Income and values from rental properties across 16 states is underpinning the Home Partners of America 2021-1 trust, which is expected to issue $414.5 million in residential mortgage-backed securities.
The trust, HPA 2021-1, has just one form of collateral, a single loan secured by first-priority mortgages in a pool of 1,332 single-family residential rental properties and 67 townhomes, according to Morningstar | DBRS, which will rate $380.6 million in certificates.
The four lead managers, Citigroup Global Markets, Deutsche Bank Securities, J.P. Morgan Securities and Morgan Stanley created a sequential capital structure with six classes. DBRS expects to assign a ‘AAA’ rating to the $196.4 million class A; ‘AA’ to the $58 million class B; and ‘A’ to the $29.6 million class C, according to DBRS.
Several lower-rated classes are also in the deal, including ‘BBB’ to the $32.1 million class D and to the $28.4 million class E; and $35.8 million to the class F.
HPA has a number of features that could change the underlying assets that secure the loan in the trust. Home Partners of America, Inc., a sponsor of the deal, offers a program called the Right to Purchase Program. It allows individuals to rent homes in desired communities, and purchase the property annually over the first three to five years, and 1,362 of the 1,399 properties are leased under the program, according to DBRS.
Another feature, called the Excess Collateral Release, allows for the properties underpinning the trust to be changed over time. Also, the program’s borrower, HPA II Borrower 2021-1 LLC, can occasionally transfer or obtain a release of any property without a repaying of the loan or paying the Yield Maintenance Premium, the rating agency said.
The change is not without conditions, however, as long as more than a dozen conditions are met. The lender has to approve, the property cannot have defaulted, and the borrower provides the lender with a broker price opinion (BPO for 100% of the properties by count, among other conditions.
DBRS pointed out other aspects of the deal that were significant from a credit perspective. DBRS Morningstar assumes a base-case net cash flow of about $14.9 million, about 35.7% lower than the net cash flow of $23.2 million underwritten by the issuer.
In terms of other portfolio characteristics, such as geographic concentration, the trust’s properties are spread throughout 16 states. Colorado, with 17.5%, accounts for the largest concentration of properties by property value. Atlanta, with 12.5%, accounts for the largest MSA by value, followed by Phoenix, with 10.2%.
The underlying portfolio has homes built over a range of periods, from 1916 to 2021, with an average year of 1995. On average, the portfolio has a remaining lease term of 6.9 months.
