Single-family rental bonds are here to stay

ABS East panel: Asset class will continue to grow

The REO-to-rental securitization market, which has grown quickly in the last year, is only going to get bigger, panelists at ABS East said Monday.

Since Invitation Homes launched the first REO-to-rental securitization in October 2013, there have been nine additional similar securitizations from different companies, including American Residential Properties (ARPI), Silver Bay RealtyProgress Residential, and American Homes 4 Rent.

In August, American Residential Properties launched its first REO-to-rental securitization. The $342.67 million offering was backed by 2,880 single-family rental homes.

Several weeks before that, Silver Bay Realty launched its first securitization, a $312.67 million offering, supported by 3,089 single-family homes.

And in late July, Invitation Homes brought its third REO-to-rental securitization to market. The offering, Invitation Homes 2014-SFR2, was collateralized by a single $720 million loan secured by the mortgages of 3,750 single-family rental properties.

HousingWire magazine covered the market's growth at length and in detail in November 2013 and November 2012.

And during a panel today on single-family rental securitizations moderated by Ron Tarantino, vice president at Credit Suisse, the gathered panelists all agreed that the asset class is here to stay.

Joining Tarantino on the panel were Beth O’Brien, president of Colony American Finance; Ryan Stark, managing director at Deutsche Bank; Brian Grow, managing director of RMBS at Morningstar Credit Ratings; Mark Michael, managing director at Bank of America Merrill Lynch; Eric Thompson, managing director at Kroll Bond Rating Agency; and John Gibson, principal at PWC.

“Current conditions bode well for the future of the rental market,” Michael said, citing the difficulty that first-time buyers have obtaining credit and the crush of student loan debt as impediments to homeownership.

“The rental space is becoming institutionalized,” Stark said. “Despite the big names coming on the scene, the vast majority of this business is local businesses, the mom and pop shops. But a year ago, at this conference, I was asked what we’d do in REO-to-rental RMBS business in 2014. I said there’d be $5 billion and we already hit that one with the last deal (from Progress Residential).”

Progress Residential joined the REO-to-rental securitization market just a few weeks ago when it brought a $473.4 million deal to market. The offering was backed by a single loan secured by a first priority of mortgages on 3,142 income-producing single-family rental properties.

Stark said he anticipates the vast majority of the unsecuritized homes to be securitized in the coming years in one way or another. “Over time, you’ll probably see a couple different flavors (of SFR RMBS), where you see the large loans pooled together and the small ones pooled together,” Stark said.

The two panelists from ratings agencies said that their methodology is continually evolving with the new asset class.

“We learned a lot from the first Invitation Homes transaction,” Grow said. “The structures of these deals have evolved since these securitizations began. We have spent a lot of time monitoring these deals.”

Thompson said that that the market has “huge potential,” but there is still work to be done on developing the asset class and the appropriate ratings methodology.

But all the panelists agreed that the asset class is here to stay.

“The demand for these types of loans is very, very encouraging,” O’Brien said. “This isn’t quite as new as it sounds.”

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