Nearly one-fifth of all U.S. single-family homes are owned by real estate investors. The vast majority of those investor-owned units — nearly 90% — are owned by people with fewer than five properties in their portfolio.

“One to two properties is a huge percentage of that even,” says Ben Fertig, president of Constructive Capital, one of the country’s largest wholesale capital providers for business-purpose residential loans — i.e., home loans for real estate investors.

“Four or less,” Fertig tells Scotsman Guide, “that is the biggest cohort, and those are all perfect opportunities.”

The nonconforming share of mortgages — loans ineligible for purchase by Fannie Mae or Freddie Mac, including non-qualifying mortgages (non-QM) and investor loan products like debt-service coverage ratio (DSCR) loans and residential transition loans (RTLs) used for fix-and-flip and ground-up construction — has grown in 2025 amid declining volumes overall.

Diversification for brokers

Though investor loans like DSCRs and RTLs are business purpose and therefore distinct from non-QM, “nonconforming” often implies to both.

According to Optimal Blue, a mortgage capital markets platform, nonconforming loan share rose to 17.3% of all originations in August. The conforming loan share was 51% and the share of loans backed by the government through the Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture totaled 31.8%.

Nonconforming loan share was 0.5% higher than July’s 16.8% and 4.92% higher year over year. Investor loans comprised 28.5% of nonconforming originations, while owner-occupied non-QM originations comprised the remaining 71.5%. A recent report by the real estate market analytics firm BatchData says investors provide stabilization in the market.

“Without this investor participation, many markets would face severe illiquidity and potentially destabilizing price volatility,” the report reads. “With traditional buyers sidelined by financing constraints that doubled monthly payments compared to recent norms, investors provide critical liquidity in an otherwise constrained market.”

Fertig agrees but is helpless to explain why a larger share of mortgage brokers raised on conforming paper do not pivot to pitching investor products. The distributed nature of today’s investor purchase base — 87% of home investors hold fewer than five properties — means “Joe” around the corner or “Belinda” next door is any mortgage broker’s next deal.

With total home sales projected to end 2025 near 2024’s three-decade-low levels, and mortgage rates forecast to remain above 6% in 2026, transaction volumes are likely to remain subdued for the next few quarters, putting the squeeze on originators only chasing owner-occupied business. Those pressures may motivate brokers to diversify.

“I do think that you’re going to see this liquidity landscape that is focused on credit and valuation be very robust,” Fertig says, noting investor appetites. “I think that there’s going to be a lot of money chasing the right profile of DSCR loans for sure.”

Surging DSCR demand

Max Slyusarchuk, founder and CEO of AD Mortgage, a lender specializing in non-QM and investor products, presents Scotsman Guide with an even more bullish outlook.

Normalization of the longest yield curve inversion in U.S. history — when short-term rates on 2-year Treasury bonds were higher than long-term rates on 10-year Treasurys from July 2022 to October 2024 — has provided much-needed stability for private capital.

“That’s why you see more movement, more securitizations, more private label securities in the market,” explains Slyusarchuk. “We see more money deployment right now.”

Investor share declined from a six-year peak of 32% of single-family home purchases in January 2025 to 29% by the end of June, according to Cotality, a real estate market analytics firm.

Since the pandemic, the investor share of total home sales has remained above historical norms as owner-occupied transaction volumes have fallen and investors who are less sensitive to high home prices and mortgage rates have remained active buyers. Affordability constraints on typical homebuyers led renter households to grow by 2.6% in the second quarter as homeowner households slipped 0.1%.

Investor share typically oscillated between 15% and 20% prior to 2020 — but in the second quarter of 2025, despite robust sidelined owner-occupied demand, one-third of home sales still went to investors.

On the capital markets side, securitizations are teeming with investors eager to add highly rated DSCR loans to their portfolio, through whole loan strategies or by purchasing into private pools.

A big fish entering a small pond, Pennymac launched into non-QM and investor lending in September across its delegated, non-delegated and broker channels.

“We think there’s significant demand from our corresponding clients,” Alex Boand, the managing director of correspondent group sales at Pennymac, tells Scotsman Guide. He expects 2025 volumes to equal or exceed 2024’s $80 billion, adding that “the suite of products we designed should play into about half of that market.”

Declining conforming volumes and strong performance of non-QM and investor pools have made these securities increasingly palatable to institutional capital, AD Mortgage’s Slyusarchuk believes, but since the pandemic, any demand for RTLs has swung in favor of DSCRs significantly.

“It’s way less RTLs than four years ago because prices are not there. You’re buying a home, you’re renovating it, there’s very limited amount of money you can extract,” he says. “All these shifted to DSCR because DSCR parameters are less strict and RTL interest rates, in order to satisfy financing, have to be so high.”

Next year, now

The “huge gap” between private-label securitization markets (non-agency) and agency securitizations backed by Fannie Mae and Freddie Mac promises consistent growth for the private capital providers lining up to finance bridging this gap.

“It’s jumbo, it’s investor, it’s non-QM,” Slyusarchuk says, underscoring the importance of market stability to capital providers. “It should triple every year. The amount of private-label securities should triple next year.” Investors prefer the term “non-agency” to “private-label.”

Robert Greenberg, chief strategy officer at Ternus, a Charlotte, N.C.-based startup mortgage lender serving real estate investors only, has been doing annual sales projections recently. The former director of lender finance at Lima One Capital has been surprised to see softening for RTLs industry-wide given projections for lower interest rates ahead.

“I’m very bullish long term about the DSCR product,” he says, but a lot of lenders have been “off” on RTL projections. With a two-year anniversary around the corner, Ternus is closing in on 300 total loans, but “feeling the pinch” in September as sales slow on seasonal trends.

“Most of our business is RTL right now,” says Greenberg, “but we definitely are planning for a pretty significant amount of growth to come from the DSCR side,” on account of Ternus being a start-up — and DSCR is easy money. For a shop that got off the ground with an RTL-heavy business plan and a balance sheet to boot, DSCRs can be a lifeline.

Next year is already here for the investors Ternus works with, as demand creates a market for any buyer to participate.

“There’s less to pick from, but their money is not on the sideline. If they can get a deal to pencil, they’re still willing to do a deal,” Greenberg adds, “and their appetite for deals is growing right now. We’re typically doing a six-month loan, not a 12-month loan. They expect that by the time they get the property ready and on the market in four months, the market’s going to be strong enough to support the value they’ve given them.”