Executive discusses how DSCR loans are helping boost the investor market
The growth of debt service coverage ratio (DSCR) loans has been no secret across the mortgage industry, with even conventional lenders offering the product now.
It continues to be a strong option in the non-QM space, and it’s being used on a wide range of projects. One area that is finally starting to see an increase again is residential transitional loans (RTLs) or fix-and-flip loans.
Ben Fertig (pictured top), president of Constructive Capital, discussed the topic at a recent American Association of Private Lenders (AAPL) event.
Fertig told Mortgage Professional America why there has been this push to move toward DSCR loans, both in private lending and even in companies like Rocket Mortgage.
“DSCR has proven itself as a repeatable, scalable product because it aligns clean underwriting with capital markets expectations,” Fertig told MPA. “That consistency creates durability across market cycles and supports long‑term growth.”
RTL market starting to pick up
The RTL market struggled during the pandemic when refinances, extensions, and payment moratoriums prevented many properties from becoming delinquent. Without properties going to foreclosure, there weren’t any cheap properties to pick up to fix and flip.
Those more normal conditions are starting to return to the market. TransUnion noted recently that delinquencies are creeping back up close to pre-COVID levels. Satyan Merchant, SVP of auto and mortgage business leader at TransUnion, said he wasn’t sure what levels were normal, but was sure the current market is a lot closer to that point.
“I think it's always hard to identify what is normal,” Merchant told Mortgage Professional America. “It's never normal. But I think that probably a good contextual number is the 60-day delinquency rate between 2005 and 2019. The lowest in that time was 1.64%, and today we're below that.
“In the pandemic period, when consumers were flush with cash, with government assistance, where there were repayment programs and accommodations, delinquency rates got to less than 1%. I don't know what is normal, but I would be comfortable saying that was abnormal.”
Fertig sees things changing in the RTL market to reflect that increase in distressed inventory and foreclosures.
“I think if you look at some of the macro pressure that's just been on RTL in general, post-COVID macro factors like the supply compression, you've seen that loosen up a little bit through 2025,” Fertig said. “I think the distressed inventory was still somewhat suppressed up until recently. There's finally some foreclosure inventory coming online, maybe from November through now.”
Because there are fewer foreclosures on the market, finding the right opportunities is more difficult. However, that’s starting to change.
“It's much harder to target acquisitions than it was,” Fertig said. “Now I think with the supply constraints, obviously, it puts some pressure on the market overall. There are other things, relative to the COVID hangover, that have impacted RTL, not the least of which is just inflation in the cost of getting projects done.
“We'll see how labor scarcity and those types of things may be more current work through the system. Even with the foreclosure moratoriums, there was a hangover from those. Now you see more foreclosure supply coming on the market.”
Fertig said they are seeing some growth in RTL projects through DSCR loans as more advanced borrowers find opportunities on the market.
“We generally have done extremely high concentrations of DSCR loans relative to RTL,” he said. “Over the last six months, our footprint in RTL is growing. We’ve got a matrix that goes from a super-experienced borrower, sophisticated borrower, all the way to somebody who's done no projects. But where we're seeing the uptick in volume is the more sophisticated borrower, higher loan amount, thin margin guy. We think that there's very little walk-away risk there.”
DSCR taking pressure off deals
Another reason that DSCR loans continue to grow in popularity is that they can reduce some of the effects of supply pressures.
“That supply compression, that really adds pressure, there's like a diminution of that pressure when it comes to DSCR,” Fertig said. “The acquisition point doesn't have to be that sharp. And you can go and acquire a property that the underlying borrower is planning on holding, and you can get into it at a level of financing and fix that financing later.”
Lenders are seeing opportunities to continue profiting from these loans for years to come as clients pay prepayment penalties and refinance to higher rates.
“I think that's one of the things that you see in the DSCR loans versus maybe RTL, even with prepayment penalties, which are appropriate and prevalent for these products, you know you're seeing multiple bites out of the apple on the same property paying mortgage servicing rights for a long time,” Fertig said.
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