DSCR Loans Are Spreading Across America. But What Happens When We Don’t Know Who Owns the Risk?
A relatively obscure mortgage product has quietly become a significant force in the American housing market.
Debt-service-coverage-ratio, or DSCR, loans are increasingly being used by real estate investors to finance single-family rental properties. Unlike a conventional mortgage, which focuses heavily on the borrower’s personal income and ability to repay, a DSCR loan largely asks a different question:
Can the property itself generate enough rental income to cover the debt?
On the surface, that can make sense.
It can provide financing to investors who may not qualify for conventional mortgages, allow capital to reach properties and neighborhoods that traditional lenders have overlooked, and help expand the supply of rental housing.
But there is another question that deserves considerably more attention:
What happens when a financial product grows rapidly, is increasingly packaged and sold to investors, and its effects on individual communities are difficult to see until something goes wrong?
That is the question communities should be asking about DSCR lending.
This is no longer a niche product
The growth is difficult to ignore.
A recent HousingWire analysis found that combined DSCR and investor loan lock volume increased 130% between January 2022 and August 2026. DSCR and investor loans also increased their share of non-qualified mortgage (QM) production from approximately 22% in August 2022 to 35% in August 2026. Bank of America analysts now project non-QM originations of approximately $175 billion in 2026, with DSCR and investor loans driving much of that growth.
The Baltimore Banner reached a similar conclusion from a different perspective. Its analysis found that DSCR loans accounted for roughly one-fifth of new mortgages on single-family rental properties nationwide in 2024, representing more than $24 billion in lending, approximately $10 billion more than three years earlier.
And this isn’t simply a Baltimore story.
The Banner found that among the cities with the highest concentrations of DSCR lending between 2022 and 2024 were Philadelphia, Cleveland and Detroit, along with Baltimore.
HousingWire’s most recent reporting makes the national trend even clearer: despite the problems that emerged in Baltimore, DSCR lending has continued to expand.
In other words, Baltimore may have been an early warning, not necessarily an isolated event.
Baltimore provides the cautionary tale
Baltimore is where the discussion becomes much more tangible.
According to The Banner, a portfolio of more than 700 Baltimore homes was acquired and refinanced by a group of New York investors using more than $100 million in DSCR financing. Many of those properties subsequently ended up in foreclosure or bankruptcy proceedings. The Banner reported that numerous lenders collectively financed the investors and that the debt was subsequently sold to investment funds backed by major private equity firms and life insurers.
The story is complicated, and it is important not to blame the DSCR product itself for what happened.
HousingWire describes the Baltimore episode as involving alleged fraud and inflated property values, with more than half of the properties in the portfolio ultimately defaulting. The problem, therefore, wasn’t simply that investors used DSCR loans. Rather, the financing structure became part of a much larger scheme.
That distinction matters.
DSCR loans did not cause Baltimore’s problems. But Baltimore demonstrated how problems involving DSCR-financed properties can become very difficult to see until they have already become significant.
And that should concern communities.
Is this a positive development, or are we forgetting the past?
There is a legitimate argument in favor of DSCR lending.
Traditional mortgage underwriting isn’t necessarily designed for every type of real estate investor. A landlord may have substantial assets and a property that generates sufficient income, yet conventional income documentation may not accurately reflect the investor’s ability to repay.
DSCR lending addresses that disconnect.
It also comes at a time when rental housing is becoming an increasingly important part of the American housing landscape.
HousingWire recently reported that the growth of DSCR lending is closely connected to the broader trend toward rental housing, including the fact that high home prices and affordability challenges are pushing more households toward renting. One lender executive described DSCR lending as complementing the larger trend of rentals becoming a greater share of the housing market.
There is also growing evidence that investor participation in single-family housing is substantial.
Investors accounted for approximately 30% of U.S. single-family home purchases in 2025, according to Cotality data reported by HousingWire. Although the majority of investor activity comes from smaller investors rather than Wall Street-sized companies, the scale is significant.
The Government Accountability Office similarly found that institutional investors increased their holdings of single-family rental homes between 2018 and 2024 in each of the six metropolitan areas it studied.
So perhaps DSCR lending is simply providing the financing mechanism for a housing market that is increasingly oriented toward single-family rentals.
That could be a good thing.
But there is a second possibility.
Perhaps we are once again creating financial structures whose risks are difficult to see at the local level.
That is where the lessons of 2008 should remain relevant.
