In this episode of Private Lending Insights, I interviewed Jon Hornik, Managing Partner of Private Lender Law and President of the National Private Lenders Association (NPLA). They discuss the Baltimore DSCR fraud scheme that shook the private lending industry in 2025, affecting dozens of lenders and millions in loans. Jon explains how the scheme worked, who was impacted, and what the NPLA is doing to fight fraud and protect lenders — including a new watchlist database for bad actors and updated valuation best practices for DSCR loans.
Interview Summary
Jon Hornik explains how a group of investors in Baltimore manipulated valuations for rental properties — primarily through inflated appraisals on DSCR cash-out refinance loans — leading to tens of millions in potentially overstated collateral. The fraud exploited a depressed housing market by recycling properties among related parties at inflated prices, artificially creating market comps and misrepresenting equity positions.
As Jon notes, the issue wasn’t limited to one lender. Roughly a dozen lenders were affected, as the same borrowers obtained DSCR loans from multiple institutions. The total exposure across lenders was estimated around $160 million in loan balances, though actual losses remain uncertain until collateral is liquidated.
The conversation delves into how the problem was discovered — when a major institutional investor noticed inconsistencies in valuations and triggered loan repurchase clauses under their Master Loan Purchase Agreements (MLPAs). Jon also explains the legal and operational implications of these buybacks, emphasizing how even sophisticated lenders can be caught off guard by overvaluation schemes.
Despite the shock, Jon shares that demand for DSCR loans remains strong, with securitization spreads staying tight, suggesting investors still believe in the asset class. However, lenders are responding by tightening underwriting and valuation verification, with several major DSCR lenders now running independent secondary reviews on every appraisal.
To prevent future fraud, the NPLA is leading a two-pronged effort:
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Developing a new “NPLA Valuation Method” to standardize and improve appraisal review practices across lenders and investors.
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Launching a national watchlist database of “bad actors” — a shared resource among NPLA members that flags borrowers and entities who have been denied credit by institutional investors.
Jon emphasizes that while this particular scheme targeted DSCR loans, all lenders — including fix & flip and bridge lenders — should stay vigilant. Fraudsters tend to move from one product type to another, and awareness is the best defense.
Toward the end, Jon and Rocky discuss other emerging fraud cases, including title and deed theft scams in high-end markets, where properties are fraudulently transferred to shell entities to secure illicit loans. Jon outlines simple precautions lenders and investors can take, such as routine title checks and maintaining open liens to prevent property theft.
The episode closes with Jon’s message to the industry: collaboration and information-sharing are critical. Through initiatives like the NPLA Watchlist and standardized valuation methods, private lenders can collectively protect the integrity of the asset class — ensuring trust, transparency, and accountability across the industry.
Visit the NPLA’s website to learn more about the organization, and be sure to mention Lender Link or Private Lending Insights when you reach out.
News Articles
Check out these news articles to learn more about the Baltimore fraud case:
Realtor.com article published October 10, 2025
HousingWire article published October 10, 2025
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