Fraud Isn’t Just a Game to Try and See If You Win
Federal agencies like Fannie Mae, Freddie Mac, and the FHFA are cracking down on mortgage fraud, and they're making lenders shoulder the cost, the burden, and to do the investigation for them too.
With over $288 billion in multifamily mortgages originated in 2024, rising rates, and a wave of short-term debt coming due, the cracks from the last cycle are starting to show. The numbers don’t lie. Fannie Mae alone reported $752 million in losses tied to multifamily fraud this year.
Clean Up or Pay Up
The agencies want one thing:
Stabilize the market and remove bad loans from their books. But they’re not waiting for everything to sort out; they’re taking action themselves.
Over the past 18 months, Fannie and Freddie have begun new fraud investigation protocols - often outsourcing the work (and $$) to the lenders themselves. Freddie Mac even set new rules that allow them to direct lenders to investigate their own employees and past practices.
Saying no and failing to do so? You risk losing “good standing” status, or worse, suspension from agency programs.
The Net is Tightening
Lenders aren’t the only ones under scrutiny. Agencies are digging into the behavior of borrowers, developers, brokers, appraisers, and attorneys. And thanks to AI-driven surveillance, they’re connecting the dots a lot faster than ever.
By analyzing data, filings, rent rolls, appraisals, and prior loan information, agencies can spot inconsistencies that used to slip through the cracks. They’re sharing data across agencies and even referring suspicious cases to criminal authorities.
The message?
They care.
They’re watching.
And they’re driven to not miss anything - which they haven’t been.
The Damage
Lenders caught up in investigations are facing:
- Forced loan buybacks and loss-sharing obligations
- Suspensions or probationary status
- Reputational damage
- No formal appeal process to challenge agency decisions
Even minor involvement - like perceived pressure on an appraisal, can trigger suspension or punishment. And because suspensions aren’t publicly listed, they often circulate quietly but destructively through industry networks.
What now?
This isn’t just about catching past fraud. It’s about cleaning and re-molding lending standards for the next cycle.
The agencies’ increased enforcement comes at a time when:
- Refinances are being squeezed by higher rates
- Short-term debt from 2021–2022 is reaching maturity
- Property values and DSCRs are under pressure
Which means the margin for error is shrinking.
And lenders who don’t tighten their own controls are the ones most likely to get hit next.
What Smart Lenders Are Doing
Smart lenders are taking proactive steps to strengthen their due diligence, verify borrower data, and document risk management.
Here’s what their doing:
- Reassessing due diligence standards - not just checking boxes, but validating everything.
- Implementing fraud detection plans.
- Preparing for agency investigation by sorting through and organizing documentation, data, and strategy.
- Learning from current investigations - so they don’t repeat the same mistakes next cycle.
These are the lenders who will survive the “tightening”. And when the dust settles, they’ll be the ones actually writing the next chapter, not defending the last one.
Bottom Line:
The agencies aren’t playing any games.
Fannie, Freddie, and the FHFA are making it clear that fraud cleanup isn’t optional.
It’s the only way to remain operational.
The lenders who treat it as just another "exercise" will get blindsided and ultimately fail.
But those who treat it as a strategy and way to excel into the future - they’ll be the ones to stay standing through this tide - and any tide.
