Investor Property DSCR Loans: The Nonqualified Mortgage Exempt From Qualified Mortgage Rules

Debt Service Coverage Ratio (DSCR) and even non-DSCR ("no-ratio") loans have become increasingly abundant in nonqualified mortgage (non-QM) securitizations. These are investor property loans that are, in large part, underwritten with reference to the cash flows generated by the property rental income. Because these mortgages are secured by investor properties, they are usually exempt from QM/ability-to-repay (ATR) rules. However, "DSCR loans," as they are often called, are typically considered part of the non-QM loan sector because of their presence in non-QM transactions. Non-QM RMBS can be viewed as comprising several subsets: prior credit event (PCE), alternative income documentation (e.g., bank statement), foreign national, DSCR/no-ratio, and debt to income (DTI) ratio over 43%/prime jumbo fall-out loans. DSCR loans bear a resemblance

...August 27, 2019 Debt Service Coverage Ratio (DSCR) and even non-DSCR ("no-ratio") loans have become increasingly abundant in nonqualified mortgage (non-QM) securitizations. These are investor property loans that are, in large part, underwritten with reference to the cash flows generated by the property rental income. Because these mortgages are secured by investor properties, they are usually exempt from QM/ability-to-repay (ATR) rules. However, "DSCR loans," as they are often called, are typically considered part of the non-QM loan sector because of their presence in non-QM transactions. Non-QM RMBS can be viewed as comprising several subsets: prior credit event (PCE), alternative income documentation (e.g., bank statement), foreign national, DSCR/no-ratio, and debt to income (DTI) ratio over 43%/prime jumbo fall-out loans. DSCR loans bear a resemblance to the single-family rental (SFR) space, which gained popularity shortly after the financial crisis. Unlike SFR, however, the DSCR loan...

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