities.

Fannie Mae also mentioned pursuing contractual remedies against lenders, borrowers, and sponsors involved in fraudulent practices. Despite not charging any wrongdoing, Fannie Mae discontinued business relationships with entities like Riverside Abstract and Madison Title. This decision was part of the company’s efforts to enhance its processes for managing fraud risks in multifamily loan origination.

The company emphasized the importance of improving their oversight of seller and servicer counterparties to prevent fraudulent transactions that could impact their financial standing. While Fannie Mae has previously issued warnings to consumers about mortgage fraud risks such as identity theft rings, the current focus is on addressing internal processes related to multifamily loan fraud.

In conclusion, Fannie Mae’s acknowledgment of multifamily loan fraud losses signals a commitment to strengthening their risk management protocols and enhancing oversight of third-party entities. By proactively addressing these challenges, Fannie Mae aims to protect its financial integrity and uphold transparency in its operations.