The single-family rental securitization market appears to be benefiting from the improving housing market and favorable demographics, according to a Moody's Investors Service report.
Markets benefiting from a "rapid rise in home prices" also have large populations of young adults under the age of 34 who are more likely to rent, according to Moody's. In addition, rising prices make buying a home less affordable for new households and mortgage credit is tight for "borrowers with a checkered credit history," the report says.
Meanwhile, the vacancy rate for SFR properties has declined over the past three years as the number of rental properties has risen.
The "Single-Family Rental Securitizations" report says SFR securitizations are typically backed by a single loan tied to a special purpose vehicle that will own a portfolio of single-family rental properties.
"Because the rental stream by itself does not pay down much of the balance of the issued securities, we place more reliance on the potential sale proceeds of the underlying properties," Moody's says.
In case of an issuer default, "the special servicer has broad latitude to maximize cash flow to investors."
The rating agency also notes that the liquidation process for SFR securitizations has some advantages over residential MBS. The foreclosure process is "much more streamlined" since the properties are grouped under a single loan in each county, the report says. In addition, since they are considered commercial properties as opposed to consumer properties foreclosures tend "to move through the courts more quickly."
Initially, institutional buyers preferred markets in non-judicial foreclosure states because the foreclosure process is quicker. Now these buyers are attracted to judicial foreclosure states like Florida that still have high foreclosure rates. "Tampa, Jacksonville and Lakeland are regions with sound economic prospects and a high number of distressed homes," Moody's says.