How property managers gauge local employment conditions in areas where they rent out distressed properties will be one of the key determinations to future risk ratings on the securitized cash flow, according to Fitch Ratings.

"While many of the more notable states, such as California, Florida, Arizona, and Nevada, have a significant volume of distressed and REO inventory, investment decisions are more driven by local employment conditions and neighborhood desirability," according to a report released by the credit ratings firm Tuesday.

Estimates on the shadow inventory of homes on the verge of foreclosure vary between 1.5 million and 5.65 million, depending on the severity of the delinquency. Fitch analysts said there are roughly 2.4 million homes backing mortgages 60 days or more delinquent or already in REO.

Renting out these properties could narrow the inventory gap and gives already recovering house prices a boost. A Federal Housing Finance Agency rental program received a lot investor demand. Fitch said it received "numerous inquiries" on the potential to securitize the cash flow from these properties and sell the bonds to investors.

Fitch will also take into consideration historical data on a rental market, including vacancy rates and the operating history of a property management firm. Most of these companies do not have a proven track record of operating well during a down cycle, the ratings agency said.

"This concern is further heightened by ambitious growth strategies by regional operators looking to expand their portfolios rapidly over the near term, which will make it unlikely that Fitch will consider high investment-grade ratings for initial (single-family rental) transactions," Fitch said.

There remain other hurdles. Morningstar Credit Ratings recently said it would be very difficult predicting REO timelines, which can vary greatly even within states.

Still, the private-label mortgage bond market continues to remain dormant aside from a handful of deals pieced together since the crisis. Fitch said previous investors in these securities are becoming more interested in financing single-family rental properties.

"Investors, lenders, and government agencies have initiated or are in the process of developing an institutional single-family rental market," according to the Fitch report.