Freddie Mac Implements Stricter Appraisal Guidelines for Multifamily

Freddie Mac introduces new appraisal standards to combat valuation discrepancies and fraud, requiring multifamily underwriters to scrutinize sale price alignments and implement a comprehensive compliance checklist.
  • In response to recent fraud incidents, Freddie Mac will enforce new appraisal guidelines starting March 4, focusing on ensuring appraised property values align with recent sale prices.
  • The guidelines include a compliance checklist for agency lenders, emphasizing the necessity of physical inspections, the alignment of appraised values with tax assessments, and the inclusion of pending sales or listings in appraisals.
  • The move follows discoveries of fraudulent activities, including loan document misrepresentations by brokers and inflated sale prices in loan closings, prompting Freddie and Fannie Mae to tighten oversight.
Key Takeaways

Amid growing concerns over fraud in the multifamily lending sector, Freddie Mac is set to introduce stringent appraisal standards. This initiative comes on the heels of significant fraudulent activities detected within loan documents, pushing Freddie and Fannie Mae to reevaluate and enhance their valuation and appraisal processes.

Why now? The new standards emerge in light of recent fraud cases, including a guilty plea by a borrower for falsifying documents to obtain higher loan proceeds and misrepresentations by brokers at Meridian Capital. These incidents have led to a heightened vigilance against fraud, prompting Freddie Mac to standardize and tighten its valuation process.

New guidelines: Starting March 4, Freddie Mac’s new guidelines mandate multifamily underwriters to flag appraisals that significantly diverge from recent sale prices. The comprehensive compliance checklist also requires physical inspections of units, verification of appraised values against tax assessments, and the inclusion of comparable sales data in appraisals. This structured approach aims to foster a more consistent and reliable appraisal process across the market.

Why it matters: The introduction of these guidelines has sparked conversations among lenders and industry professionals, emphasizing the need to combat fraud effectively. With fraud being an ongoing concern in the real estate market, Freddie Mac’s enhanced appraisal standards signify a proactive step towards ensuring the integrity and stability of multifamily financing. As the market adapts to these changes, the focus on transparency and accuracy in valuations is expected to contribute positively to the sector’s overall health.

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