Morningstar Credit Ratings and Kroll Bond Rating Agency have assigned preliminary ratings to five classes of Colony American Homes 2014-1 mortgage pass-through certificates.
Morningstar Credit Ratings was the first rating agency to release a pre-sale report for the Colony American Homes 2014-1 securitization Wednesday. The full report can be viewed here.
Morningstar evaluated the property values of the Colony American Homes 2014-1 transaction using a Home Price Index method and a direct capitalization value method, the company’s statement says.
“For the HPI derived value, Morningstar applied an MSA-level property value discount assumption for each asset to determine the HPI stressed property value,” the report reads. “Given Morningstar’s view of the current housing cycle, it assumes no HPI appreciation for the regions in this portfolio in its ‘B’ (base case) scenario.”
Morningstar said that for an ‘A’ rating scenario, Morningstar assumes the HPI in these regions will experience their worst recorded percentage decline. The worst historical regional HPI decline is measured by the steepest peak to trough HPI percentage decline experienced during any housing cycle in the available data set.
Regional HPI data typically dates back to the 1970s at the MSA level. The weighted average percentage HPI decline applied to this portfolio for an ‘A’ scenario was 45.9%. For a security to survive an ‘AAA’ scenario, it would need to pass a more severe HPI stress.
Morningstar assumed a 1.3x multiple of the ‘A’ HPI curve in the ‘AAA’ scenario. The assumed HPI decline at the ‘AAA’ level resulted in a decline of 59.7% for this portfolio.
For Kroll, Colony American Homes 2014-1 is a securitization transaction that will be collateralized by a $513.6 million loan secured by mortgages on 3,399 income-producing single-family homes.
“Large-scale institutional ownership and management of single-family rental homes in the U.S. is a new business model,” Kroll’s report states. “As such, the model is unproven and there is little directly applicable data with respect to the credit performance of a large portfolio of SFR homes. KBRA accounts for this risk by applying relevant elements of its CMBS and RMBS methodologies and by using conservative assumptions with respect to default and liquidation risks, as described herein.”
Earlier Thursday Moody's Investors Service assigned provisional ratings to the Colony American Homes 2014-1 securitization.
Kroll said that the collateral for the transaction is a non-recourse, first lien, floating rate mortgage loan with a cut-off date principal balance of $513.6 million.
The loan will be originated by JPMorgan Chase Bank on the securitization closing date and funded with the proceeds from the sale of the certificates.
The loan is secured by the borrower’s fee simple interest in the portfolio of 3,399 single-family homes. The underlying properties consist of 3,399 one- to four-unit residential properties located in Arizona, California, Colorado, Georgia, Florida, Nevada and Texas.
In the Moody’s rating, Moody’s offered the largest tranche at $291 million, exceeding Moody’s first such rating on an REO deal, when it awarded a sterling Triple-A ratings to Invitation Homes' inaugural REO-to-rental in October 2013.
Kroll's full analysis and report can be read here.