The FBI, the FHFA’s Inspector General and the U.S. Attorney in the Western District of New York are investigating dozens of property owners suspected of falsifying incomes from commercial properties, particularly apartment complexes, in order to obtain larger mortgages.
So far the investigation has resulted in a fraud-conspiracy indictment against four real-estate executives in upstate New York with regards to loans that totaled about $170 million. About $1.5 billion in securities issued by Fannie Mae and Freddie Mac are backed by mortgages tied to one developer under the probe’s scrutiny.
While Dodd-Frank rules require home mortgage borrowers to document and verify their income, no such rule applies to multifamily housing, and loans tied to multifamily properties generally don’t receive the same verification.
“All the systems will work fine as long as people are being honest,” said Sam Berns, senior vice president at NorthMarq Capital LLC, one of about two dozen firms licensed to originate and sell multifamily mortgages to Fannie Mae and Freddie Mac. If borrowers or their mortgage brokers choose, they can easily submit and certify false numbers, he said. “It’s a fault and a failure within the system.”
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