Hey, everybody, economic ninja here. I hope you’re doing great. Got a story out of the real deal, and it’s about Fannie Mae. Fannie Mae is warning lenders that it will not accept mortgages using Riverside or Madison. Title. Let’s dive into this story and then talk about it. What’s going on? Title insurers Riverside abstract and Madison title are facing a bigger problem with Fannie Mae than they have let on.

According to a memo from the agency obtained by the real deal, until further notice, we will not accept delivery of any mortgage loan closed using Madison or Riverside in any capacity. Fannie Mae deputy general counsel Jeff Goodman wrote to lenders. Now let me stop real quick and say that there are ripples happening right now in the lending business very close to what happened to the lead up of the great Recession.

And what Fannie and Freddie are finding is that they have been accepting paper that is not up to standard. Okay, that caused an inquiry with, I want to say it was Freddie Mac a little while back. And now they’re digging deeper. And the deeper they dig, I believe the more they’re going to find that we are back, right back to the same old shenanigans in the mortgage backed securities industry.

All right, let’s dive in a little bit deeper into this story and then talk about it. The reason, he wrote, is that the New Jersey based Riverside and Madison participated in real estate closings orchestrated by Boris Drillman that were deemed fraudulent by the Department of Justice. About two weeks ago, a lawyer’s email surfaced that said some servicers and sellers had stopped doing business with the two title insurers.

Both companies scrambled to do damage control. Last week, Riverside told its employees that it had reached an agreement to sell the company because of false rumors that it was barred from servicing as a title or escrow agent for Freddie Mae and Freddie Mac loans. But Goodman’s memo, reported by 1031, appears to indicate that the rumors were true. His message warns lenders that if they fail to comply with any requirements, including this, Fannie Mae could seek remedies under its contract with them.

Okay, now let me stop again and say there are a lot of things happening inside of the mortgage industry. I believe that banks have seen a severe drop in customers coming in to find mortgages. So they’re loosening their standards. And some of these lending houses that sell these loans, they sell the loans to a customer. The customer takes the mortgage on, then that lender takes that mortgage and they sell it to Fanny or Freddie.

And we’re going to start seeing in the next handful of months, information coming out that is going to show you why this inquiry started. This probe started about four months ago with Freddie Mac, but now we’re going to see it get bigger. And right now we’re talking about title insurance, okay? These ripples are going to keep getting bigger and bigger, and they’re going to turn into waves until you finally see that this cycle has completely completed itself, just like what we saw with the closing of Lehman brothers.

Now it says here, Goodman cited a federal court filing in December, as well as a recent press release about Drillman from the Department of Justice that named Riverside Madison. The release detailed a sweeping fraud scheme by the real estate investor in which he bought properties, then used bogus documents to show he paid more than the actual price. With those documents, he allegedly obtained larger loans from lenders than they would have otherwise made.

The Department of Justice said Riverside and Madison handled two of Drillman’s fraudulent closings. Neither title insurer was charged. Madison title has not been accused of any wrongdoing and we are proud of our record of trustworthiness and integrity, a spokesperson for Madison said in a statement. We remain steadfast in our commitment to transparency, telling our story and addressing any concerns. Riverside Abstract, which reached a tentative deal to sell itself to healthcare entrepreneur Avery Isenrich, did not return request for comment.

Madison and Riversider are major players in the Tristate area. Both cracked the top ten in the real deals 2018 list of the largest title insurers. Fannie and Freddie are quasi private entities that buy multifamily and residential loans from lenders. That gives lenders the capacity to issue new loans, providing liquidity to the mortgage market. The agencies function as a government backstop for a huge portion of us mortgages. So let me close it in this.

I’ve put two different scenarios in. There are lenders selling paper that is not to the requirements that Freddie and Fannie desire, that is being probed right now. And you are seeing little ripples in the title insurance industry right where documents are being falsified or there’s misleadings happening. My point being is that the reason why I put all this into one package is because there’s fraud everywhere. We see it in wire fraud, all kinds of different fraud.

Banks do things too similar to what we saw with Wells Fargo making a bunch of fake accounts a long time ago. They just got the handcuffs released from the government just like a week ago. What I’m saying is that you’re going to see more and more of this action happening and what it will do is it will hurt the lending industry, because what will happen is it will become harder and harder to sell your paper companies, to sell their paper to Freddie and Fannie.

So they’re going to have to figure out other ways of making money. That’s going to hurt the industry as a whole. And you’re going to see that cascade into the actual industry, into the real estate industry, because as banks can’t make as many loans, that means that sellers are going to have a hard time finding buyers. You can see where that cascades down. Hope you guys got something out of this.

Thank you so much for watching. The economic ninja is out. Now I just got to figure out where to hit this stop button. You know me, I’m too used to lives. See you, everyone. Bye. .

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