SEC Probes Rental Home Values in Private-Equity Bond Deals
U.S. 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 among companies that received a request for information from the Securities and Exchange Commission in March about broker price opinions, or BPOs, Radian said in a regulatory filing late Friday. Green River provides BPOs that are used to value real estate in bonds backed by properties.
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, said a person with knowledge of the matter. The SEC is scrutinizing how BPO providers compete for business and whether their customers shop for providers willing to put the highest value on their properties, said the person, who asked not to be identified discussing private matters.
Radian, the second-biggest U.S. mortgage insurer, said in its filing that the SEC was seeking information from “market participants.” The company 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 than appraisals to estimate what a property is worth. Valuations are a sensitive subject in the housing industry because regulators said inflated appraisals contributed to the U.S. housing bubble.
Green River is one of several firms that provide BPOs to private-equity companies and other investors who bought up hundreds of thousands of properties after the bubble burst. Many of those buyers focused on distressed homes whose owners were evicted during the Great Recession.
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 Credit Ratings, and many of those deals were valued using BPOs. One recent bond deal tied to Invitation Homes was backed by guarantees from U.S. taxpayers. The broker opinions were provided by Green River. Claire Parker, an Invitation Homes spokeswoman, declined to comment.