First Key prepares $582.6 million in MBS

FirstKey Homes 2022-SFRA is preparing to issue $582.6 million of mortgage-backed securities (MBS). A single fixed-rate loan financing 1,827 single-family, first-priority rental properties will secure the ratings.

The trust will issue notes that pay principal and interest, most of the time, while other classes of notes will only pay principal. Mortgages fund income-generating properties, according to a pre-sale report from ratings agency Kroll Bond.

RM1 SFR Holdings I is acting as sponsor of the transaction, while Midland Loan Services is acting as servicer and special servicer on the notes.

Morgan Stanley, BofA Securities and Apollo Global Securities are selling agents on the deal, which will issue the notes across 17 note classes. The Notes will repay investors in a simple sequential structure. Eleven of the classes are entitled to monthly principal and interest distributions, starting with Class A which will reimburse investors until they are fully paid, before moving on to principal and interest payments on the class B. The payment schedule will follow the same structure for class G.

KBRA plans to assign ratings ranging from “AAA” on the $196 million Class A notes to “B-” on the $13.4 million H2 notes.

Six of the classes are only entitled to principal, while the remaining class will pay residual interest. KBRA also notes that Class G may defer interest in certain circumstances, as part of payment in kind.

The subordinate classes will absorb losses in reverse sequential order, according to the explanation of KBRA’s capital structure.

The underlying loan has an initial term of five years, according to the KBRA. The loan funds properties across 14 states. Georgia, Florida and North Carolina are the top three states represented in the pool, accounting for 54.3% of the broker price opinion (BPO) in the pool.

All properties are income generating. The average house is 23 years old. Rehabilitation costs represent 3.9% of the purchase price of the houses and the houses have a vacancy rate of 11.5%, according to KBRA. On a weighted average (WA) basis, the homes have an initial lease term of 12.9 months, with a remaining term of 9.4 months and a monthly rent of $1,948. Only two percent of properties are designated as Section 8.

Michael J. Birnbaum