Yesterday was the first full day of the annual ABS East conference in Miami.
Not unexpectedly, there was a lot of discussion — and hand wringing — about all the new regulations and how this might curtail investors’ appetite to provide capital for mortgage finance, given the elevated level of uncertainty. Interestingly, when the inevitable question of how much longer it would take before the private label securities market returns, the mood of the attendees, much like the stormy weather here in Miami, turned dark and foreboding.
Maybe there are so many things that need to be fixed that it’s hard to see how the market will return any time soon.
But rather than rehash all that is still wrong with the market, I’ve decided to concentrate on something that is going right, and creating a fair amount of excitement.
In my panel discussion on trends in the housing market, we discussed at length the structural shift towards rental housing.
The homeowner ship rate has fallen recently and all the panelists agreed that it seemed unlikely to return to its prior peak any time soon.
So fewer homeowners means more renting, and particularly more renting of single-family homes.
Oliver Chang of Sylvan Road Capital was excited about an expected multi-owner single family rental (SFR) security that is likely to be issued later this year or early next year.
What’s a multi-owner SFR security you ask?
The institutional investors now, in addition to buying homes directly (though at a much slower pace), have decided to lend money to individual investors to help them buy or refinance SFR.
If you pool together the rental income from a bunch of single-family houses being rented by a multitude of small non-institutional investors, you can structure a security much like the SFR securities that have been issued by institutional investors. The major difference, instead of one loan to a single, giant investor, this security will backed by loans to multiple, smaller investors.
This is very exciting!
Not because I’m a mortgage finance geek but because this is actually much like the private label MBS of old.
Traditional private label MBS were structured by pooling together the mortgage loans collateralized by homes from a multitude of, often subprime, homeowners. The small distinction here is rather than lending to the homeowner one is lending to the investor.
There’s still an income stream, in this case rental payments instead of mortgage payments, and the collateral is still single-family houses. But now the houses are occupied by renters, not owners. Ironically, today’s renter may well have been an owner in one of the private label MBS of old.
Maybe the private label MBS is returning after all, just as a multi-owner SFR security instead. This makes sense in a housing market with more rental demand and lower homeownership rates.
The only question is: over time will the “R” , in RMBS, stand for Rental instead of Residential?
