Dontae Carroll had a neighborhood picked out when he got the call from his mortgage broker.
Forget it, Carroll recalled the broker saying in June. Baltimore is off limits.
The 51-year-old Baltimore native has worked in real estate for 25 years and owns a handful of investment homes and a small share in an apartment building.
This March, he purchased a house with something called a debt service coverage ratio, or DSCR, loan, that he rents out to young adults in Northeast Baltimore.
Carroll, a Charles County resident, had hoped to finance another purchase this spring. But it would take almost five more months to make it happen.
Wall Street had turned off the spigot in Baltimore, drying up much of the private lending activity in the city.
“I want to invest in Baltimore,” Carroll said in July, “but we literally can’t, given what’s going on.”
DSCR lending had grown into a major source of money in Baltimore over the last few years. Then a spring wave of DSCR-tied foreclosures began raining down.
Court documents and property records link the portfolio, comprising at least 704 homes, to a handful of buyers from New York who leaned heavily on DSCR loans to grow their Baltimore footprint.
A review of property records by The Banner found that numerous lenders from across the country collectively lent more than $100 million to the New York investors. DSCR-backed financing allowed them to buy hundreds of homes rapidly and at above-market high prices.
In turn, the lenders sold their loans to funds managed by some of the world’s largest private equity firms and life insurers. Now, many of the homes underpinning that debt are in foreclosure or caught up in bankruptcy proceedings. That means the lenders and private equity funds who own these DSCR loans likely won’t get repaid in full — and could lose tens of millions of dollars.
Despite pricey sales, the New Yorkers’ properties show few signs of improvement
Less than a third of the portfolio has received a construction permit since at least 2019, and less than a quarter has paid a water bill this year. Most of the properties are clustered in the wings of the “Black Butterfly” — a term coined by Morgan State University researcher Lawrence T. Brown to describe the majority-Black regions that fan out on either side of the city, where residents have historically been denied access to capital.
(since 2019)
paid (2025)
Majority-Black Census tracts
At least five Wall Street-backed financiers blacklisted the buyers, as well as some of their associates and affiliated entities, and paused lending starting this spring.
None of the blacklisted buyers or their associates responded to repeated requests for comment.
As the dust settles, industry observers have called for tighter restrictions on private lending, which operates outside of traditional banks and regulations. Others have said that the loan product has been wrongly cited as a cause of the collapse — rather than a casualty.
Pete Mills, a senior vice president at the Mortgage Bankers Association, called the situation in Baltimore “a sophisticated scheme” in which buyers worked with appraisers and title companies to intentionally skirt reporting requirements and keep lenders in the dark.
“It is important to make clear that this was real estate fraud, not mortgage fraud,” Mills said in a statement. He alleged that both lenders and tenants whose homes are in foreclosure had been harmed.
DSCR loans have fewer restrictions than traditional home loans, but Mills said the loan is not to blame for the situation in Baltimore; instead, it’s bad actors who manipulated the lending process.
Lenders, he also noted, brought the situation when it came to light to regulators, media and law enforcement.
DSCR loans have no “obvious flags,” said Vadim Elenev, associate professor of finance at the Johns Hopkins Carey Business School.
Provided the underwriting is done well, Elenev said, it can be a sound strategy for spurring more growth in a community where cash flow is otherwise negligible.
“In theory, there’s no obvious problem with the product itself,” he said. Real estate typically involves some gambling, he added, “and it sounds like this one didn’t pay off for these folks.”
Tammy Hawley, a spokeswoman for the Baltimore Department of Housing and Community Development, called the situation with the New York investors an “egregious example of a select few individuals operating as bad actors in our city’s real estate market and taking advantage of residents throughout Baltimore.”
She said city attorneys were examining the bankrupt entities “for possible involvement in appraisal fraud” and were looking for other violations such as operating without proper licenses and permits.
“Where possible,” she added, “we will seek to hold them accountable.”
Prior to the Wall Street freeze, DSCR loans were helping funnel more cash into Baltimore, according to a Banner analysis of national home mortgage data. Financial analysts who conducted a study of the Baltimore market earlier this year believed private loan products played a role over the last few years in the steady decline of vacant and abandoned properties in some of the city’s most blighted neighborhoods.
DSCR loans went from contributing roughly 10% of loan dollars backing single-family rental properties in Baltimore in 2019 to about 40%, more than $150 million, last year, according to a Banner analysis of national home mortgage data.
In Carroll’s case, he saw the loan product as an easier alternative than one he could access from a conventional lender. Those mortgages, he said, usually take longer to get. And Carroll liked that with a DSCR loan the borrowing requirements weren’t as onerous.
DSCR loans, Carroll added, can help investors access nicer quality houses than they otherwise would be able to afford.
He has two adult children who live in Baltimore and said he wants to see the city attract more renters and homeowners who can plant roots and choose from a variety of housing options.
City and state leaders have a 15-year vacant housing reduction plan, which includes spending $3 billion in public funds to leverage another $5 billion in private funds.
In a statement, Maryland housing Secretary Jake Day, who chairs the Baltimore Vacants Reinvestment Council that is overseeing the initiative, said the “predatory scheme” wouldn’t deter the council from its vision, and isn’t representative of the overall Baltimore housing market.
It’s unclear how long Baltimore’s lending freeze will last and to what extent it will return.
Carroll, the investor, found a lender later this summer who agreed to award him a DSCR loan for a house in the same neighborhood he originally set his sights on. He is expected to close on it this month.
As a Baltimore booster, Carroll said, the hurdles are worth it. It’s not just about the money.
It’s about the “double bottom line,” he said. “Do good, be good.”
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