Baltimore’s Bad Loans Jolt Wall Street’s Mortgage Hustle

Private mortgage lenders — long the backstop for flippers and small landlords — are suddenly in the spotlight for all the wrong reasons.

A cluster of inflated appraisals in Baltimore has spooked originators and rattled investors, raising alarms that Wall Street’s fast-growing bet on “fix-and-flip” lending may be sitting on shakier ground than expected, Bloomberg reported.

Fueled by capital from KKR, Apollo and even Singapore sovereign wealth fund Temasek Holdings, the niche has exploded into a $140 billion business, packaging short-term investor loans into securities snapped up by pensions, insurers and hedge funds.

The Baltimore episode shows how fragile the system can be. Unlike conventional mortgages, these loans hinge on a property’s projected rent roll or resale value, making appraisals. When numbers get juiced, the risk ricochets fast.

Investment startup Kiavi and other lenders are already pulling back from Baltimore originations, while others are raising rates or capping leverage. Local borrowers are getting squeezed: small landlords say short-term financing is harder to roll over, deals are falling apart at closing and buyers are exploiting the uncertainty to renegotiate prices.

The shake-up underscores how institutional money has transformed what used to be a hands-on, niche trade.

“When you’re doing 40 loans a year you can visit all the properties,” said Jon Hornik of the National Private Lenders Association. “It’s become programmatic and institutional.”

The fallout isn’t confined to Charm City. KKR-backed Toorak Capital recently sued a Beverly Hills lender over an alleged “sophisticated scam” involving duplicate loan sales, while industry players are now floating watchlists and “red flag reports” to weed out suspect appraisers, title firms and borrowers.

For real estate investors, the lesson is blunt: the private lending machine that has juiced flipper profits and fueled housing churn is also a potential pressure point in the broader capital stack. If one midsize market like Baltimore can trigger caution, others could follow, especially as higher rates and volatile valuations test underwriting discipline.

— Holden Walter-Warner