SEC probes rental home values in PE bond deals

Bloomberg

US securities regulators are investigating whether bonds backed by single-family rental homes and sold by Wall Street’s biggest residential landlords used overvalued property assessments.
Radian Group Inc.’s Green River Capital unit is one of the market participants that received a request for information from the Securities and Exchange Commission in March about broker price opinions,
or BPOs, the company said in
a regulatory filing. Green River provides BPOs that are used
to value real estate in secu-
ritizations.
The agency has been looking at whether BPOs were wrongly inflated, and similar letters were sent to other companies, potentially serving as a starting point for an industrywide probe, according to a person with knowledge of the matter. The person asked not to be identified because the matter is private.
Green River is one of several firms that provide BPOs to the units of private-equity firms and other investors who bought up hundreds of thousands of properties in cities across the
US after the housing bubble burst. Many of them focused on distressed homes whose own-
ers were evicted during the Great Recession.
The company, a subsidiary of Clayton Holdings, the real estate risk-management arm of Radian, said in the disclosure that the SEC was seeking information from “market participants.” Radian, the second-biggest mortgage insurer, said it routinely gets such requests from regulators, and the disclosure didn’t indicate that Green River was the focus of the agency’s inquiry. An SEC spokeswoman declined to comment.
“We believe that our company processes are both robust and comprehensive, and we stand behind our work,” Radian said
in an emailed statement to Bloomberg. “We have solid quality control processes in place, including for our property valuation services, and those processes have been reviewed and validated by both internal and external sources.”
Broker price opinions are a cheaper and less-stringent way to evaluate what a property is worth than an appraisal. Property valuations are a sensitive subject in the housing industry because regulators said inflated appraisals contributed to the housing bubble a decade ago.
The biggest private-equity landlords, led by Blackstone Group LP’s Invitation Homes, have sold more than $15 billion in bonds since 2013 backed by some 120,000 rental homes, according to data from Morningstar, and many of those deals were valued using BPOs. One recent bond deal tied to Invitation Homes was backed by guarantees from US taxpayers. Claire Parker, an Invitation Homes spokeswoman, declined to comment.