DSCR loans are booming amid fragmented underwriting standards

Investors are asking more questions than they used to about debt-service-coverage ratio (DSCR) loans, a surging segment of the mortgage market that operates outside government-backed parameters.“We’re having to do more explaining about how we think about the underwrite, how we arrived at the value, or just changes to our policies,” Charles Goodwin, vice president and head of bridge and DSCR lending at Kiavi, said in an interview with HousingWire. “It’s more collaborative in that way, but those questions have not translated into less demand or much of a higher premium at all.”The heightened scrutiny comes roughly a year after a fraud scheme came to light in Baltimore, where a group reportedly purchased hundreds of homes — predominantly in majority-Black neighborhoods — at heavily inflated prices. The deals were financed by hundreds of millions of dollars in DSCR loans from dozens of private lenders and more than half of them ultimately defaulted.While the Baltimore case left a bruise, it hasn’t derailed the national growth trajectory of the DSCR market. Tailor-made for real estate investors, these loans bypass the need for W-2 forms, pay stubs or personal income verification. Instea...