Fannie Mae Sets Aside $752 Million for Fraud-Related Losses in Apartment Business
Key Points:
* Fannie Mae allocates $752 million for credit losses due to fraud and suspected fraud in multifamily lending.
* Provision brings total losses to $2.5 billion over three years, driving down profits.
* Investigation into fraudulent transactions is ongoing, with additional losses expected.
* Declining multifamily values and increased delinquencies also contribute to losses.
* Single-family lending remains a larger revenue source for Fannie Mae, generating $14.4 billion in net income last year.
Background:
Fannie Mae, a government-sponsored enterprise, has expressed concerns about potential fraud in its multifamily business. In October 2022, it warned investors of uncertainty due to an ongoing investigation.
The multifamily sector has faced challenges due to rising rates, increased insurance costs, and declining property values. These factors have led to worsening credit conditions and increased delinquencies.
Fannie Mae's sister organization, Freddie Mac, has also taken steps to address fraud, including imposing a ban on business with a top broker partner. The ban has since been lifted.
Implications:
The significant credit losses highlight the ongoing scrutiny of mortgage lending practices. Fannie Mae's ongoing investigation suggests that the full extent of the fraud is yet to be determined.
The losses could further strain Fannie Mae's financial performance and impact its ability to support the housing market.