Spinning single-family home investments into mortgage-backed securities
It’s generally been thought the main exit strategy for Wall Street-backed firms that are buying distressed homes to rent them out, is to convert to a REIT and file for an IPO. That attempt to cash-out on the single-family home trade has obvious benefits for the big institutional buyers but risks for retail investors as the math behind the buy-to-rent model becomes increasingly suspect.
But there’s another potential exit strategy for the institutional buyers beyond converting to a REIT or flipping homes earlier than anticipated and that’s becoming a home lender.
In Las Vegas, where the institutional buyers have been quite active the past six months, there’s talk about firms like Blackstone Group eventually providing financing to prospective buyers looking to acquire one of their single family homes. Buyers like Blackstone won’t comment on speculation about their single-family home management subsidiaries becoming defacto mortgage lenders. But it makes sense, especially in the case of Blackstone, which now owns more than 25,000 homes nationwide and says it intends to hold onto the homes and rent them out for several years.
If the institutional buyers are serious about renting out homes as opposed to being fast-money flippers, becoming a source of financing for prospective buyers may be the best way to guarantee there will buyers in the future. The financing could be part of a rent-to-own strategy, or a way to lure potential homeowners who might have difficulty getting a mortgage from a more conventional lender. National home builders long have had their own mortgage operations to help enable first-time buyers to get themselves into a new home.
And if the appetite is right, any loans issued by the national home buyers could be bundled into securities–the next wave of residential mortgage backed securities.
All of this is speculative, but it’s something to consider as the buying frenzy continues in Vegas, Atlanta, Phoenix, Florida and southern California. Maybe there is a purpose to what times simply seems like mad money being thrown at the wreckage of the housing bust.