The financial and advisory firm revealed in its most recent earnings report and call with analysts that it has received requests from Freddie Mac to repurchase two loan portfolios with an unpaid balance of $100 million due to fraudulent documentation submitted by the borrower.
The company has already reached an agreement with Freddie Mac for one of its loan portfolios. It said it expects to be patient with the second portfolio of loans, which total $49.3 million. But if no agreement is reached, Walker & Dunlop could be forced to buy back the loans.
The company has hired outside counsel to investigate suspicious transactions where borrowers may have committed fraud, sources familiar with the matter said. As part of this process, Walker & Dunlop has placed some of the promoters who worked on the deals on leave to investigate the matter, sources said.
Walker & Dunlop did not return a request for comment.
The actions come in light of the federal government’s ongoing investigation into commercial mortgage fraud. The Department of Justice and the Federal Housing Finance Agency have uncovered a variety of schemes that allowed borrowers to obtain mortgages for far more than their properties were worth by inflating financial figures or purchase prices.
Until now, the role of the lender in these schemes has been less scrutinized than that of the borrowers. The ease with which borrowers have been able to obtain loans has raised questions about the lender’s due diligence and underwriting policies.
Walker & Dunlop was Fannie Mae’s largest multifamily lender in 2024 with $7 billion in volume.
Agency lenders such as Walker & Dunlop originate loans and sell them to Fannie Mae or Freddie Mac. If a borrower commits fraud, the lender is typically responsible for covering Fannie or Freddie’s legal fees or must buy back the loans.
Walker & Dunlop said it expects to use $20 million of its own capital as collateral to indemnify Freddie. It expects to take credit losses related to its troubled loans in the fourth quarter, the company’s CFO said in its earnings call with analysts in November.
“While our portfolio performance has been exceptional and we feel extremely good about the credit quality of our book, we continue to investigate, in collaboration with the GSEs (Government Sponsored Enterprises), specific cases of credit fraud that occurred largely due to changes in industry practices in the wake of the pandemic,” said Greg Florkowski, CFO of Walker and Dunlop in the November earnings call.
The company’s fraudulent loans represent a small portion of the company’s total revenue. Walker & Dunlop reported total transaction volume of $15.5 billion in the third quarter.
Walker and Dunlop did not release the names of the borrowers they say committed fraud.
The company has provided at least three loans to the controversial Mordechai Weiss or his wife Basya Weiss.
Monsey-based Mordecai Weiss is the target of the DOJ and FHFA investigation, according to sources familiar with the matter. Weiss is also the subject of a lawsuit by a Houston apartment lender over a sham deal in which the lender claims Weiss, along with his property insurer, used a bogus purchase to obtain a $69 million loan.
Walker & Dunlop loans to Weiss’ properties have also led to lawsuits and bankruptcies.
Fannie Mae is trying to foreclose on a $12 million loan for a multi-family home in Rochester, New York. (Walker & Dunlop made the loan, sold it to Fannie Mae and then bought it back in December 2024, according to court documents).
In Greenbelt, Maryland, Freddie Mac initiated a foreclosure on a $35 million Walker & Dunlop loan tied to Weiss’ 178-unit multifamily property. Fannie Mae also attempted to foreclose on a $13.5 million Walker & Dunlop loan on a rent-controlled multifamily property in East Orange, New Jersey, according to court documents.
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