Firms with ties to Apollo Global Management and KKR & Co have been subpoenaed by New York’s financial regulator, over accusations of investing in a predatory business model that exploits low-income residents with poor credit.

The New York State Department of Financial Services (above: NYDFS superintendent Benjamin Lawsky) sent subpoenas to ARM Manager LLC, an indirect subsidiary of Apollo, as well as the REIT it manages, Apollo Residential Mortgage on Friday, Bisnow has confirmed. The DFS also sent subpoenas to Battery Point Financial, a subsidiary of KKR & Co, as well as New York Mortgage Trust Inc. Crain's first reported the subpoenas.

The REIT runs a program under which homebuyers with poor credit are able to qualify for contracts called bond-for-title agreements. In those deals, buyers are allegedly required to pay a monthly fee, much like a mortgage, but don’t actually own the title until the loan is completely paid off, and are also left without many other protections given to normal homeowners.

If buyers don’t keep up with their insurance or are more than 30 days late on a payment, they forfeit all interest in the property. The exact nature of the subpoenas remains unclear at this point.

Battery Point confirmed it had received the subpoena and a spokesperson says the firm plans to cooperate fully with the DFS. In a statement the firm says it "is dedicated to creating homeownership opportunities for under-banked consumers" and it supports "improving awareness of how non-mortgage financing products can create opportunities for consumers who are shut out of the mortgage market."

A spokesperson for ARM Manager LLC and Apollo Residential Mortgage confirmed they too have received the subpoenas, and plan to cooperate fully with the DFS. 

Back in February, a different REIT that’s also managed by an indirect Apollo subsidiary agreed to purchase the REIT that runs the bond-for-title program, and will subsequently discontinue that program.  [Crain’s]