I think "not correct" is unfair.
The comment's audience was people who are unfamiliar with the effect of financing on market rents. To that end, I left out some nuance and caveats.
I appreciate your expansion on my statement though: "The bank doesn't want that either, as long as the payments are coming in on time."
But Debt Service Coverage Ratio (DSCR) looks at Net Operating Income, not just the collateral property's rents.
DSCR is recalculated at intervals based on the lender's policy.
That policy varies from bank to bank.
All banks' policies are examined by regulators, so it's not as though banks can totally ignore DSCR, but there are ways to mitigate policy exceptions that range from business as-usual to "Extend and Pretend"[1] that's been common since the Federal Reserve rapidly raised rates in 2022.
I appreciate your expansion on my statement though: "The bank doesn't want that either, as long as the payments are coming in on time."
But Debt Service Coverage Ratio (DSCR) looks at Net Operating Income, not just the collateral property's rents. DSCR is recalculated at intervals based on the lender's policy. That policy varies from bank to bank.
All banks' policies are examined by regulators, so it's not as though banks can totally ignore DSCR, but there are ways to mitigate policy exceptions that range from business as-usual to "Extend and Pretend"[1] that's been common since the Federal Reserve rapidly raised rates in 2022.
1: https://www.loopnet.com/learn/why-extend-and-pretend-may-be-...