The man often referred to as the godfather of the mortgage-backed security said a new breed of bonds backed by investor-owned rental properties carry no risk. The statement came just after Lewis Ranieri expressed regret that the mortgage-backed securities market imploded the way it did, bringing the U.S. economy along with it.
According to Ranieri, the rental bonds are different “because it’s almost done like the European covered bonds, because there’s enough cash flow and they can replace cash flow to pay the bonds,” he said in an interview.
The chairman and founding partner of New York-based Ranieri Partners was an early advocate of the so-called REO-to-Rent (Real Estate Owned-to-Rent) play. Over the last three years, institutional investors have poured as much as $20 billion into purchasing foreclosed properties, which they have turned around as single-family rental homes.
Blackstone, the largest player in the group, is about to offer a new security backed by these homes. Through its Invitation Homes program, Blackstone owns nearly 40,000 properties, according to recent statements from its chairman, Steve Schwarzman. Securitizing the rental stream of these homes is the next step for the new asset class.
(Read more: From ashes of a housing crisis, a new type of bond)
“It obviously works. It’s one more version of taking the cash flows off of a series of hard assets and securitizing them. It works, and so I think they’re good securities and you’ll see more of them,” said Ranieri, who believes there will be plenty of demand for the bonds.
Article source: http://www.cnbc.com/id/101148948