EAST CLEVELAND, Ohio—A relatively new mortgage product is helping real estate investors rehabilitate vacant and deteriorating homes in economically distressed neighborhoods across the country, but concerns about fraud and foreclosures are raising questions about the lending model.
According to The Wall Street Journal, debt-service coverage ratio (DSCR) loans, which emerged in the mid-2010s, are attracting investors to neighborhoods in Cleveland, Baltimore, Detroit, Indianapolis and Memphis that have struggled for decades to secure conventional mortgage financing.
Unlike traditional mortgages, which evaluate borrowers’ credit scores, income and debt obligations, DSCR loans are approved primarily based on a property’s value and anticipated rental income. Borrowers often are not required to document personal income.
The financing has enabled investors to purchase inexpensive properties, renovate them and convert them into rentals.
“On every street, there’s somebody working on a house,” Florida investor Ashleigh Wilson, who renovates properties in East Cleveland, told the Journal.
A New Financing Option
The loans also provide an alternative for investors unable to sell renovated properties.
Rather than relying on short-term construction financing, investors can refinance into 30-year DSCR mortgages and retain properties as rentals, particularly in neighborhoods where rental demand exceeds homebuyer demand.
The Journal reported that the financing has contributed to increased renovation activity and declining vacancies.
Baltimore, for example, has reduced its vacant housing inventory by 30% since 2019. Detroit and Cleveland also have experienced declines.
Baltimore’s former housing commissioner, Michael Braverman, told the Journal that private investment has driven much of the improvement.
Fraud and Foreclosure Concerns
The rapid growth of DSCR lending has also exposed weaknesses in underwriting practices.
The Journal reported that investors in Baltimore allegedly obtained mortgages based on inflated property valuations, withdrew cash and made few improvements before defaulting.
A similar alleged scheme emerged in Philadelphia.
The resulting foreclosures have threatened neighborhood revitalization efforts and prompted some lenders to withdraw from those markets.
According to private lending data provider Forecasa, private lending in Baltimore has declined 40% so far this year compared with the same period in 2025.
Signs of Revitalization
Despite those concerns, investors continue rehabilitating abandoned properties.
In Memphis’ Orange Mound neighborhood, investor Raymond Porter purchased an abandoned house for $79,000, spent $20,000 renovating it and rented it for $1,400 monthly.
He subsequently obtained a $110,000 DSCR mortgage, recovering capital for additional investments.
Community leaders told the Journal that while concerns remain about investors profiting from struggling neighborhoods, renovations are helping reverse years of deterioration and attracting former residents back to their communities.
