REO-to-rental model becomes 'hottest' emerging asset class

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Panelists at the American Securitization Forum in Las Vegas offered a securitization market outlook for 2013, noting that overall assets types are expected to perform well this year.

However, the one asset [3] class that is going to make its mark as the "hottest emerging asset class" is the REO-to-rental model, said Thomas Hiner, a partner with the firm of Hunton & Williams. 

Rental demand [4] is expected to increase by 6.6 million units through 2016, with about 4.2 million new renters expanding the marketplace.

Many factors will spur rental housing growth, including the large supply of housing inventory that is now transitioning into the rental space. In addition, large institutional grade investors are interested in the single-family rental sector, said Jim Warren, chief marketing officer of FirstService Residential Realty.

However, Hiner said challenges will loom in the REO-to-rental sector. Some of those include having to get comfortable with property management, understanding the rental-asset class as substantially different from traditional mortgage servicing and knowing how to structure the assets.

Still, these are minor challenges that can be resolved if handled properly, Warren assured. 

Another asset class in the securitization market that is expected to improve is the nonagency residential mortgage-backed securities space. 

Claire Mezzanotte, head of global structured finance at Dominion Bond Rating Service, said growth will not happen until the back-end of 2013 with the market still getting used to new regulations, including the qualified mortgage rule, QRM and Dodd-Frank's risk-retention provision.

Still, the non-agency RMBS sector is projected to issue between $14 billion and $18 billion in RMBS for the year, with prime jumbos being the main contributor.

More issuance in 2013 will partly be a result of two distinctive factors: continued housing improvements and new capital rules, said Gagan Singh, executive vice president and chief investment officer for PNC Bank  ($71.32 -0.19%) [5].

While two issuers have dominated [6] the nonagency RMBS sector -- Redwood Trust  ($21.19 -0.2599%) [7] and Credit Suisse  ($30.19 -0.07%) [8]-- smaller issuers, including non-bank investors, are expected to significantly participate in these assets in 2013, said Peter Sack, managing director of securitized products at Credit Suisse. 

cmlynski@housingwire.com [9]