7% rates? New tech helps LOs pivot to DSCR investor loans

Even as some are expressing concerns about the performance of debt service coverage ratio mortgages, several lenders announced product expansion.

This is a signal that the demand is in place, especially as even mega-investors are stepping back for non-owner occupied real estate purchase, local buyers are filling the void, a recent Cotality report pointed out.

With this week's industry surveys from both the Mortgage Bankers Association and Freddie Mac putting the conforming 30-year fixed rate loan over 7%, potential home purchasers could stay on the sidelines. To make up some of the business, originators could target the investor market, if they have the product set.

Previously, Carrington Mortgage Services enhanced its non-qualified Flexible Advantage mortgage offerings, adding eligibility to both experienced and first-time real estate investors who might not fit into what Carrington called "traditional" debt service coverage ratio criteria.

Separately, Truss Financial, which had been a broker specializing in non-QM, is making the switch to being a direct lender of these loans, including DSCR.

Here are some of the other happenings when it comes to debt service coverage ratio products:

The best states for investor business depends on goals

AD Mortgage released a study on real estate opportunities for investors by state, but it segregated the list into three different opportunities: growth, income and fundamentals.

For mortgage brokers, wholesaler AD said the findings provide a starting point for more focused conversations with their investor clients about topics like acquisition timing, property availability, rents, vacancy, taxes and insurance.

"The data shows why investors shouldn't simply ask, 'What's the best state to invest in?'" said Max Slyusarchuk, CEO of AD Mortgage, in a press release. "A market that looks attractive for growth can look very different when the goal is rental income or long-term stability. The real opportunity is in matching the market to the investor's strategy."

Among the findings, Mississippi and West Virginia have the highest statewide rent-to-home-value proxies, at 6.37% and 6.20%, respectively. But neither were in the Income top 10.

Similarly, Idaho, was first for Income and second for Growth, but 40th for Fundamental Investors. North Dakota leads in fundamentals while ranking 45th for growth and 49th for income.

Pre-underwriting to help LOs originate investor loans

Friday Harbor, which offers artificial intelligence pre-underwriting technology, has expanded its capabilities for investor loans, including DSCR, as well as asset-based and fix-and-flip.

The move comes a month after it did the same for non-qualified bank statement and jumbo mortgage programs.

This technology reviews the borrower's leases, appraisal-based rent schedules, property information, borrower and entity documentation and other deal details and compares them with applicable program guidelines.

"DSCR loans can be a great opportunity for lenders, but they are difficult to scale when only a small number of people in the organization know how to structure them," said Theo Ellis, founder and CEO of Friday Harbor in a press release. "By putting that expertise in originators' hands earlier, Friday Harbor gives more of them the confidence to evaluate these deals, work through questions and compete for a growing share of the market."

Clear Capital updates the rental AVM platform

Clear Capital, which provides real estate valuation technology, has updated its Rental AVM technology. The enhancement gives lenders an alternative to the traditional Single-Family Comparable Rent Schedule, also known as Form 1007, as well as manual rent analysis.

Rental AVM returns a market rent estimate and comparables in less than a second, Clear Capital said, versus the five days it would take for a full appraisal or filling out a Form 1007. The product supports rental income analysis for non-primary residences and DSCR loan prequalification.

The system covers 105 million properties nationwide, with Clear Capital adding on an ongoing basis.

"Rental AVM gives lenders a consistent, model-governed rent estimate they can act on immediately, whether they're qualifying a loan, underwriting a file, or evaluating a portfolio," said Erica Vigen, product director, analytics at Clear Capital. "By providing certainty upfront for the borrower, Rental AVM enables loan officers and brokers to close more deals, quickly and confidently."

Velocity Financial buying Toorak's BPL platform

In August, Velocity Financial entered into an agreement to buy the operating platform of Toorak Capital, which is majority-owned by affiliates of KKR.

Toorak's BPL products offerings include DSCR or long-term rental residential property loans. It also does short-term single-family and multifamily residential transition loans, as well as ground-up construction loans.

Toorak has also entered into separate agreements with a third-party investment firm to purchase its existing portfolio of business-purpose loans totaling approximately $3 billion in unpaid principal balance. Velocity will also enter into an agreement with the third-party investment firm to manage the portfolio, as well as agreements to sell future Toorak loan production to this investor as well as other counterparties.

The deals are still pending. They have a total value of approximately $3.2 billion based on Toorak's consolidated balance sheet as of June 30.

For Velocity, it significantly expands the RTL and DSCR products and adds a direct retail origination channel.

When the deal is completed, Toorak will maintain its existing brands across its respective lending segments, including the Merchants brand, and will continue to be led by CEO John Beacham and the current management team. Beacham will also become an executive vice president of Velocity Commercial Capital. Toorak will become a subsidiary of VCC.

"When we founded Toorak in 2016, our thesis was that residential real estate investors were underserved by institutional capital," Beacham said in a press release. Over $20 billion in loans later, that thesis has been proven."