Chirimar says the same tools making lenders more efficient are making it easier to fabricate the documents they rely on
Private lending often carries more risk than conventional mortgage origination, with faster loan cycles, LLC borrowers rather than individuals, and lighter documentation requirements than agency lending. That combination has created an opening that artificial intelligence is now making easier to exploit.
The fraud is not coming from sophisticated criminal networks. It is coming from individual borrowers who realize that AI can generate a convincing appraisal, a plausible track record, or a new LLC with apparent history in minutes.
It is one of the reasons why the National Private Lenders Association (NPLA) created its watch list last year. With notable issues with bad actors in Baltimore and Philadelphia, among other places, the organization knew it had to arm its members with the best information it could to try to slow down those looking to defraud the system.
One CEO in the private lending technology space said the shift is accelerating faster than most lenders recognize, and that building systems capable of catching it before a bad loan closes is now a competitive requirement.
Sourabh Chirimar (pictured top), CEO of The Mortgage Office, said what he is seeing in private lending is not organized fraud but something more opportunistic and harder to catch.
"AI has made it very easy to gloss over things," Chirimar told Mortgage Professional America. "It's very easy to generate fraudulent documents. A lot of this market is lending to LLCs, and it's easy to just create a new LLC, fabricate a track record or an appraisal or anything. There's just a lot more cases of what I would call a micro level of fraud, where they don't have the document, so it's made up with AI."
Why private lending is targeted
Chirimar said the structural characteristics of the private lending market make it particularly vulnerable. The loans are short, typically six- to nine-month interest-only flip loans, which means due diligence windows are compressed, and borrowers are often newly formed LLCs with limited verifiable history.
He said the goal is to shift lenders from reactive to proactive risk management, flagging borrower distress signals across the broader data set before they show up in the lender's own portfolio. The fraud detection layer works similarly, allowing lenders with access to cross-portfolio data to identify patterns such as new LLCs with suspiciously similar documentation, appraisals that don't align with comparable sales data, or borrower histories that don't hold up against external records.
The stakes for getting this right are high, given that repeat borrowers are a major driver of revenue in private lending. Chirimar said lenders can see repeat rates as high as 65%, meaning a bad origination experience or a fraud loss is not just a one-time hit but a relationship that disappears.
Chirimar said the gap between lenders with those systems and those without is widening.
"The market is in a place where there's big opportunity for people who can build systems and understand scale and governance," he said. "And it's very rough for people who don't have any of that."
Keeping up with fraudsters
Chirimar said lenders are now asking more of their software than they were two years ago.
"It's not enough to have a workflow tool," he said. "It's not enough to have a tool which guides you through multiple steps of a process. Now you're expecting more from your software. You're expecting your software to give you insights as you are in the process."
Chirimar said The Mortgage Office's acquisition of SFR Analytics is a direct response to this dynamic. The combination gives the company a deeper data pool and the ability to surface early warning signals before a loan goes delinquent.
"You're servicing a massive portfolio of 1,000 loans, 2,000 loans," he said. "These are fast-paced, six- to nine-month interest-only flip loans. You need to know if your borrower is in trouble somewhere else immediately. You can't wait for your loan to be delinquent and then take action. You are already late to the game."
Approximately 15,000 private lenders operate in the United States, he said, and more than 10,000 of them make fewer than five loans per year. Most lack the systems or staffing to run sophisticated fraud detection, which makes them easy targets for borrowers who know how to exploit the gap.
Elevated interest rates have made the problem worse, with flip loans now harder to exit profitably and more pressure on borrowers at the back end of a deal to misrepresent things at origination. Institutional capital flowing into the market through securitization has raised the stakes further for lenders chasing that funding.
"Access to capital is easier, but then you need more governance, more systems to access that capital," he said. "The winners and losers are more stark now. If you get access to institutional capital, your cost of funds goes down, and you can win big. But if you can't, you're less competitive in the market."
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