https://therealdeal.com/new-york/2023/11/07/merid…
Fannie may overreact by very harshly scrutinizing brokered loans
Fannie may publish new guidelines this week…possibly making all brokered loans go through “pre-review” process
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Fannie Mae has now listed all business brought in through a broker or correspondent as pre-review.
No longer can Seller-Servicers originate underwrite and close loans, within Fannie’s delegated model, that are brought in through brokers.
Interesting. A buddy of mine worked there for 6 years but left around COVID. I'll have to ask if he knows anything.
What is the allegation here? Submitting false financials / rent rolls to juice loan proceeds?
This is just classic brokers in general. Although, definitely a certain type of broker ... IYKYK
Salty Meridian fraudsters throwing MS
This was the rumor I heard about a certain broker from CB who got pushed out ...
bump
The most recent comment was posted less than an hour before this. It was one of the top 3 posts in the RE forum. What are you bumping exactly?
His name is Clown basically
Good thing Fannie is equipped with enough staff to handle all those previously delegated brokered loans now being reviewed ... oh wait. That quote just became 3 weeks! Fannie was already having issues with brokered business in asset management. Not surprised by the reaction but very draconian. Which makes me wonder if there's something more under the surface that has not yet come to light.
Meridian is a huge player who is the majority owner of NewPoint with the former Freddie CEO at the helm. To be blacklisted is a significant action "over a deal the brokerage did for the company." If memory serves, Meridian is responsible for about $6-$8 BILLION of agency financing across the country. Are we really to believe this is about "one deal"? Feels like we are about to see the NCAA "lack of institutional control" phrase thrown around. Is there a death penalty equivalent for brokerage or lender?
Rumors are saying Freddie found more than 50 instances of fraud, but nothing confirmed yet.
3 weeks is hella good. Canadian version its like 3-6 months. For insured high ltv multifamily loans.
I avoid Meridian but I doubt this lasts for long. This is likely not systematic and meridian will just need to put more safeguards in place.
You think the feds raid an office for a one off $5M deal? Come on Herb, get it together.
Did a raid actually happen?
I have heard rumors that something may have happened but if they stormed the office, you would think there would be more news about it.
If they were raided, then i completely agree that it would be more serious.
It is systemic across the brokerage industry, it's just not Meridian. They happen to be the ones caught in the crosshairs right now.
What is systemic? Any details?
No Fed's raided any office. This isn't the movie Wall Street.
Why? did they lie and say $30 in R&M were one time expenses and capex and "should" be stripped from the T-12?
Fannie and Freddie are both hiring fraud investigators like crazy. I guess they're finally realizing how rampant mortgage fraud has been for at least the past few years?
Three Meridian brokers got caught up. Could grow to more. If Meridian ends up the fraud scapegoat, to distract from the fact that the feds should've noticed the obvious scams as they happened, they are screwed.
Attention, at Meridian and other brokers, appears to be on the orthodox.
Question for the room - what is the difference between a broker like Meridian and a lender like Arbor in agency business with regard to the types of malfeasance being alleged here/
Basically a brokerage brokers the deal, while a lender has to have a Agency license to facilitate the deal to one of the Agencies. So Meridian brokers the deal and pokes around the different lenders and banks and even LifCo's to get the best deal for the borrower. Sometimes showing one lender like arbor the Fannie options and then the Freddie side to Greystone.
Fannie & Freddie partner with certain firms as their "seller / servicers" - so a company like Arbor has to be granted a license by the agencies to sell loans to the them & perform the duty of primary servicer on their behalf. They grant licenses to firms that they trust to perform basic underwriting functions & who have proven they can adhere to their respective guides, as well as have a track record of servicing multifamily loans.
Brokerage shops like Meridian have to go through this Seller / Servicer network to do an agency deal - they cannot go direct to Fannie or Freddie.
So if there are problems with these broker loans then the lender partner also has a problem I presume?
To answer your question, let's assume Meridian committed fraud by knowingly providing false rent rolls/operating statements to Arbor. Arbor writes the loan based on that false info and sells the loan to FNMA under it's DUS license. Once the fraud is uncovered, Fannie Mae would require Arbor to buy the loan back at par per the terms of the DUS agreement. Arbor would have a civil lawsuit against Meridian for damages. The real question is whether (or when) the FBI starts to investigate Meridian for fraud.
How would this play out with Freddy fraud? Doesn’t Freddy put multiple loans into one securitization?
It seems truly insane for borrowers to not just go to a firm with an agency license. Now you have to pay two very expensive brokers instead of one.
Yep.
Below are the agency's minimum fees for their direct lenders... the more you know
Freddie:
Fannie:
In addition to these origination fees, I also heard that direct lenders also make money from a premium/buy-up. I have heard a premium of 101% or 100.50% thrown around, Can you please explain what that is in simple terms?
Lenders are essentially selling a bond to FNMA/FMAC. A 1% premium is pretty rich, but in simple terms you sell them a $10,000,000 loan for $10,100,000 and you keep the extra $100,000.
Inversely, this means a 6.00% note rate becomes an effective rate of ~5.94% to the agency/end bond-buyers
Simple terms, a trade in excess of par is additional fee income.
100.5% = 50 bps premium (loan amount * 0.5%)
101% = 100 bps premium (loan amount * 1%)
In more complex terms...
This jargon is specific to Fannie Mae - their loans are sold off as Single Asset Securities, and the spread your quoted includes a variable "MBS investor spread", which is essentially the profitability that the end-user bondbuyer/investor requires. When Fannie deals are soft quoted, a placeholder MBS premium is baked into the rate stack, but that's marked to what Fannie deals are trading for on that specific day. When the deal rate locks during underwriting, that premium is marked to market as-of the day of the trade..
