Meridian Capital Group has overhauled its risk and controls and will resume business with the mortgage-finance giant next year
By Gina Heeb
Oct. 9, 2024 3:09 pm ET
Freddie Mac is set to end its blacklist of Meridian Capital Group after the real-estate broker overhauled its risk and controls, signaling the type of requirements the rest of the industry could soon face as regulators ramp up a broader fraud crackdown.
Freddie will resume business with Meridian in January, Meridian said, more than a year after it was banned in response to allegations that some of its brokers falsified client financials to get bigger loans.
Fannie Mae also has a blacklist on Meridian, which remains in place, the firm said. Other brokers have since been banned by the mortgage-finance giants.
After the blacklists, Meridian shook up its management and started to build a risk and control framework, largely from scratch. As part of that, Meridian would require brokers to obtain internal approval before they move forward with certain deals, Chief Executive Brian Brooks said in an interview.
A credit approval committee that includes members of management would have to sign off on all Fannie and Freddie loans, for example, as well as those that are $75 million or above in size or some that have known concerns.
“Whatever is coming out of Meridian today doesn’t look like what might have come out Meridian a year ago and doesn’t look like any other broker shop,” Brooks said. “It looks clean.”
Fannie and Freddie, which are backed by the government, purchase and securitize a huge portion of loans in the U.S. residential and commercial mortgage markets.
The financial backing of Fannie and Freddie is crucial for mortgage brokerage firms, which can struggle to get new business without it. Between 15% and 20% of business at Meridian was tied to the two firms, Brooks said.
The agreement with Freddie came with terms that could slow the breakneck speed of deals in the real-estate brokerage industry.
Lenders would face repurchase obligations if a Meridian loan defaults within the first 12 months, for example. Lenders also would have to complete extra due diligence for Meridian loans, such as by certifying the absence of fraud, a person familiar with the matter said.
Meridian separately rolled out a review system for loans each quarter. As part of that review, loans would be assigned a score on a so-called risk scale designed to assess whether and to what degree brokers may have altered the financials of the borrower, as well as whether that was disclosed.
The firm also cut more than 100 employees—or roughly a quarter of the firm—from its workforce. That included around 40% of brokers.
“I don’t want to imply that everybody who was let go was let go because of some kind of misconduct, that’s not the case,” Brooks said. But some of them “probably don’t belong in the new world. They have come out of an environment that had no oversight and no regulation,” he said.
Fannie and Freddie have launched a wider probe into allegations of fraud across the industry. As part of that, the two firms have prepared to require lenders to independently verify financial information related to borrowers for apartment complexes and other multifamily properties.
Meridian has a particularly close relationship with New York Community Bancorp, the regional bank that recently got a rescue deal from investors led by Steven Mnuchin after trouble in its commercial real estate books sparked panic.
Bloomberg previously reported the news of Freddie Mac ending its blacklisting of Meridian.