How Guru Culture is Blowing Up DSCR Investors

For years, the mortgage industry's default explanation for investor distress has been that rates went up, cash flow disappeared & deals stopped penciling. But one non-QM veteran told me Friday that the real problem starts much earlier —> on YouTube, in mastermind groups & across the ever-expanding universe of real estate influencers promising financial freedom through leverage. The BRRRR bullshit, if you will.

In today’s edition of The Mortgage Scoop, we’ll share details on how real people suffer consequences when DSCR advice coming from coaches/influencers on those platforms is wrong.

Also in today’s edition: A proposal to offer zero-down FHA mortgages to millions of renters, a detailed guide on how to navigate Fannie & Freddie’s new AI rules, some new tech for the country’s top LO & much more. Much of this edition is just for paid subscribers. Click here for a 10% discount, & thanks as always for the support. It means the world to me!

A new report from the Urban Institute argues that the FHA could safely offer zero-down-payment mortgages to FTHBs, opening the door to homeownership for millions of renters.

The study argues that down payments – not credit scores or income – remain the single largest barrier for renters. Using CFPB survey data, researchers found that eliminating the down payment requirement could nearly double the share of renters who are financially capable of purchasing a home. Approximately 7.7M renters are already positioned to buy a home under current standards. Removing the down payment hurdle could add another 6.5M households to that pool.

The report pushes back against the narrative that borrowers need significant skin in the game to avoid defaulting. Authors Alexei Alexandrov, Laurie Goodman, Ted Tozer & Sam Valverde looked at FHFA data & found that credit scores are far more predictive of default than down payment size. Borrowers w/ very high loan-to-value ratios performed only modestly worse than those who made small down payments, while low credit scores were associated w/ dramatically higher delinquency rates.

Researchers have found that mortgage defaults are generally driven by income disruptions, job losses & surprise expenses rather than borrowers strategically walking away from homes b/c of low equity positions. No surprise there.

To limit risk, Urban recommends restricting any FHA zero-down-payment program to FTHBs & requiring stronger borrower profiles. The authors suggest limiting eligibility to borrowers w/ credit scores above 700, or borrowers w/ scores above 660 who can document at least 24 months of on-time rent payments or maintain substantial cash reserves.

They also proposed a modest increase in upfront MIP to offset the risk associated w/ zero-down loans. Researchers estimate that a 25- to 35 bps increase would likely be sufficient to keep the FHA insurance fund whole. As of FY2025, the MMI Fund was worth $188.9B, w/ a capital ratio of 11.47%. 

I gotta say, even w/ double-digit delinquencies on FHA loans, I don’t hate the proposal. The MMI Fund is massive – maybe we should use it?

One of the key tools in the RIF playbook is killing WFH. And the new edict to require all CFPB staffers to work out of a new office in D.C. appears to be a stealth RIF. Per Bloomberg’s Evan Weinberger, the four-part return-to-office plan begins June 1. The roughly 650 employees within 50 miles of the capital will be required to return by July 13, w/ the remaining 450 back by Aug. 31. The only problem? The new office only has room for 550 CFPB staffers…

CrossCountry Mortgage’s planned acquisition of Two Harbors could fall through from the looks of it. Two Harbors’ board postponed its shareholder vote to June 11, suggesting they didn’t have the votes. Will the top retail lender up the bid again? Uhh, maybe not? “This represents the highest premium paid for a mortgage REIT,” CCM said shortly after the vote was delayed again. “CCM will not pursue a deal at all costs; there are other strategic alternatives available.”

It would be very interesting if UWM ended up winning in the end, particularly given its stock price, which is down to $3.12 a share…

As you know, Fannie & Freddie recently created some pretty serious AI governance rules. Not guidelines, rules! They’ve been in effect for Freddie since March 3 but Fannie’s will follow on Aug. 6. Karthik Kumar at LendArch put together a super-detailed brief covering the full requirement landscape, a framework comparison, a phased readiness road map that applies to both lenders & tech vendors. He was kind enough to share it w/ The Scoop & its readers.