Banking and Finance Law Daily Wrap Up, GOVERNMENT SPONSORED ENTERPRISES—FHFA OIG reviews oversight of Fannie Mae multifamily loan loss allowance, (Jan 7, 2026)

By Shashi Kant, BALLB, LL.M.

The evaluation examines supervisory reviews, fraud-related adjustments, and allowance methodology during recent examination cycles.

The Federal Housing Finance Agency’s Office of Inspector General (OIG) issued an evaluation report (EVL-2026-001) examining the agency’s oversight of Fannie Mae’s allowance for loan losses in its multifamily line of business, including losses attributed to mortgage fraud, during the 2022 through 2024 examination cycles. The evaluation report reviewed FHFA’s supervisory activities and concluded that the agency monitored and assessed the allowance through quarterly reviews, targeted examinations, and financial statement oversight.

Allowance for loan losses and fraud risk. According to the report, Fannie Mae provides liquidity to the multifamily mortgage market by purchasing and securitizing multifamily mortgage loans, including loans on apartment buildings and other residential properties with five or more units. As of Sept. 30, 2025, Fannie Mae’s multifamily book of business exceeded $521 billion. Fannie Mae develops an allowance for loan losses each quarter, representing an estimate of loans it does not expect to collect. In its 2024 annual filing with the Securities and Exchange Commission, Fannie Mae reported a multifamily provision for loan losses of $752 million.

According to the OIG, that provision included expected losses attributed to mortgage fraud, declining property values, and increased serious delinquencies. The report states that Fannie Mae uses the Current Expected Credit Losses methodology to estimate the allowance and relies on internal models to generate loan-level estimates. Fannie Mae management reviews model outputs and may implement adjustments when the models do not fully capture prevailing market conditions or emerging risks.

FHFA supervision and review. The OIG reported that FHFA’s Division of Enterprise Regulation (DER) reviewed and assessed Fannie Mae’s multifamily allowance for loan losses each quarter. DER examiners reviewed internal documentation supporting changes to the allowance and considered market conditions, assumptions, forecasts, and model estimates. During the 2022–2024 examination cycles, DER conducted five targeted examinations addressing risks that could affect the multifamily allowance for loan losses.

According to the report, DER did not raise concerns about the adequacy of the allowance during its examinations or ongoing monitoring activities. DER also assessed the allowance as part of FHFA’s review of Fannie Mae’s financial statements and concluded that the allowance was consistent with Fannie Mae’s quarterly assessments. The OIG further reported that Fannie Mae’s external auditor reviewed the allowance for loan losses as part of its audit of Fannie Mae’s financial statements and internal controls. The external auditor identified the allowance as a critical audit matter and concluded, for each year reviewed, that Fannie Mae’s allowance was presented fairly in the context of the consolidated financial statements taken as a whole.

Fraud identified as emerging risk. The report states that Fannie Mae first identified an increase in potential multifamily mortgage fraud in 2023. In November 2023, Fannie Mae identified potential fraud involving brokers at a mortgage brokerage company and suspended new business with that firm. Fannie Mae reviewed a sample of 126 loans with high-risk indicators and identified seven loans with confirmed signs of fraud. Management reported increased referrals of potential multifamily mortgage fraud to Fannie Mae’s Audit Committee in 2023 and attributed the increase to improved internal awareness and reporting. As of April 2024, management reported multifamily mortgage fraud as an emerging risk to the Board’s Risk Policy and Capital Committee.

Adjustments to the allowance. According to the OIG, Fannie Mae adjusted its multifamily allowance for loan losses to account for increases in fraud activity and deteriorating loan performance. Based on fraud investigation data and performance trends, the Multifamily Allowance Team implemented a $100 million adjustment to the allowance, followed by an additional $333 million adjustment prompted by fourth-quarter 2024 fraud investigation data. The report states that loans originated between 2020 and 2023 represented a majority of loans with potential fraud and that deteriorating market conditions magnified the effect of fraud on loan performance.

Fraud mitigation actions. The OIG reported that Fannie Mae took steps in 2023 and 2024 to enhance its fraud risk management framework. Those steps included expanding due diligence requirements for lenders, increasing training, clarifying guidelines, enhancing reporting mechanisms for suspected fraud, and exercising contractual remedies with lenders. As of February 2025, Fannie Mae required certain lenders to repurchase or indemnify loans and removed some lenders from preferred delegation status. Fannie Mae also reported increased fraud investigations in 2023 and 2024, followed by a decline in fraud findings in late 2024 and 2025. In its most recent quarterly SEC filing dated Sept. 30, 2025, Fannie Mae did not identify mortgage fraud as a major factor in provisioning for the multifamily allowance for loan losses.

Other matter for consideration. The OIG identified an issue for FHFA’s consideration related to DER’s communication practices. The report states that while DER addressed certain practices through examination findings and Fannie Mae is implementing remediation plans, DER did not expressly inform Fannie Mae that certain practices constituted failures to meet Prudential Management and Operations Standards. The OIG advised that DER consider taking steps to ensure regulated entities are explicitly notified of such determinations in the future. The OIG made no recommendations in the report. FHFA management stated that it was pleased with the report’s results and indicated it would consider updates to internal guidance in 2026.

Companies: Fannie Mae

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