Walker & Dunlop needs buyers for the loans weighing on profit

Fannie Mae has completed its fraud review of Walker & Dunlop, the commercial real estate lender and servicer said. Management now expects no further loan buybacks or indemnifications related to that investigation, following the earlier completion of Freddie Mac's review.

The company has linked most of the problem assets to previously identified borrower fraud. It reported a $37.3 million net loss as it moved legacy assets into the held-for-sale category and reduced their recorded values. Selling those assets is the next step toward ending their carrying costs.

A completed review, with assets still to sell

The company had already said in August that it intended to exit the remaining repurchased assets by early 2027. Its November update keeps that timing and says a majority of sales are expected by year-end.

About $25 million of the portfolio's carrying value was under a preliminary letter of intent when the company reported. Separately, the quarterly filing records a completed property sale after September 30 that produced approximately $8.3 million of net proceeds.

Third-quarter loan valuation adjustments included $37.5 million of new charges. Across valuation changes, operating costs, provisions, property impairment and related credits, the report puts the net expense tied to indemnified and repurchased loans at $56.3 million before tax.

The fee business has a different problem

The business of managing existing loans continued to grow. Quarterly servicing fees rose to $87.7 million from $85.2 million a year earlier, supported by a servicing portfolio that reached $146.6 billion.

Transaction activity shifted toward lower-fee business. Brokered debt volume grew 58%, but the mix moved away from lending through Fannie Mae and Freddie Mac. Loan-origination and debt-brokerage fees fell, and the company recognized less noncash income from newly created servicing rights.

Total revenue declined to $298.4 million from $337.7 million. The loss therefore reflects both the loan cleanup and weaker transaction economics.

Management is also changing its operating model. It targets about $20 million of annual improvement in net operating income, with the full run-rate benefit expected in the second half of 2027. The actions are expected to bring a $3 million–$4 million charge in the fourth quarter of 2026.

Loan deliveries dominate the headline cash number

Reported operating cash flow was $749.8 million in the first nine months. Most of that came from loans being delivered to investors faster than new loans were originated. Excluding loan-origination activity, the company reported $28.7 million of operating cash flow, down from $126.0 million a year earlier.

The operating subsidiary remained above its required liquidity and net-worth levels at September 30. In October, Walker & Dunlop also expanded its revolving credit commitment to $150 million from $50 million and extended the facility's maturity.

The Walker & Dunlop profile follows the remaining assets, recurring servicing business, cash flow and financing commitments.