One of the big ideas floating around for the past year or so is the securitization of single-family rental payments into securities that could then sold to investors. If this sounds like a mortgage-backed security to you, then you are seeing the implications.
So is Moody’s Investor Service, which said in a research report yesterday that the proposed bonds present a serious risk to investors. The Wall Street Journal reports that Moody’s is not likely to rate the securities any higher than ‘Baa’, just one notch above junk.
Fitch Ratings reached much the same conclusion last August. Fitch said that one of its main concerns was the limited amount of performance data available either on the sector or on the individual property management firms themselves. Combined with the “ambitious growth strategies” of real-estate investors who are buying up properties and then renting the properties out, Fitch did not foresee investment-grade ratings for the securities.
Even though Moody’s and Fitch are singing from the same hymnal, the WSJ cites a mortgage finance director at BofA/ML who said, “Given the demand today for yield and new products, even with a capped rating I don’t see issues with selling the bonds into the market with the right sponsor. It’s just as likely to see an unrated deal as a rated deal in the first half of the year.”
Or in the immortal words of P.T. Barnum, there’s a sucker born every minute.