In the event that the MBS spread go down between application & rate lock, the banker has the option of either passing on the spread reduction to their borrower or pocketing a fee.
Soft quoted spreads can also include inflated MBS premiums that are baked in as up front additional profit. In the event that MBS spreads go up between application & rate lock, and assuming no premium was baked in at application, the additional cost is passed onto the borrower. If MBS portion goes up and there was premium baked into the spread at app, the banker can reduce their premium to try and maintain their quoted spread. This is all done behind the scenes.
With Freddie deals, bankers are able to get premium in their rate stack but it's a somewhat fixed pricing grid that is locked in at application. This is because they aggregate loans into a multi-deal securitization that gets traded 1-2 months post closing vs Fannie Mae's single asset securitizations.
If there's a broker, the originator generally pays the broker out of it's fee. There's not an increased fee load to the sponsors. And... brokers do add value. 50% of multifamily is still financed by a lender other than FNMA/Freddie... there are (or were) lots of regional banks out there putting out cheap money and the only way to find them was via a broker...
There is a fee to the sponsor, fees dont always mean broker fees, that could be paid by the lender but what about premiums/buy-ups? Ask Freddie what the rate is with and without a buy-up, a sponsor who works with a broker will likely pay more if there is a buy up in the deal. Of course, there could be a buy-up even if there is no broker in the deal but you cant deny that having a buy-up is very common if there is a broker.
What does this mean for NewPoint which did a majority of their deals through Meridian?
Meridian did most of it's FNMA/Freddie business through Capital One, Greystone and Arbor. They did very little through NewPoint.
Believe it or not, despite Meridian’s role in the ownership of NewPoint, a significant portion of NewPoints originations are not from Meridian business. NewPoint has a network of originators who have relationships direct with borrowers or with other brokers.
Much of Meridian’s agency business was still funneling through other S/S shops.
Brickman stepped down from Meridian (Real Deal reported), apparently from NewPoint too. Getting juicy.
Just saw this, but you left out the funniest part!
"It makes for an awkward situation for Brickman, who spent more than 20 years at Freddie Mac and was credited with developing one of the agency's most innovative and successful financial programs. Brickman rose through the ranks of the quasi-governmental agency over two decades and took on the CEO role in 2019."
https://therealdeal.com/new-york/2023/11/08/former-freddie-mac-ceo-davi…
I read that he stepped down as Executive Chairman of Meridian, but did he also resign as CEO of NewPoint? That I did not read. Maybe it's coming. I too have my popcorn ready.
Not official, but that is the rustle in the bushes...
I would expect that Meridian will end up selling it's interest in NewPoint; nothing points to Brickman's exit...
When the broker builds in spread, it’s not once, it’s for the life of the loan.
So if they add 20 bps of spread on a $10 million loan (not uncommon), they don’t make $20k, they make $200k (in addition to their origination fee). For larger loans the fees can be millions of dollars.
Ok, I don't know what you're smoking but that doesn't just happen.
Trades/Buy-ups all that shit happens but it's not simple. This isn't HUD (hello, how has Dwight not been indicted yet? Sorry, I digress). You can split origination fee with broker. You can split a buy-up. You can pay referral fees. All this is true. And frankly, if you add value, the borrower should not give two shits. I see you with the 2% acq fees and back end splits. I hope a certain borrower I know reads this after reading me the riot act on my minimum origination fee despite my 10 year FTIO in the middle of nowhere loan I funded. You're welcome.
In the real world you cannot just stick some borrower for 20 bps, collect the minimum origination fee and expect this to be any close to a competitive deal. First, Fannie will put their hand out because you'll need pricing waivers so that sucks nuts and isn't worth it. Freddie will also look at you like you grew a second head off your shoulder because you can't tell them "hey, I need your best pricing. Cut it 15 more bps because it's mission ... oh, and add a point in for me because I have mouths to pay."
Small loans are more egregious for pricing trades but that goes with the territory and "streamlining" reports. Borrowers care about the all-in costs in this area. Larger loans ... I know of anomalies but thinking you can make a 1% buy up on a 25 mm deal ... that's tough. And if any borrower is reading this and has ALL of their loans with one lender. Well, guess what buddy, might want to shop that shit like you should do your insurance quote. You might be the anomaly.
The fee can be charged in the spread or up front. You don't have to charge anything up front if you are making the min in the spread. Many borrowers prefer it in the spread to lower their origination costs and isn't all that expensive. Obviously this assumes fixed rate as putting points in the spread for floaters is cost prohibitive due to the implied duration.
This isn't true - the fee is collected up front even when its put into the spread. The extra yield on the note would cause it to trade above par and that excess would be paid back to the originator. i.e. if the prevailing yield was 5% then a deal that priced at 5.15% would trade for 101 and the 1 would go to the lender. Back when I was doing it a 1% fee was 13bps on a 10 year deal.
What you're describing is the servicing fee that is paid over the life of the loan as part of the coupon.
On 10-Year 1% is 13bps and slightly different across the 5 and 7 year. Freddie side a 0.25% Buy up is like 1bps.
With regards to the Servicing fee, fannie and freddie split with the lender. They would never give it up
Was wondering why they came back with a job offer after rejecting me 3 months ago lol
Is anyone hearing buzz that Arbor's Buffalo office where I think their servicing+asset management operations are is having a "problem" right now. Perhaps related to Meridian?
I have not heard that but it makes complete sense. Absolute bottom of the barrel in terms of reputation.
At one point Arbor wasn’t requiring any rate cap on bridge loans! I’m sure their day of reckoning is coming. Some of these properties (such as Tides) aren’t even worth the debt, so Arbor will take a haircut.
What is the problem? Are they doing layoffs?
Their CLO positions must be worthless by now.
Did they have a good chunk of leverage on their positions?
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