In the 29th episode of the Private Lending Insights Podcast, I interviewed Kevin Kim, Partner at Fortra Law and one of the leading securities attorneys advising private lenders and mortgage fund managers. We discussed rising defaults, increasing competition, and key risks facing private lenders in 2026. We also talk about a mortgage fund in Northern California that recently collapsed, what investors should look for, and why transparency, third-party administration, and audited financials are becoming essential. Kevin shares insights on distressed debt opportunities and how lenders are adapting as the market evolves.
Interview Summary
In this episode of Private Lending Insights, Rocky Butani interviews Kevin Kim, founder of Fortra Law and one of the most well-known attorneys in the private lending industry. The conversation focuses on several major trends affecting private lenders today, including rising default rates in certain markets, the increasing competitiveness of the lending landscape, and the operational and regulatory risks associated with mortgage funds.
Kevin works closely with private lenders across the country on fund formation, compliance, and regulatory matters, giving him a unique vantage point into the challenges lenders and fund managers are currently facing. Throughout the discussion, he shares insights into how the market has evolved over the past several years and what lenders should be thinking about as the industry moves forward.
Rising Defaults in Certain Markets
One of the first topics discussed in the episode is the recent increase in loan defaults across parts of the private lending market. While defaults remained historically low for several years, Kevin notes that lenders are now starting to see stress in certain regions.
Texas in particular has experienced notable value declines in some markets, which has created challenges for lenders and borrowers alike.
- Home values in certain Texas markets have reportedly fallen by as much as 25%
- Higher leverage loans are now more vulnerable to being underwater
- Longer days on market make it harder for borrowers to sell properties quickly
- Lenders are increasingly taking properties back through foreclosure
- Workout scenarios appear less common than direct foreclosures in many cases
Kevin emphasizes that while defaults are rising, they are still manageable for most lenders. However, the trend is a reminder that private lending is ultimately tied to real estate market conditions.
Competition in the Lending Market
Another major theme discussed is the growing competitiveness within the private lending industry. Over the past several years, many institutional lenders have entered the space, offering competitive pricing and large loan volumes.
This has created challenges for smaller lenders who may struggle to compete with the scale and capital advantages of large national platforms.
Some of the dynamics shaping today’s market include:
- Institutional lenders capturing more market share
- Smaller lenders needing to adapt their business models
- Increased leverage being offered to win deals
- More lenders expanding into new states to grow loan volume
- A growing focus on construction lending as a new opportunity
Kevin explains that many lenders are shifting toward ground-up construction financing because the supply of traditional fix-and-flip opportunities remains constrained.
Fraud Risks and Industry Response
The private lending industry has also faced several high-profile fraud cases in recent years. According to Kevin, the industry reacted quickly once those schemes became widely known. Many lenders have tightened their underwriting processes and strengthened vendor oversight to reduce the risk of fraudulent transactions.
- More rigorous borrower verification and KYC procedures
- Closer monitoring of vendors involved in loan transactions
- Improved due diligence for lenders purchasing loans from originators
- Greater focus on verifying borrower identity and use of proceeds
Kevin notes that new regulatory rules will likely reinforce these practices and push lenders toward stronger compliance standards.
Mortgage Funds vs. “Private Credit”
Another interesting topic discussed in the episode is the growing use of the term “private credit.” In recent years, many mortgage funds have adopted this label as private credit investing became increasingly popular among institutional investors. However, Kevin explains that mortgage lending funds differ significantly from other types of private credit strategies. Key distinctions include:
- Mortgage funds are secured by real estate collateral
- Corporate private credit often relies on business cash flow instead of hard assets
- Real estate loans are typically evaluated based on property value rather than borrower income
- Risk profiles between the two sectors can differ significantly
Because of these differences, Kevin believes mortgage funds should clearly communicate how their investment strategy differs from broader private credit markets.
