Mortgage Fraud Impacts Merchants Bancorp Earnings

Mortgage fraud drives major loan losses at Merchants Bancorp, slashing earnings and raising red flags in the multifamily lending market.

July 31, 2025

Jordan B.

Merchants Bancorp raised its credit loss reserves to $53M in Q2, nearly seven times higher than the previous quarter.
Net income fell 50% year-over-year after the bank wrote down $46M in loans tied to suspected fraud.
Investigators linked many of the loans to convicted borrowers. The bank expects more fraud cases across the industry.

Key Takeaways

Earnings Drop Amid Loan Fraud

Merchants Bancorp reported a 50% drop in Q2 net income after increasing its credit loss reserves from $7.7M to $53M, per Bisnow. The Indiana-based bank specializes in multifamily loans and holds a $500M portfolio.

Executives attributed the earnings decline to falling multifamily property values and the discovery of mortgage fraud among borrowers.

Loan Write-Downs Surge

In Q2, the bank wrote down loans for 14 customers totaling $46M. Last year, that figure stood at just $3.5M. These loans involved a type of subordinated debt that Merchants no longer offers.

While the bank did not name specific borrowers, investigations by The Real Deal tied several loans to Moshe Silber and Aron Puretz. Both pleaded guilty in 2024 to mortgage fraud. They inflated purchase prices to secure larger loans.

Wider Industry Impact

Merchants CEO Michael Petrie said the fraud affected other multifamily lenders as well. Federal investigators continue to probe mortgage fraud tied to both Fannie Mae and Freddie Mac loans.

The Federal Housing Finance Agency increased its credit loss reserve by over $200M in 2024. In its annual report, it warned that mortgage fraud remains a key vulnerability.

Loan Quality Metrics Shift

The bank reclassified $417.7M in loans as “substandard,” up from $323.6M at the end of March. Court-appointed receivers are helping Merchants assess the collateral tied to these challenged loans.

Despite these challenges, the bank reported some improvements. Total loan delinquencies fell 17%, and “special mention” loans—those with future risk—declined nearly 60%.

Falling Appraisals Add Pressure

Multifamily values have climbed 4% over the past year. But they remain 19% below their 2022 peak, according to Green Street. Lower appraisals also contributed to the drop in earnings.

Why This Matters

This case underscores the growing risks regional banks face from both falling commercial real estate values and mortgage fraud. With many small lenders backing multifamily housing, these challenges could ripple through the broader financial system.

What’s Next

Federal investigators are likely to uncover more fraud in the coming months. Meanwhile, banks are tightening underwriting standards, re-evaluating risk, and working to stabilize their lending operations.