So what's going on with RTL these days? Housing continues to look very attractive for private credit investors relative to commercial real estate, which has its own challenges of cap rates relative to corporate credit.
They continues to remain very strong demand for housing assets. People need a place to live. Rates have remained high and obviously affordability is an issue,
but in a non QM space, that has opened up more credit to more borrowers, more credit to those that weren't able to access credit before.
Correct. And DSCR happens to fall in that category. It's a business purpose loan that focuses primarily on the cash flows or the rental cash flows of those properties.
Why do they mix DSCR loans with non QM loans and the same securitization? Or why do they mix it from the get go, it's a broadening of credit. How is that achieved?
Is alternative forms of documentation that the borrower can have. It can be a bank statement loan, a debt service coverage ratio loan, it can be an asset-based mortgage? Borrower for A-D-S-C-R loan is generally a landlord
or real estate investor, whereas a non QM loan is a consumer, for a borrower that is not meeting agency qualification, using those alternative forms of documentation like the bank statement loan. But those two are mixed together in one securitization because for investors, that collateral performs similarly. But you could still have investor properties in the form
of a bank statement loan or investor properties in the form of other non QM loans that are not a DSCR loan.
So for the product for that consumer DSCR loans, what makes them attractive is pretty similar to other products. It's mortgage-related, so there's always hard assets. It tends to be a little more defensive than some other products for investors. But I would say it performs well, it offers stable cash flows, it offers good yields. But in a fixed rate environment, there are also, for some investors, they prefer longer term fixed rate assets, if they're liability matched. So some of these insurance companies, especially life insurers, prefer longer term assets.
A standard consumer or non QM mortgage today. Believing that most borrowers that have refinanced in the past year could potentially refinance in the next year or two is a little too high of a risk for them to take versus a loan that can potentially have a prepayment penalty for the first three to five years.
I, I think one of the other main things that's happening with DSCR is that it used to be primarily in the business purpose lending space that's offering the product.
It has now sort of jumped the fence over to the consumer mortgage world, where you have loan officers, you have consumer mortgage brokers that are now being trained on the DSCR product. It's a very different underwrite,
a very different type of borrower. I think part of what's driving it is, uh, it can theoretically be a formulaic underwrite. You've got the cashflow of the property, valuation of the property, the borrower's credit and you make the
Loan. It's perfectly fine if ultimately the values hold up and you know that to the extent that a loan goes bad, you can still recover your loan.
Right.
