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Fix-and-flip loans became 30-year mortgages
Escaping the new rules
In the early 2010s, Eric Abramovich, who used to run a hedge fund, met a private lender in the New York area who financed fix-and-flip investors, people who buy old homes, repair them, and resell them for a profit. Those loans counted as business-type loans, so they were exempt from most of the new post-crisis regulations, and traditional banks were not making them. The private lenders who filled the gap were small, often people lending their own money or money pooled from friends and family.
Wall Street comes in
Abramovich realized there were hundreds, if not thousands, of such lenders across the country making loans to mom-and-pop real estate investors. His company, ROC360, set out to connect Main Street to Wall Street, and money from pension funds, insurance companies, and sovereign wealth funds began flowing into the fix-and-flip market and supersized it.
Loans get longer
The first of these loans were short-term, since it should not take more than a year or two to fix and flip a home. As more Wall Street money arrived, private lenders could offer 30-year mortgages, and they saw a much bigger market in landlords. These longer loans came to be called DSCR loans, and his company started making them around 2018. They were very popular: lenders could charge higher interest rates than on a traditional mortgage, and landlords no longer had to bring a W-2 or prove years of income history. In 2021, lenders originated about $20 billion worth of them, and in 2025 that more than doubled to about $50 billion.
How does pension fund money become a mortgage?
Loans are pooled and packaged into bonds, a process called securitization, and institutional investors buy those bonds. Payments from borrowers pass through to the bondholders. This gives small lenders a way to sell the loans they have made and lend again with the cash. Private-label securitization shrank sharply after 2008 and has since rebuilt for loan types outside the government-backed system.
Why do insurers and pension funds want long loans?
Life insurers and pension funds owe payments decades into the future, so they look for assets that pay out over similar time spans. A 30-year loan produces steady interest payments across that period. A one-year flip loan returns its money quickly and has to be replaced. This pairing of long-dated assets with long-dated obligations is known as asset-liability matching.
Why do lenders prefer landlords to flippers?
A flip loan is repaid when the house sells, usually within a year or two. A rental loan stays outstanding for as long as the landlord keeps the property, which can mean decades of interest. Around 2012, large investors began buying foreclosed single-family homes in bulk to rent, which built a large single-family rental business. That business gave lenders a growing pool of borrowers who held houses rather than sold them.
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