Rising Borrowing Costs Threaten the Wall Street Party

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Alex Ossola (0:18)

Kimberly Guilfoyle resigns as ambassador to Greece after reporting from the journal that she had solicited money from a Trump donor. Plus, four of the country's biggest banks take off earning season with strong results.

Ben Glickman (0:30)

There's a lot to be very happy about if you're a bank CEO right now.

Alex Ossola (0:34)

Even as the mood on Wall Street is becoming more cautious.

And a new type of mortgage is helping investors buy homes in low-income areas. It's Tuesday, October 13th. I'm Alex Ossola for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today.

Kimberly Guilfoyle has resigned as US. Ambassador to Greece after the White House asked her to step down. Here's Katie Zachariah in her first briefing as White House press secretary this morning. We have asked Ambassador Guilfoyle to resign.

She has been a wonderful asset to the team and we wish her well. The move follows reporting from The Wall Street Journal that Guilfoyle had solicited $100,000 from a Trump donor in the run-up to her confirmation hearing last year. Guilfoyle's attorney disputed the authenticity of the messages but declined to provide specifics. When asked about Guilfoyle today, President Trump told reporters that he didn't like what he had read about her and hadn't spoken with her. In a post on X, Guilfoyle pushed back on the recent allegations against her and said that she intends to defend her name, reputation, and integrity. And in Education News, Cornell University has suspended parties at fraternity houses on campus for the rest of the academic year. The school is under scrutiny over rape allegations from a former student. The student's lawsuit filed in September has ignited a national conversation around sexual violence on college campuses. Cornell said today that it will help students develop quote safe social alternatives to the frat parties.

On the housing market, September home sale data brought some good news. According to the National Association of Realtors, last month home sales rose one and a half percent from the previous month. That's the first rise since May and easily beat analyst expectations. There's a couple caveats here though. August and September were still the two slowest months for home sales this year. In the September sales largely reflect contracts signed in July and August. Back then, mortgage rates were in the mid six percent range, but rates have now risen to nearly seven and a half percent, and the rise in mortgage rates has pushed many buyers out of the market. Speaking of mortgages, there's a new type of mortgage. It's meant for landlords, and it's enabling them to renovate properties that have been abandoned in parts of cities where banks once thought it was risky to lend. For more, I'm joined now by Nicholas Miller, who covers the housing market for the Journal. Nicholas, from a nuts and bolts perspective, how do these mortgages work and how are they different from a traditional mortgage?

Nicholas Miller (3:01)

The most important thing to understand is that a traditional mortgage is usually based on the earnings of the actual borrower.

But for this new kind of mortgage, which is called a Debt Service Coverage Ratio Loan, or DSCR, it's focused a lot more on the property itself and the potential rental income that that property can generate. In a lot of cases, proof of income for the actual borrower is not even a requirement. You don't need to submit pay stubs. And so it becomes a lot easier for investors who want to have a property that they can rent out to get a mortgage to do so.

Alex Ossola (3:38)

So in the past, lenders have been wary of offering mortgages in neighborhoods where income levels and property values are low. How does this kind of mortgage change that calculus for banks?

Nicholas Miller (3:48)

Banks have for a while been wary of loaning in distressed neighborhoods in cities like Baltimore and Cleveland and Detroit. Property values are low, income values are low, and when you're approving a mortgage, you look at both of those. A lot of times, you're not going to approve a mortgage for a kind of rundown property for someone that doesn't have a lot of income. The people that take out these DSCR mortgages primarily are investors. It's a loan particularly for landlords.

It has opened up a whole flow of people who previously were not really in real estate investment, but see this opportunity for this loan that's pretty easy to get, and it's relatively simple. For a lot of these investors, the advantage of the DSCR loan is that it takes away risk. And so that projects where before they renovated the home and just couldn't sell it, now they can refinance into this new kind of DSCR loan and become landlords. And that makes the math work on projects that otherwise it wouldn't have.