With the private-label RMBS market currently stalled and the number of foreclosed homes and distressed borrowers at or close to record highs, Fitch Ratings said that investor, lender, and government agency interest is “clearly strong” for converting single-family real-estate-owned (REO) inventory into rental properties and securitizing the cash flow streams.
Fitch said today that it believes that REO-to-rental securitizations might have “some staying power,” although the product is still evolving from its current infant stage.
Also, in response to the many inquiries it received, the rating agency enumerated what it considers the key risks associated with the securitization of single-family rental properties (SFRs).
“The SFR product may provide an alternative investment opportunity to non-agency buyers while offering families displaced by foreclosure a comparable alternative,” said Suzanne Mistretta, a Fitch senior director.
Noting the lack of performance data, Fitch said that it will be using reliable data obtained from independent sources for determining rental prices, vacancy rates, supply and demand information, and other pricing fundamentals.
However, Mistretta warned that ‘the lack of historical data and ambitious growth strategies by regional operators will make high investment grade ratings on these transactions difficult to attain.”