By Fannie Mae Presenting Greystone with an “Excellence in Operations” Award, They Confirmed the “Regulator-Emperor” Has No Clothes

By Barry Minkow

Across the country, Reg D syndicators are collapsing under the weight of undisclosed debt, but almost nobody asks the obvious question anymore: Who keeps giving them the rope? After reviewing Greystone, Bank of America, and Merchants Bank, the answer isn’t just visible — it’s blinding.

Take Greystone Servicing, held up in 2023 by Fannie Mae as the gold standard for “Excellence in Operations.” Yet in that same year, June 2023, this government-approved lender issued a loan on a fully stabilized 92-unit property — The Sterling at San Marco, 2943 Spring Park Rd, Jacksonville, Florida — where the subcategory cap rate was 5.77% and the book value was $11,226,634. Greystone lent $11,450,000, creating a 102% LTV at origination. Two years later, the valuation has not improved — but the risk has. Buried deep in the note is a future-advance covenant allowing the debt to explode to 204% LTV.

And this is not Greystone’s first excursion into financial trench warfare. As documented in my August 15, 2025, OIG submission, Greystone issued a future-advance-enabled loan to Ashcroft Capital for the purchase of Braxton Waterleigh, an apartment complex almost new, built in 2021, fully functional and located at 10091 Tuller Loop, Winter Garden, Florida. The 1st TD loan was for $63,157,000— once the off-balance sheet debt in the form of a future advance loan covenant was factored — catapulted the property to a 134% LTV, all fully documented in notarized filings. Again, a Reg D syndicator. Again, LP equity vaporized on day one whether actually or potentially as there was simply no good business reason to grant the almost new Braxton Waterleigh a provision allowing up to 200% of the principal amount of the loan. Again, a lender whose own government-approved underwriting guidelines explicitly forbid this.

Then there’s Bank of America, which in 2024 did something so reckless it would have made the subprime era blush. On Elevate on Main — a stabilized multifamily asset in Granger, Indiana — BofA issued a $72.5M second-position loan, Viking Capital the borrower. The original September 2021 ReadyCap first mortgage was $66.75M, leaving a total debt load of $139.25M. And yet, using a subcategory cap rate of 7.68%, the asset’s 2024 book value at the exact time of the funding of the BofA loan was $40,131,266.  If the ReadyCap loan remained outstanding (I could not find a release — though I often can’t find my car keys either), the result is a staggering 347% LTV. Even in a charitable “best case” scenario — ReadyCap fully released — the BofA loan alone represents an 183% LTV. BofA made this loan with full knowledge that the bubble had already popped as the asset had already deteriorated from the September 2021 purchase price of $88,777,500 (Viking Capital appears to have overpaid for this asset), to its three years later book value of $40,131,266.  Who’s going to stop them? LPs? Regulators? Heck, they're issuing them awards!

And if that isn’t enough, Merchants Bank — another government-approved lender —in August 2023 issued a $42,284,000 mortgage on 4600 Pinnacle Hills (Rogers, Arkansas). At the time of the loan the subcategory cap rate on the asset was 5.94% giving it a book value of $27.860,556 or an LTV 151% without the inclusion of a future advance. However, notarized loan documents on page 16 authorizes a debt structure that allows the loan balance to reach $84,568,000—or a 303.55% LTV—unparalleled levels, far beyond reasonable underwriting. In fact, Merchants Bank appears to be a serial future advance loan issuer as they have approved more future-advance loans on fully functional assets than any lender I’ve reviewed in the Reg D ecosystem. In nearly every case, the result is the same: LTV > 100%, in direct conflict with Fannie Mae underwriting standards.

Across all three examples, large, reputable lenders — fully aware they were lending to Reg D syndicators — approved structures that instantly removed all LP equity upon recording. These weren’t obscure borrowers. They were mainstream Reg D operators raising tens of millions from thousands of investors who were never informed about leverage, or debt bombs, or the existence of future-advance landmines buried outside the offering materials.

And yet, because the lenders involved are recognizable names — Bank of America, Merchants Bank, Greystone (and I could add Berkadia, NorthMarq, RREAF, and others) — regulators have treated these cases as isolated quirks rather than a structural failure.

These are not “oopsie” loans. They are part of a persistent pattern that too closely resembles the 2008 financial crisis only with apartments and self-storage facilities, not housing: Either by straight-up over-leveraging at origination (Bank of America / Viking Capital), or off-balance-sheet debt bombs disguised as future-advance covenants (Greystone, Merchants Bank).

In the above Greystone example, even after issuing loans that left two Reg D borrowers over-encumbered and LP investors effectively wiped out (examples can be readily multiplied), Fannie Mae responded not with scrutiny — but with an award--an equivalent to an underwriting award (operations). The justification is predictable: “most of Greystone’s loans comply with underwriting standards,” so the explosive anomalies get ignored, buried inside securitizations, never to be found.

But this logic fundamentally misunderstands the anatomy of catastrophic failure.

Forgive the analogy, but it captures the truth with uncomfortable clarity:

Serial killers lived “mostly peaceful” lives too. Ted Bundy and John Wayne Gacy were model citizens 95% of the time — jobs, neighbors, barbeques. It’s the other 5% that destroyed lives.

Lenders are no different in that.: A lender can issue 95% compliant loans and 5%-time bombs.

But if regulators ignore the bombs because the rest of the portfolio looks tidy, then LP investors — who trust government underwriting standards — become the victims.

When agency lenders violate their own LTV rules, when recognizable names quietly approve 102% to 204% leverage, and when borrower equity evaporates the instant the loan is issued, one conclusion becomes unavoidable:

Investor principal doesn’t just get hurt. It dies.