Rep. Mark Takano Sends Letter to Various Federal Agencies Requesting Information on Rental Backed Securities

Washington DC - Earlier today, Rep. Mark Takano (D-CA) sent a letter to the Consumer Financial Protection Bureau, the Department of Housing and Urban Development, the Securities Exchange Commission, and the Department of Treasury’s Office of Financial Research requesting information about single family rental backed securities. 

In the letters, Rep. Takano says, "I am writing to bring to your attention the recent increase in investor owned rental properties and the development of single family rental backed securities and ask that your agencies address unanswered questions about these new financial products”…"I believe that your offices are perfectly positioned to provide further details on these new financial products and the impact they could have on homeowners and renters."
The Inland Empire of Southern California, which Takano partially represents, was hit particularly hard by the foreclosure crisis. Between 2008 and 2011, Riverside County saw 134,910 household foreclosures – a rate of one in every ten homes. After the flood of foreclosures, the Inland Empire housing market has seen record low prices and interest rates, which resulted in an influx of bulk investors looking to purchase the homes and convert them to rentals. 
“As the market for rental backed securities continues to grow, it is important that Congress and government agencies collect as much information as possible about the possible risks,” said Takano. “I hope that each agency promptly looks into these new and complex financial instruments so that we can prevent any potential downturn that could affect millions of Americans."
Below are portions of the requests made, with the full versions attached.
Consumer Financial Protection Bureau:
1. A list of local housing markets with high concentrations of rental properties purchased and managed by institutional investors, and analysis of common trends within these communities.
2. The impact of REO to rentals and rental backed securities on mortgage credit availability, rental prices, and housing prices in highly impacted communities, and the futures impact should the market for these bonds grow.
3. An evaluation of the risks of having the properties linked to rental backed securities located in only a few select markets, and whether changes in local housing markets could lead to instability in the overall bond structure.
Securities Exchange Commission:
1. Clarification on how the bonds are structured to determine whether the entire portfolio would go into default if the rental properties don’t meet certain performance criteria.
2. Specific details about how well the properties must perform and what vacancy rate was assumed when structuring the bond.
3. Details about how the riskier traunches are sold and whether they are being re-packaged into collateralized debts obligations (CDOs) and resold with higher ratings.
Department of Housing and Urban Development:
1. A comparison between the rehabilitation, ongoing maintenance, and management costs that large investors spend on REO to rental properties with other actors, and how that impacts local neighborhoods. 
2. The impact of REO to rentals and rental backed securities on mortgage credit availability, rental prices, and housing prices in highly impacted communities.
3. Detailed information about the impact of large investor purchasers on first-time homebuyers’ ability to enter the market.
Office of Financial Research:
1. Further information about what happens when these bonds mature, and the likelihood that the borrower would be unable to refinance the bonds and be forced to sell properties to repay bondholders. 
2. The possible impacts on the stability of the U.S. financial system if rental backed securities continue to grow in popularity, and predictions for how quickly this new market could grow. 
3. How consumers, renters, and housing markets would be impacted if poor performance forced the properties to go into default or be sold.