NY regulator Subpoenas firms on housing-contract deals

Bloomberg

New York’s financial regulator has issued subpoenas to two companies with ties to Apollo Global Management LLC as part of an inquiry into housing transactions for low-income buyers.
The New York State Department of Financial Services subpoenaed ARM Manager LLC, an indirect Apollo subsidiary, and the real estate investment trust it manages, Apollo Residential Mortgage Inc., asking for information on deals made through a seller-financing program, according to a person familiar with the matter. The regulator also sent subpoenas to Battery Point Financial and New York Mortgage Trust Inc., said the person, who asked not to be identified because the requests for information aren’t public.
Apollo’s housing investment that involves offering U.S. buyers with bad credit contracts called bond-for-title agreements was the subject of a Bloomberg investigative story last month. The deals give buyers most of the responsibilities associated with homeownership with few of the privileges they’d have in either a mortgage or a rental contract. Housing advocates and investors have called these types of agreements predatory, with few protections for consumers.
Charles Zehren, a spokesman for Apollo, didn’t respond to requests for comment.
Apollo, headed by billionaire Leon Black, became involved in the program in 2014 through Apollo Residential Mortgage. The REIT has invested more than $40 million to buy and renovate single-family homes.
No Claim
The firm partnered with a Baton Rouge, Louisiana-based company called Home Servicing. While their housing contracts vary by state, dozens reviewed by Bloomberg showed the buyer doesn’t own the home or claim to the deed until the full purchase price is paid off, as many as 30 years later. In many cases, if the buyer fails to keep up to date on insurance or is more than 30 days late with a payment, the buyer forfeits all money and interest in the property.
In February, a REIT focused on commercial real estate that’s also managed by an indirect subsidiary of Apollo agreed to buy the residential REIT backing the seller financing program. The commercial REIT said it intended to liquidate the assets of the residential firm to invest in more commercial real estate debt opportunities.
Reuters reported the inquiries from the New York regulator.
Battery Point Financial, another company investing in the business, with as much as $40 million from private-equity firm KKR & Co., confirmed it received an inquiry from the regulator. Battery Point intends to “fully support the agency’s review of the use of contracts for deed,” Doug Donsky, a spokesman for the company, said in an e-mailed statement.

‘Improving Awareness’
Battery Point has been trying to differentiate itself by taking steps to help homebuyers improve their financial profiles.
“We support improving awareness of how non-mortgage financing products can create opportunities for consumers who are shut out of the mortgage market,” Donsky said in the e-mail.
Kristine Nario, chief financial officer at New York Mortgage Trust, didn’t immediately respond to requests for comment.
Staff from the U.S. Consumer Financial Protection Bureau’s research, markets and regulations division have had discussions about housing contracts with members of the watchdog’s consumer-advisory board, according to Sam Gilford, a bureau spokesman.