Kiabi has packaged more than $5.1 billion in “housing transition loans” for investors, and its most recent deal, the first to be rated by a credit-ratings agency, was oversubscribed and increased to $400 million.
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A slowdown in home-buying has investors who fund most U.S. mortgages seeking alternatives, and San Francisco-based Kiabi Funding has completed the first rated securitization of bonds backed by short-term “fix-and-flip” loans totaling $400 million.
Kiabi said the deal announced on Tuesday was upsized by $100 million due to “significant interest from a broad range of institutional investors, including several new investors.”
It's a routine process to package mortgages into securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and sell them to institutional investors such as pension funds and insurance companies, which are the ultimate source of funding for most mortgages.
Kiavi has been securitizing renovation and resale loans (officially known as “home relocation loans,” or RTLs) since 2019 and says it has packaged more than $5.1 billion in RTLs across 19 sales to investors so far, including $1.4 billion this year alone.
In February, Kiabi completed a $350 million unrated securitization of RTL, which was also oversubscribed, the people said.
This is Kiavi's first RTL transaction to be assessed and rated by credit rating agency Morningstar DBRS, a process that gives investors more confidence that they understand the risks and rewards involved. Some institutional investors will not invest in unrated securities.
“We are excited to complete our first rated securitization and enable a broader range of institutional investors to invest in Kiavi's RTL program,” Kiavi CEO Arvind Mohan said in a statement. “This transaction, along with our previous securitizations, is a testament to our strong track record in the RTL sector.”
Kiavi was founded in 2013 as LendingHome and rebranded in 2021, and claims to be one of the nation's largest private lenders to residential real estate investors, having funded more than $21 billion in loans to date.
In addition to offering fix-and-flip loans of up to $3 million, Kiavi also offers new construction and debt service ratio (DSCR) loans for investors looking to buy-and-hold one- to four-unit rental properties.
“Say goodbye to tedious paperwork like pay stubs and W-2s,” Kiavi promises on its website. “Our innovative, tech-driven platform cuts through the clutter and accelerates time to closing.”
In rating Kiabi's latest renovation and resale loan securitization, Morningstar DBRS rated the majority of the mortgage-backed securities at A1, and the remainder at A2, M1 and M2.
“Historically, Kiabi RTL's loans have generated strong mortgage repayments and have been able to cover unfunded liabilities in securitizations,” analysts at Morningstar DBRS said.
Unlike a traditional mortgage, an RTL is a short-term, interest-only balloon loan that is paid in full at maturity (usually between 12 and 36 months).
“RTL repayment depends primarily on whether the related mortgaged property can be sold or converted into a rental property,” analysts at Morningstar DBRS note. “Furthermore, many RTL lenders offer extension options, allowing borrowers additional time to repay their mortgage beyond the original maturity date.”
The most recent loans securitized by Kiabi required borrowers to have a FICO score of at least 735 and a remediated loan-to-value ratio of up to 73%, according to Morningstar DBRS.
The credit rating agency released its methodology for assessing renovation and resale loan securitizations last fall, and in March rated what was billed as RTL's largest rated securitization to date: a $500 million bond offering issued and managed by Genesis Capital and sponsored by Risum Capital.
Morningstar DBRS ratings have also helped institutional investors express interest in mortgage-backed securitizations, which allow homeowners to cash out some of their equity in exchange for title to their property.
Last fall, Unlock Technologies announced its first rated securitization with $224 million in bonds backed by mortgage-backed securities agreements.
“Rated securitizations are the only way for the asset class to go mainstream,” Saluda Grade CEO Ryan Kraft said at the time.
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