Moody’s Investors Service today published a request for comment on its new ratings methodology for single-family home rental securitizations.
Moody’s has tracked developments for this asset class closely and in 2012 published a report on the potential operational risks associated with the nascent asset class. Nevertheless, it rated the first securitization of mortgages on single-family rentals, Blackstone’s Invitation Homes 2013-SFR, assigning 'Aaa' to the senior tranche of the deal in November 2013.
Moody’s said that its ratings approach will “not center on the transaction's rental cash flow to meet its long-term obligations.” Instead, it will focus on the liquidation value of the homes under a heavily stressed scenario.
“To account for a scenario in which the securitization trust must sell all or a substantial portion of the portfolio in a distressed market, we apply a substantial home price depreciation factor, considering historical price movements, forecasts of future prices, the diversity of the pool, and the expertise of the manager,” said Moody’s Managing Director Navneet Agarwal in a press release today.
Moody’s will also conduct “a rigorous evaluation of the sponsor’s operational ability, property manager, servicers and other third parties, as well as the transaction’s structural and legal framework.”
“The sponsor and the property manager are both in positions to preserve the value of the collateral,” said Agarwal. “We will evaluate the sponsor’s financial capacity and flexibility, as well as the property manager’s expertise in managing single-family properties.”
The ratings agency said that it expects the asset class to be boosted by the improving U.S. economy, as rising interest rates and house prices are likely making purchase a home too expensive for some.