California Congressman on REO-to-rental warpath

 

Takano pushing four federal bodies to investigate

 

 

Congress

 

Longtime critic of REO-to-rental U.S. Rep. Mark Takano, D-Calif., is on the warpath Thursday, firing off letters to four federal entities asking for a detailed investigation into the growth of REO operations and REO-to-rental as an investment — and what they are doing to effectively regulate the emerging asset class.

Takano sent letters Thursday morning to the Consumer Financial Protection Bureau, the U.S. Department of Housing and Urban Development, the U.S. Securities and Exchange Commission, and Treasury Office of Financial Research.

Takano is concerned that rental prices are going up, and a surplus of investors in rentals — along with new rental-backed securities deals — could have the effect of artificially raising rental prices, making housing even more costly in parts of California and elsewhere.

Takano cites a Federal Reserve report, which claims if unchecked, investor activity in local housing markets may lower the quality of neighborhoods, while pushing up prices.

Investor purchasers have been an outsized figure in recent years in housing. Normally, about 85% of home sales are individuals purchasing with a mortgage, about 10% are all-cash sales, and about 3-5% are distressed sales. In 2013, something like 40% of home sales were individuals using a mortgage, 40% were all-cash, more than about 15% were distressed sales and 5% were flips.

Takano’s office wants a number of detailed questions investigated by the federal entities, including clarification on how single-family rental bonds are structured, what their metrics are, how their performance criteria could affect operations, and what is the risk that when bonds mature, the borrower would be unable to refinance the bonds and be forced to sell properties to repay bondholders.

From the SEC, Takano wants to know details about the investors who are purchasing the bonds, how the riskier tranches are sold and whether they are being re-packaged into collateralized debt obligations and resold with higher ratings.

He wants the CFPB to provide a list of local housing markets with high concentrations of rental properties linked to rental-backed securities, and analysis of common trends within these communities, so that they can examine the impact of REO-to-rentals and rental-backed securities on mortgage credit availability, rental prices, and housing prices in highly impacted communities.

Further, he wants the CFPB to perform a comparison between the rehabilitation, ongoing maintenance, and management costs that large investors spend on REO-to-rental properties with other actors, and how that impacts local neighborhoods.

From HUD and the Federal Housing Administration, Takano is asking for detailed information about the impact of large investor purchasers on first-time homebuyers’ ability to enter the market, and an evaluation of trends in FHA-approved mortgages in impacted communities.

To date only two REO-to-rental deals have been securitized.

Blackstone Group (BX) spent the past two years building an expansive portfolio of single-family rental homes via subsidiary Invitation Homes, spending $7.5 billion to acquire 40,000 houses. Blackstone then packaged rental income from single-family homes into a pass-through security, which is functionally not unlike a mortgaged-backed security.

Goldman Sachs (GS) started coverage on American Homes 4 Rent at a neutral rating and a price target of $18, reports say. American Homes 4 Rent has spent some $3.5 billion to acquire more than 21,000 rental homes.

“If vacancy rates rise or renters are unable to pay their rent, Blackstone and others may be forced to sell off vast amounts of property to make their investors whole,” Takano explained. “Selling a large amount of properties quickly would not only deprive renters of their home, but destabilize the market for homebuyers and send housing prices into a freefall.”

Jed Kolko, chief economist with Trulia, told HousingWire that the outsized and growing number of single-family rentals’ affect on rental rates in general is negligible.

Using American Community Survey data from 2005 and 2012, Kolko looked at the change in metro housing units that were single-family rentals.

Most metros had a large increase in the share of their housing stock that was single-family rentals. Among the 100 largest metros, Kolko looked at the top 10 with the biggest increases in institutional investments (from one to ten) – Las Vegas, Nev.; Phoenix, Ariz.; Cape Coral-Fort Myers, Fla.; Memphis, Tenn.; Riverside-San Bernadino, Calif.; Tuscon, Ariz.; El Paso, Texas; Lakeland-Winter Haven, Fla.; Fresno, Calif., and Sarasota, Fla.

 

HUD ANNOUNCES NEW FHA LOAN LIMITS TO TAKE EFFECT JANUARY 1ST

4:55PM
WASHINGTON – Today the Department of Housing and Urban Development (HUD) announced that it will implement new FHA single-family loan limits on January 1, 2014, as specified by the Housing and Economic Recovery Act of 2008 (HERA). Read FHA’s mortgagee letter detailing the agency’s new loan limits.“As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play,” said FHA Commissioner Carol Galante. “Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still under-served.”

The current standard loan limit for areas where housing costs are relatively low will remain unchanged at $271,050. The new national-ceiling loan limit for the very highest cost areas will be reduced from $729,750 to $625,500. Areas are eligible for FHA loan limits above the national standard limit, and up to the national ceiling level, based on median area home prices. Additional information and loan limit adjustments for two-, three-, and four-unit properties, and in Special Exception Areas, are noted in FHA’s mortgagee letter. An attachment to the Mortgagee Letter provides information on which counties are eligible for loan limits above the national standard. Borrowers with existing FHA insured mortgages may continue to utilize FHA’s Streamline refinance program regardless of their loan balance. The changes announced today are effective for case number assignments between January 1, 2014, and December 31, 2014.

Full mortgagee letter HERE.