I've had more than one client in the last few years not be able to get a loan from Fannie/Freddie and other big banks due to their name being on the internet for several things. The two biggies are leasing space to dispensaries and being a slumlord.
I've never heard it called Reputation Risk until yesterday. I found that interesting.
I don't really see the problem with lending to these people if the asset being lent on is in average or better shape and meets all other lending criteria.
I have a $100mil+ net worth guy who only has $15mil in debt and is liquid for $7mil+. He can't get an agency loan, Chase said no, local CU's said no. I'm blown away really. This particular client doesn't deserve the grief as a slumlord. I've been through his entire portfolio. His real estate is average to good condition. I think he's smeared on the net because he's shrewd. And he is...
Back in the early 2000's nobody ever googled a borrower to see what dirt is out there.
Can't speak for the other big banks and what not, but Fannie/Freddie have something called A-check, an internal database that basically a bad-boy VIP list.
You can be on this list for several reasons ranging from Your properties with Fannie/Freddie failing property inspections to defaulting on a loan, bad operator, slumlord, etc.
If you are on this list, you will not be given a loan. Sometimes you can rectify the situation and resolve it. Sometimes, not. Fannie and Freddie know which of their borrowers operate as slumlords but still take decent care of properties and pay on time. If you are a shitty operator or have proven that you're not a decent candidate to borrow, you won't get a loan again.
TL;DR: Fannie and Freddie have a VIP list of Bad boys. If you are on this list, you will not be given a loan.
They know that they have certain borrowers who will target neglected properties in lower income/socio-economic areas. These properties will have high crime, difficult tenants, etc. Anyways, they come in, kick-out the tenants who haven't paid, clean up the appearance, fix gates, add new carpet, cabinets, new leasing center, etc. Then they will start re-leasing the property to new tenants at higher rents.
Regardless, Fannie/Freddie knows that these borrowers are effectively slum lords, but they do enough to take care of the property (painting, fixing, maintenance, etc) while trying to keep the crime down, bad tenants out, stuff like that. They recognize that not everyone specializes in owning Class A brand new high rent apartments, they like the borrowers who deal with lower Class C/D apartments but still put money into the property.