Fannie Mae, Freddie Mac to Toughen Rules for Commercial-Property Lenders, Brokers

Tucker Wade
Senior Director of Legal and Compliance, GoDocs

In a recent Wall Street Journal article, it addressed how Fannie Mae and Freddie Mac are drafting new rules for lenders of commercial property loans and brokers to fight fraud in the commercial real estate industry. The proposed rules would augment the level of due diligence for multifamily mortgage loans. The main points are as follows:

  • Enhanced due diligence requirements for lenders prior to origination
  • Response to alleged fraudulent borrower and property financial information submissions by brokers
  • Freddie Mac already requires borrowers to provide rent receipts for multifamily mortgage loans

Impact on Lenders

The new rules mark a significant shift in the CRE industry, emphasizing the importance of lender due diligence. Lenders must now not only review financials during underwriting but also monitor and enforce financial performance throughout the loan’s life. This increased scrutiny may divert lenders’ focus from origination.

GoDocs Weighs In

Tucker Wade, GoDocs' Senior Director of Legal and Compliance, weighs in on the implications of these new rules:

Government agencies and regulators have been cracking down on commercial real estate (CRE) fraud. In response, Fannie Mae and Freddie Mac are in the process of creating new rules in connection with their purchase and securitization of CRE mortgage loans, specifically multifamily mortgage loans, requiring lenders to be more diligent before origination.

The proposed rules aim to prevent lenders’ reliance on fraudulent financial information submitted by brokers. Even if these rules aren’t finalized and enacted, lenders will likely need to verify borrower and collateral property financial information more thoroughly, whether or not a broker is involved. Freddie Mac, for example, already requires rent receipts from borrowers.

The actions of Fannie Mae and Freddie Mac marks a new era of heightened due diligence in CRE. Lenders must review financials carefully during underwriting and efficiently and effectively monitor loan performance throughout its life.

To that end, GoDocs offers customers the ability to include comprehensive financial covenant options in its loan documentation, including, but not limited to, the following:

  • Rent rolls and security deposit statements
  • Interim and post-default property reports
  • Compliance with multifamily regulatory agreements

Whether you’re a bank, credit union, or private lender, GoDocs ensures accurate and compliant commercial loan documents with our closing platform, so you can ensure always-compliant, risk-free automated loan documents.

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