NEW YORK--(BUSINESS WIRE)--
Kroll Bond Rating Agency (KBRA) released today its methodology for rating single-family rental securitizations.
Single-family Rental (SFR) securitizations are a new class of asset-backed securities with characteristics of both commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS). Given the hybrid nature of the collateral, KBRA employs elements from both its CMBS and RMBS methodologies to analyze SFR securitizations. When considering the probability of default of a SFR loan, KBRA determines the estimate of sustainable net cash flow, known as KBRA Net Cash Flow (KNCF). KNCF is based on an analysis of the underlying collateral properties’ financial and operational performance, as is typically done for CMBS collateral. When determining recovery on a defaulted SFR loan, KBRA calculates the recovery upon a liquidation of the pool under various stressed home price scenarios, as is typically done for a pool backing an RMBS transaction.
While KBRA’s CMBS and RMBS methodologies provide the fundamental framework for analyzing SFR transactions, the assessment of an SFR transaction also involves analytical considerations that are distinct from both CMBS and RMBS. Specifically, the SFR securitization market is currently characterized by large institutional sponsors that have engaged in the volume purchasing and refurbishing of single-family homes in distressed markets over relatively short periods of time. Simultaneously, many of these institutions have established property management companies to oversee the leasing and maintenance of the property portfolios. KBRA anticipates that the SFR market will become more fragmented over time, featuring smaller loans from multiple sponsors, and also sponsors who elect to employ third-party managers.
These attributes of the SFR market, together with the limited performance record of the market for institutional single-family home rentals, are addressed in KBRA’s approach to property income and expense analysis, asset valuation, as well as reviews of property management operations. Additionally, KBRA focuses on the capabilities of servicers and special servicers to address the elements of SFR servicing that fall outside conventional CMBS practices.
- CMBS Property Evaluation Guidelines
- U.S. CMBS Multi-Borrower Rating Methodology
- U.S. RMBS Default and Loss Methodology
About Kroll Bond Rating Agency
KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).