The REO-to-rental model is not only creating new opportunities for investors, the emergence prompted servicer Green River Capital to launch a component division to protect investors moving into this unique space. 

The need for a servicing component to support deals backed by payments tied to rental properties was obvious to Green River Capital. More institutional investors are financing these transactions. 

Lorenz Schwartz, chief operating officer of Green River Capital, told HousingWire that risk is that renters have no skin in the game, creating a more complex financial transaction, with a different set of needs.

"We are now seeing institutions enter to finance these transactions. Never before have institutions financed large pools of properties where the loans are secured by the realty's (payment) stream," said Schwartz. "It creates an entirely new need in the marketplace for collateral and credit underwriting."

Green River said its component servicing division will provide collateral underwriting, property and market level due diligence and transaction management services. The product offerings include title searches, title curative activities, escrow administration and repair oversight.

The company, at the moment, provides these services on 4,000 properties each month.

But underwriting a deal that is backed by rental cash flow comes with additional risk, which is why Green River Capital has created a model that surveys investor risk by analyzing "the location of the property and the quality of the property relative to the competition," Schwartz added. 

kpanchuk@housingwire.com