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Consumer groups seek bond oversight

Consumer groups are warning of another Wall Street-driven real estate wreck propelled by a new investment strategy - rental-backed bonds.

Hedge funds and corporate titans started buying single-family homes in 2012, forming a nascent industry of rental properties overseen by mega-management firms rather than mum-and-dad landlords.

But the Blackstone Group, which is renting houses under its offshoot Invitation Homes, took the venture a step further in November when it bundled cash flows from 3,200 leased homes nationwide into a $US479.1 million ($A535.85 million) rental-backed bond.

That move, in addition to concerns about community disintegration and long-term fallout if the venture fails, has prompted 80 organisations to ask US regulators for "immediate" intervention to protect neighbourhoods and "stave off the next financial crisis".

The California Reinvestment Coalition wrote a seven-page letter signed by 80 consumer groups to the House Financial Services panel.

The coalition's associate director Kevin Stein said: "We don't see sufficient oversight and what we're saying is: Let's put on the brakes, be thoughtful about this, and develop policies where they are needed".

American Homes 4 Rent, which owns 21,300 homes nationwide, in November said it intended to follow Blackstone's lead with a rent-backed bond this year.

Starwood Property Trust, which buys under the name SRP SUB LLC and rents under Waypoint Homes, has announced a $US144 million purchase of 707 single-family homes.

Financial analysts have given mixed reviews of the new business born from the collapse of the housing market.

In December, a report from the Federal Reserve noted that investor purchases of single-family homes increased nationwide from less than one per cent in 2004 to more than six per cent by the end of 2012.

While the purchases helped the housing recovery by clearing the inventory of distressed homes and boosting prices, neighbourhoods may suffer if an investor can't manage the rentals, Fed economists Raven Molloy and Rebecca Zarutskie wrote in the report.

Standard & Poor's Rating Services is also wary of the new business and didn't rate the Blackstone securitisation. In February, its analysts said cash flows depend on the management of large numbers of single-family homes, which are often "geographically dispersed and uniquely constructed".

"The properties require ongoing maintenance that can't be implemented with a one-size-fits-all approach," Standard & Poor's said in a market commentary.

Morningstar was more optimistic. Despite a dip in monthly rent income from Blackstone Group's securitisation portfolio of 7.6 per cent from November to January, analysts Becky Cao and Brian Grow said rental demand is high and vacancies caused by expired leases are expected to fill up.

"The institutional buyers are generally economically rational," Grow said. "The demand for rentals is high, and part of that is because people can't get loans or don't have down payments."

Morningstar and Moody's Investors Service gave top triple-A ratings to the largest portion of Blackstone's deal.

Still, Stein said there needs to be transparency to the rental securitisations so they don't follow the same path as mortgage-backed securities that were filled with toxic home loans.

"Wall Street tends to be ahead of the game," Stein said. "We need to know what's happening so investors don't unwittingly finance the next economic bust."