Kiavi has sold more than $5.1 billion in “residential bridge loans” to investors. The latest deal – the first to be rated by a credit rating agency – was oversubscribed to $400 million.
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A slowdown in home buying has left investors who fund most U.S. mortgages hungry for alternatives, helping San Francisco-based Kiavi Funding complete its first rated note securitization, consisting of $400 million in short-term “Fix and flip” loan support.
Chiavi said the size of the deal announced Tuesday was increased by $100 million due to “strong interest from a broad range of institutional investors, including several first-time investors.”
Bundling mortgages into securities backed by Fannie Mae, Freddie Mac and Ginnie Mae and selling them to institutional investors such as pension funds and insurance companies is a routine process and is the ultimate source of funding for most home loans.
Kiavi has been securitizing fix-and-flip loans, formally known as “residential bridge loans,” or RTLs, since 2019 and says it has sold 19 RTLs to investors for more than $5.1 billion to date, including this year’s The amount was $1.4 billion alone.
In February this year, Kiavi completed an unrated RTL securitization worth $350 million, which was also said to be oversubscribed.
This is Kiavi’s first RTL transaction to be assessed and rated by credit rating agency Morningstar DBRS, a process that gives investors greater confidence in understanding the risks and rewards involved. Some institutional investors will not invest in unrated securities.
Arvind Mohan
“We are pleased to complete our first rated securitization, allowing more 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 the This reflects our strong track record in RTL.”
Founded in 2013 as LendingHome, Kiavi rebranded in 2021 and now claims to be one of the largest private lenders to residential real estate investors in the United States, having originated more than $21 billion in loans to date.
In addition to offering fix and flip loans up to $3 million, Kiavi also offers new construction loans and Debt Service Coverage Ratio (DSCR) loans to investors who want to buy and hold one to four rental properties.
“Say goodbye to tedious paperwork like pay stubs and W-2s,” Kiavi promises on its website. “Our innovative, technology-driven platform eliminates confusion and gets you to the closing table faster.”
In evaluating Kiavi’s latest fixed and flip loan securitizations, Morningstar DBRS rated most of the mortgage-backed notes as A1, with the remainder rated A2, M1 and M2.
“Historically, Kiavi RTL’s origins have generated strong mortgage repayments, which have been able to cover unfunded commitments in the securitization,” Morningstar DBRS analysts said.
Unlike traditional residential mortgages, RTLs are short-term, interest-only jumbo loans that are payable in full at maturity (usually 12 to 36 months).
Morningstar DBRS analysts noted that “RTL repayments are primarily dependent on the ability to sell the underlying mortgage property or convert it to a leasehold property.” “In addition, many RTL lenders also offer extension options, giving borrowers the opportunity to repay the loan when it is originally due.” Additional time to repay the mortgage later.”
Morningstar DBRS said Kiavi’s latest tranche of securitized loans requires borrowers to have a minimum FICO score of 735 and a maximum loan-to-value ratio of 73% after repair.
The credit rating agency released a methodology for evaluating fixed and flip loan securitizations last fall, and in March rated what was billed as the largest RTL securitization to date: a $500 million origination, service and sponsorship by Genesis Capital The notes were issued by Rithm Capital.
Morningstar’s DBRS ratings also help institutional investors enthusiastic about the securitization of home equity agreements, which allow homeowners to cash in a portion of their equity in exchange for a stake in their property.
Last fall, Unlock Technologies announced its first tranche of $224 million in rated securitization notes backed by home equity agreements.
“Rated securitization is the only way for the asset class to become mainstream,” Saluda Grade CEO Ryan Craft said at the time.
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