(Bloomberg) -- Mortgage broker Meridian Capital Group will be freed from a Freddie Mac ban months after Freddie stopped buying loans handled by the firm amid an industrywide crackdown on fraud.
Starting on Jan. 1, Freddie Mac will begin considering Meridian-brokered loans again as long as lenders comply with a suite of new conditions.
The decision “comes after a thorough review process and enhancements to our lender requirements,” a Freddie Mac spokesperson said in a statement. Meridian didn’t immediately respond to requests for comment.
The move comes amid intense regulatory scrutiny of the commercial real estate market that has sparked several criminal investigations and a tightening of rules for lenders and brokers.
As part of the new conditions, Freddie can require lenders that bring in Meridian-brokered business to repurchase loans in the case of default in the first 12 months or if fraud is uncovered, according to a person familiar with the agreement. There will be additional requirements over inspections, audits and the accuracy of information used during the underwriting process, said the person, who asked not to be named because the details of the agreement aren’t yet public.
Meridian is a major commercial mortgage broker, having secured more than $550 billion in financing since its founding in 1991. Staying in the good graces of Fannie Mae and Freddie Mac is crucial for such firms, which, among other specialties, arrange loans to apartment owners that are eventually purchased and packaged into securities by the two government-sponsored entities.
Meridian, which has worked with lenders including New York Community Bancorp, was banned by Freddie and Fannie over allegations that some brokers had fudged figures on applications to obtain larger loans, the Wall Street Journal previously reported.
Fannie didn’t immediately respond to requests for comment.
After Freddie’s pause, Meridian in March appointed former regulator Brian Brooks as chief executive officer, replacing the firm’s co-founder Ralph Herzka, who became senior chairman. Some executives and brokers left the firm, as a sluggish commercial real estate market and the Fannie and Freddie bans hampered Meridian’s ability to broker loans.
The scrutiny hasn’t been limited to Meridian. US regulators and prosecutors have been cracking down on allegations of fraud in corners of the commercial real estate finance market as higher-for-longer interest rates have made it difficult for investors to paper over shady deals.
In June, a New Jersey investor named Aron Puretz pleaded guilty to using false financial statements to obtain nearly $55 million in loans to purchase properties in Michigan, Illinois and Arkansas. In a related case, another real estate player, Boruch Drillman, pleaded guilty in December to deceiving lenders in a $165 million mortgage fraud conspiracy.
--With assistance from Scott Carpenter and Natalie Wong.
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