These are probably hard money lenders, which are regulated by the state rather than the federal government. When they do their job right the investor’s risks are a little higher but not excessively so; and the returns are pretty good. The maximum 50% Loan to Value (LTV) ratios and higher interest rates on those loans are pretty common.
Where the potential problem may be here is that the “V” part of the LTVs are critical to the security of the investments. If the original appraisals are overstated or the market is declining to the point that it’s increasing the LTV then it also increases the investor’s risks. For that reason these hard money lenders need a good appraisal more than even the biggest banks.
If these lenders are engaged in a ponzi-type operation that would also cause these kinds of problems. From the article it looks as if both problems are occurring.