Industry leaders also have tips for brokers on how to keep lenders happy after your deal closes
While there has been an increased focus on mortgage fraud in conventional lending spaces, private lenders are working to eliminate fraud from their lending space. The NPLA announced that it will create a “bad actors list” to identify and excommunicate those defrauding the industry.
The announcement was made by Jonathan Hornik (pictured top left), founding member and owner of the National Private Lenders Association (NPLA), at the organization’s recent event in Atlantic City.
He discussed the topic with a panel of industry leaders, including Alex Offutt (pictured top center), CEO of Business Purpose Capital, and Ben Fertig (pictured top right), president of Constructive Capital.
“The biggest threat to the private lending space is fraud,” Hornik said. “As a philosophy, you must align yourself with your capital provider. You are an extension of your capital provider. That’s who all these money guys want to do business with.
“If you are changing your borrower’s package to meet guidelines. If you’re submitting false balance sheets, false bank statements. If you’re lying on applications for your borrower, you are threatening your entire business and relationships.”
To identify those causing issues in the industry, the NPLA will compile a list of individuals committing fraud and circulate it among its members. They hope to have the list ready to go by September.
“The NPLA is making a bad actors list,” Hornik said. “It will include brokers, lenders, lawyers, and title companies. It will include bad appraisers who are giving bad values. This list will be available to all members of the NPLA. So, if you get on this list, I’m pretty sure your liquidity is going to shut down.”
Important to follow up on deals
While fraud is a sure way to end up off the list of potential lenders in the private lending space, the panelists also mentioned brokers who send bad deals to lenders. Offutt emphasized the importance of brokers following up after closing to ensure clients are making their mortgage payments.
“It’s not just about the deal itself at the point of origination,” Offutt said. “You can have bad docs, whatever. Ongoing performance is also important. Any broker or lender, it’s not just about firing and forgetting when it comes to doing a deal. You need to stay on top of your clients and stay in contact with them.
“You could be 12 months, 18 months down the road from having done a deal. That borrower could go south, and you know that could also reflect poorly.”
Hornik agreed that ensuring past customers follow through on their mortgages is vital to ensure that the lender will want to do business with them in the future.
“It’s not just when they close the loan and you guys fund it,” Hornik said. “It’s the performance over a lifetime. You may think you’re done with something for two years, and you may get a call back going, ‘Hey, do you know what’s going on with this borrower?’ And you’ll be like, ‘What are you talking about? I sold it two years ago.’ I’m done with that deal, but (the lender) is not done with it, which means you’re not done with it.”
He noted that some of the issues could be related to the way the loan was underwritten, but it could also be someone trying to defraud the lender.
“Every broker, every originator should be underwriting as if they’re going to hold the loan the entire time themselves on their balance sheet,” Hornik said. “And that’s hard to do when there are bad actors in the space who are funding everything right now.”
Bad actors in the lending space
Fertig notes that there are also lenders with a higher risk tolerance than others, and he doesn’t blame a broker for exploring those options, especially on challenging loan files.
“I think it’s a broker’s job to be able to place a deal with an appropriate capital source,” Fertig said. “And I think some of those capital sources may have a higher risk tolerance or a higher risk profile. That’s okay, right? Maybe cash out is okay if it’s priced right, it’s planned for, and it’s reserved for correctly.”
However, Fertig notes that there are some issues with lenders operating in riskier loans that should raise red flags for mortgage brokers.
“The bigger issue that I think is broad within the industry is the practices that are inside of some of these risk profiles,” Fertig said. “So if there’s a lender out there and they want to write cash out, they want to use three months seasoning for appraisal, and they price for that. And they’re expecting the issues you’re going to have when it comes to performance with those types of profiles is one thing.
“When the practices that underlie all of that lack integrity, that’s where we’re seeing the problems. That’s where we’re seeing the losses. That’s where you’re seeing the secondary market come back and say, ‘Wait a minute. Are the right controls in place here?’”
Because non-QM and private lending allow for more types of income verification and company structure, Fertig said extra diligence is essential to keep an eye out for mortgage fraud.
Mortgage fraud risk has significantly increased year-over-year, despite leveling out recently, according to Cotality. Matt Seguin, Senior Principal of Fraud Solutions at Cotality, links higher interest rates to a rise in transaction-related fraud. https://t.co/uQy6MYWEhP
— Mortgage Professional America Magazine (@MPAMagazineUS) July 1, 2025
“A lot of these operating agreements aren’t recorded,” he said. “We’re lending to LLCs. There is a way to play around there. We’ve seen the playing around with bank statements. I think it’s more some of these lenders who are overtly, quite frankly, turning their heads to the integrity of the credit processes and practice. If you’re doing business with them, you’re impacting the market broadly.”
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