Lessons from Mortgage Fund Failures
The episode also examines the collapse of Pacific Private Money, a long-running private lending broker and mortgage fund manager that had operated for many years before encountering serious problems. Kevin explains that fund failures rarely happen simply because of loan losses. Instead, they are more often the result of operational issues or poor decisions by the fund sponsor. Common factors that can contribute to fund problems include:
- Lack of transparency with investors
- Failure to disclose material information
- Improper transactions between affiliated entities
- Attempts by sponsors to “fix” problems without investor disclosure
- Operational weaknesses in accounting or fund administration
He emphasizes that transparency is critical when managing investor capital. Attempting to hide problems or delay disclosure can ultimately make situations worse.
Best Practices for Mortgage Fund Transparency
Kevin also outlines several best practices that mortgage fund managers should adopt to build investor trust and maintain strong governance. These include:
- Annual audited financial statements
- Quarterly portfolio reports for investors
- Clear disclosure of defaults and problem loans
- Transparent communication about portfolio performance
- Open channels for investor questions and updates
Regular reporting and transparency help investors understand how the fund is performing and reduce the risk of misunderstandings during difficult periods.
The Importance of Third-Party Fund Administration
Another key recommendation Kevin discusses is the use of third-party fund administrators. These independent firms handle the accounting and financial management of the fund, helping ensure accuracy and compliance. Responsibilities typically include:
- Maintaining the fund’s profit-and-loss statements
- Monitoring expenses and fee calculations
- Calculating investor distributions
- Preparing financial records for audits and tax filings
- Ensuring accounting standards are properly followed
According to Kevin, having an independent accounting firm managing the fund’s books adds credibility and helps reassure investors that the financial reporting is accurate.
Evaluating Mortgage Fund Investments
For investors evaluating mortgage funds, Kevin suggests focusing on operational quality rather than marketing claims. Important due-diligence questions include:
- Who is the fund’s auditor?
- Is there a third-party fund administrator?
- What is the lender’s historical default rate?
- What is the lender’s loan track record?
- How transparent is the sponsor with investors?
These factors can reveal much more about a fund’s stability than superficial characteristics like investor portals or marketing materials.
Why Lenders Create Multiple Funds
The conversation also explores why many lending companies operate multiple funds. In many cases, separate funds are created to serve different strategies or investor preferences. Examples include:
- Separate funds for residential and commercial loans
- Geographic specialization by region
- Distressed debt investment strategies
- Leveraged versus unleveraged funds
- Funds designed for specific large institutional investors
Kevin explains that having multiple funds can make sense when each vehicle has a clearly defined purpose and proper disclosures are provided to investors.
Emerging Strategies in Mortgage Funds
One of the newer trends Kevin is seeing is the rise of distressed-loan strategies. As defaults increase in certain markets, some lenders are launching funds designed specifically to acquire or restructure troubled loans. These strategies can include:
- Purchasing non-performing loans
- Providing rescue financing for distressed borrowers
- Buying discounted debt from lenders
- Acquiring properties through foreclosure
While these strategies carry higher risk, they can also produce attractive returns when executed properly.
Industry Education and Conferences
Toward the end of the episode, Kevin also discusses the Fortra Private Lending Conferences held twice each year. These events bring together lenders, investors, service providers, and borrowers for networking and educational sessions focused on the private lending industry. The conferences typically feature:
- Educational panels covering lending and compliance topics
- Networking opportunities with lenders and investors
- Presentations from industry leaders and borrowers
- Discussions about market trends and lending strategies
These events have become a popular gathering point for professionals in the private lending space.
Key Takeaways
Overall, the episode provides a detailed look at the evolving challenges within private lending and mortgage fund management. Some of the most important takeaways include:
- Default rates are beginning to rise in certain markets, particularly where property values have declined
- The lending landscape is becoming increasingly competitive as institutional lenders gain market share
- Fraud risks remain a concern, but lenders have improved their processes to mitigate them
- Mortgage funds must prioritize transparency, disclosure, and investor communication
- Third-party fund administrators and audited financials are becoming industry best practices
- New opportunities are emerging in distressed loan strategies
For private lenders, fund managers, and investors, this conversation offers valuable insights into how the industry is evolving and the steps necessary to operate responsibly in an increasingly sophisticated market.
Visit Fortra Law‘s profile to learn about their services, watch some short videos and contact them directly.
Connect with Kevin Kim on LinkedIn.
