ABS Vegas: What analysts say you must know about REO-to-Rental
It's a new asset class and you don't want to get burned
During the course of the ABS Vegas conference this week, James Grady, director and bond manager for Deutsche Bank Asset Management, spoke about the new REO-to-Rental asset, which is gaining popularity and some pusback from concerned lawmakers.
Grady said he didn’t see a lot of reservations among investors on this new asset class, and almost half of attendees polled said that they saw REO-to-Rental as the area of strongest growth among new securitization options.
But ratings analysts say they are treading cautiously with REO-to-Rental, and they are adopting specific criteria for making them more comfortable.
"We started looking at this asset class over the last two years and there are multiple risks we highlighted. It’s an operations business – how the multiple properties are managed determines performance," said Kruti Muni, senior vice president forMoody’s Investors Service. "You have to see if they have the technology to manage these properties efficiently. That’s what it takes to get comfortable with the single family assets."
Kevin Dwyer, senior vice president for Morningstar Credit Ratings, said a lot of it is about evaluating the management company.
"For us to feel comfortable with single family assets there is the initial fact that they may have to liquidate the property. But the seven-year time frame got us comfortable with that. We don’t have to worry about them having to sell all the properties in six months. They have time to work it out," Dwyer said. "The next step is there have to be policies and procedures in place to make sure it’s a real company and not two guys with a phone. You have to ensure they have the technology and ability to communicate to institutionalize (this)."
Asked if there was a single technology for his REO wish list, he said he could see some technology currently used in CMBS, but above all there would be communications.
"Anything to enhance investor communications and reporting," Dwyer said. "It’s a matter of getting people comfortable with the asset class."