The lesson isn’t “DSCR equals 2008”
It would be irresponsible to suggest that DSCR lending is the next subprime mortgage crisis.
It isn’t.
Today’s mortgage market is fundamentally different in important ways, and DSCR loans are not the same product as the mortgages that fueled the 2007–2009 housing collapse.
But the lesson of the last housing crisis wasn’t simply that one particular type of mortgage was dangerous.
One of the lessons was that risk can become much harder to understand when financial products become increasingly complex, ownership becomes increasingly distant from the underlying asset, and the people closest to the consequences don’t have visibility into the larger financial structure.
That is precisely why DSCR lending deserves attention.
A property may be owned by an LLC.
The LLC may be controlled by an investor in another state.
The mortgage may be held by a private lender.
The loan may subsequently be sold or securitized.
The ultimate investor may be a fund, insurer or other financial institution.
And the municipality responsible for dealing with the property may simply see a house.
That disconnect is important.
Because when everything works, the structure may be largely invisible.
When something goes wrong, it can become very visible to the neighborhood.
The single-family rental connection makes this even more important
The growth of DSCR lending is occurring at the same time that single-family rental housing is becoming an increasingly important part of the housing market.
The number of single-family rental properties is enormous, and the ownership structure is fragmented. The Congressional Research Service notes that most single-family rental investors are still relatively small investors rather than large institutional owners. At the same time, institutional ownership can be highly concentrated in particular markets and neighborhoods.
That concentration is particularly important for local governments.
A national percentage may look relatively small.
But a neighborhood doesn’t experience the national percentage.
It experiences the properties on its block.
And if a particular neighborhood has a significant concentration of investor-owned rental properties, and some of those properties are financed through increasingly complex private-credit structures, the municipality may eventually have to deal with the consequences of delinquency, foreclosure, vacancy, deferred maintenance or abandonment.
The question then becomes:
Does the municipality know which properties are rentals, who is responsible for them, and how to contact that responsible party?
This is where rental registries become more important, not less
There is a tendency to think of rental registries as an administrative requirement: register the property, identify the owner, collect a fee and move on.
That misses the larger value.
As the ownership and financing of single-family homes become more complicated, local governments need better visibility into their own housing stock.
A strong rental registry can provide a community with basic information that becomes particularly valuable when a property changes hands, an ownership entity changes, a property becomes distressed, or the person receiving the mortgage statement is thousands of miles away.
The registry doesn’t need to know the details of the underlying mortgage.
It doesn’t need to know whether the property was financed through a DSCR loan.
It simply needs to answer fundamental questions:
Who owns this property?
Who is responsible for it?
Who is the local contact?
Is it occupied?
Is it being maintained?
And if something goes wrong, who can the municipality contact?
Those questions become increasingly important as more single-family homes function as investment properties.
We shouldn’t wait for the foreclosure to find out
The most important lesson from Baltimore may not be about DSCR lending at all.
It may be about visibility.
By the time a municipality discovers that a property has become vacant, neglected or abandoned, the financial problems behind it may have been developing for months.
A mortgage default doesn’t begin when the grass becomes overgrown.
A property doesn’t become distressed when the windows are boarded.
And a foreclosure doesn’t begin when the foreclosure notice arrives.
There is often a much longer chain of events occurring behind the scenes.
As private credit, investor ownership and single-family rentals continue to grow, communities should not assume that they will automatically have visibility into that chain.
They should build the local infrastructure necessary to understand their housing inventory before a problem emerges.
The great unknown
There is still much we don’t know about the long-term effects of the rapid expansion of DSCR lending.
Will it provide much-needed capital to neighborhoods that traditional financial institutions have overlooked?
Will it help expand the supply of professionally maintained rental housing?
Will it give smaller investors a responsible path into rental-property ownership?
Or will aggressive lending, rising property values, concentrated investment and increasingly complicated financial structures create problems that aren’t apparent until the underlying properties begin to deteriorate?
The answer may ultimately be some combination of all of these.
What we do know is that DSCR lending is no longer a niche financial product. It is growing rapidly, it is increasingly connected to the single-family rental market, and it is being used across communities throughout the country.
That doesn’t mean a crisis is coming.
But it does mean communities should be paying attention.
The lesson from the last housing crisis wasn’t that every new financial product is dangerous.
It was that we should be very careful when something grows rapidly while the people who will ultimately deal with the consequences have little visibility into what is happening.
For local governments, that makes something as basic as a strong rental registry more important than ever.