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October 13, 2017  

Landlord-Loan Program On the Drawing Board

Window Rock Capital is planning to securitize landlord loans.

The Gilbert, Ariz., investment firm began writing the credits in August and expects to start bundling them into bond deals by mid-2018. It already has discussed the initiative with rating agencies and underwriters, including a group of warehouse lenders that already are helping to fund the accounts.

Window Rock partner Ketan Parekh is overseeing the effort.

The firm writes each of its landlord loans against a single property, differentiating the accounts from those that finance portfolios of homes. The loans can fund initial purchases or offer refinancing, often with renovations as part of the investment process. The borrowers, typically family investors or homebuilders, in most cases plan to hold the properties for years rather than pursuing “fix-and-flip” plays.

Window Rock expects its so-called residential rental loans to appeal to landlords in part because the firm prioritizes the underlying properties’ values and cashflows when originating the accounts. While credit scores and other personal financial factors are taken into consideration, the primary criteria is whether the rental income is sufficient to service the debt. That means the financing could be available in cases where conventional mortgages might not be.

Unlike commercial loans, meanwhile, the “one property, one loan” format eliminates concerns about cross-collateralization. That is, borrowers are able to pursue financing or refinancing for the individual homes in their portfolios as opportunities arise.

Window Rock’s landlord loans typically carry seven-year terms and fixed interest rates of 6.25% to 7.25%. Loan-to-value ratios typically are 75%.

Window Rock also writes shorter-term “fix-and-flip” loans, but doesn’t expect to securitize them.

The New York-based Parekh also oversees Ventana Home Mortgage, a Window Rock unit that separately has been pursuing securitization as a funding source for home loans that don’t meet the Consumer Financial Protection Bureau’s “qualified-mortgage” standards. That operation started a mortgage conduit this year, with an eye toward completing its first bond deal in 2018.

It initially appeared that Ventana’s pools could include landlord loans. But those accounts are outside the scope of the operation, which is focusing instead on subprime and second-lien financing.

Window Rock hasn’t securitized before. Parekh joined the firm in late 2016 from the now-shuttered WinWater Home Mortgage. He also has worked at Bank of America, Merrill Lynch and Ameriquest.