DBRS Morningstar Finalizes Provisional Ratings on Home Partners of America 2021-1 Trust

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the Single-Family Rental Pass-Through Certificates (the Certificates) to be issued by Home Partners of America 2021-1 Trust (the Issuer):

-- $196.5 million Class A at AAA (sf)
-- $58.1 million Class B at AA (low) (sf)
-- $29.7 million Class C at A (low) (sf)
-- $32.1 million Class D at BBB (sf)
-- $28.4 million Class E at BBB (low) (sf)
-- $35.8 million Class F at BB (sf)

The AAA (sf) rating on the Certificates reflects 52.61% of credit enhancement provided by subordinated notes in the pool. The AA (low) (sf), A (low) (sf), BBB (sf), BBB (low) (sf), and BB (sf) ratings reflect 38.60%, 31.45%, 23.70%, 16.84%, and 8.20% of credit enhancement, respectively.

Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

The Certificates are supported by the income streams and values from 1399 rental properties. The properties are distributed across 16 states and 42 metropolitan statistical areas (MSAs) in the United States. DBRS Morningstar maps an MSA based on the ZIP code provided in the data tape, which may result in different MSA stratifications than those provided in offering documents. As measured by value, 43.3% of the portfolio is concentrated in three states: Colorado (17.5%), Florida (13.3%), and Georgia (12.5%). The average purchase price per property is $337,542, and the average value is $353,316. The average age of the properties is roughly 26 years. The majority of the properties have three or more bedrooms. The certificates represent a beneficial ownership in an eight-year, fixed-rate, interest-only loan with an initial aggregate principal balance of approximately $414.6 million.

As in typical single-borrower, single-family rental transactions, the waterfall has straight sequential payments with reverse sequential losses.

DBRS Morningstar estimated the base-case net cash flow (NCF) by evaluating the gross rent, concession, vacancy, operating expenses, and capital expenditure data. DBRS Morningstar’s base-case underwriting yielded an aggregate annualized NCF of approximately $14.9 million. Based on DBRS Morningstar’s NCF assumptions outlined in the rating report, the DBRS Morningstar NCF analysis resulted in a minimum DSCR of greater than 1.0 times (x).

Vacancy data in the single-family rental space is relatively limited. In general, based on performance data in existing securitizations as well as information gathered in annual property-manager reviews, vacancy is considered low in the single-family rental market. DBRS Morningstar applied a base vacancy rate of 9.0%, an additional base vacancy adjustment related to the rental payment delinquency impact of the Coronavirus Disease (COVID-19) pandemic, plus a qualitative adjustment to account for structural and documentation weakness in the transaction. The loan agreement lacks credit measures, such as the income-to-rent ratio, in the eligible tenant provision. DBRS Morningstar accounted for this potential impact by reducing the DBRS Morningstar gross rent by 1.0%. DBRS Morningstar also accounted for the current delinquency and vacancy levels as well as the highly concentrated lease expiration profile by further stressing the vacancy assumption, bringing the DBRS Morningstar vacancy rate to 14.9%, which is more conservative than the underwritten economic vacancy rate of 4.1% (includes underwritten annual credit loss) of the Issuer’s gross income.

Additionally, DBRS Morningstar applied a stress to the broker price opinions (BPOs) because, in general, a valuation based on a BPO may be less comprehensive than a valuation based on a full appraisal. DBRS Morningstar had initially increased the BPO stress in response to the pandemic and the resulting isolation measures, which caused an immediate economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. Due to the continued strong performance of the housing market, DBRS Morningstar will no longer apply the additional pandemic-related BPO stress.

For more information regarding rating methodologies and the coronavirus, please see the following DBRS Morningstar press releases and commentary: "DBRS Morningstar Provides Update on Rating Methodologies in Light of Measures to Contain Coronavirus Disease (COVID-19)," dated March 12, 2020; "DBRS Morningstar Global Structured Finance Rating Methodologies and Coronavirus Disease (COVID-19)," dated March 20, 2020; and “Global Macroeconomic Scenarios: June 2021 Update,” published on June 18, 2021.

The transaction allows for discretionary substitutions of up to 5.0% of the number of properties as of the closing date, as long as certain restrictions are met.

The Sponsor intends to satisfy its risk retention obligations under the U.S. Risk Retention Rules by holding the Class G Certificates, either directly or through a majority-owned affiliate.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is U.S. Single-Family Rental Securitization Ratings Methodology (May 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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