Beazer Homes Hitting More Turbulent Waters

(revised 8-11-07; 8-16-07)
The Charlotte Observer is reporting today:

• "Shares of Beazer Homes USA Inc. fell sharply Wednesday amid worries about the ability of builders to pay their bills as subprime lending woes expand to other parts of the market and push housing prices down. [...] As for the [federal investigations] involving the company, Beazer Homes previously disclosed that it received a subpoena from the United States Attorney's office in the Western District of North Carolina, seeking the production of documents focusing on the company's mortgage origination services. The investigation followed a March Observer series that found Beazer's mortgage arm arranged larger loans than some customers could afford, among other problems. The Observer found Beazer's sales practices contributed to an unusually high foreclosure rate in its Mecklenburg developments."

For more, see Beazer shares plunge on rumors.

For later stories, see:

• Beazer: Mistakes possible in filings (Company charges former accounting chief for having `caused' wrong figures) - (The Charlotte Observer - 8-11-07).
• Beazer Homes on review for downgrade due to accounting woes - Moody's (Forbes - 8-14-07)
• Beazer Homes Faces Problem After Problem (CNNMoney - 8-16-07)

Go here for prior posts and links to The Observer's investigative reports on Beazer.

FBI, Observer Investigate Homebuilder Beazer Homes USA

SmartMoney.com reports:

• The FBI and the U.S. Attorney's office in Charlotte, N.C., along with the Internal Revenue Service and the U.S. Department of Housing and Urban Development, launched an investigation of Beazer Homes last week, FBI agent Ken Lucas said Tuesday. Lucas, a spokesman for the FBI's Charlotte field office, said the inquiry involves "fraud in general," and more specifically is related to corporate, mortgage and investment issues.

For more, see Mortgage Fraud Probe Targets Beazer.

The Charlotte Observer has recently done a four part investigative report on North Carolina homebuilder Beazer Homes USA. The report, appearing in The Observer over a four day period earlier this month, points out a number of glaring points that give rise to questions about how Beazer conducted business.

For example, the report states that :

• "Beazer built about 2,900 homes in Mecklenburg [County, North Carolina] between 1997 and 2006. At least 388 have foreclosed. That is a rate above 13 percent, the highest among the county's 10 most prolific builders during that period ..."

• "The Beazer foreclosures are concentrated in 10 developments, each of which has a foreclosure rate of 20 percent or higher. Together they contain about 1,150 homes and at least 280 foreclosures."

• "The Federal Housing Administration, which insured most of the mortgage loans, failed to address the problems. The government has paid more than $5 million to cover defaulted loans in [one neighborhood]. It continues to insure new Beazer loans."

• "The FHA loans that Beazer Mortgage arranged often were aggressive. The company provided down payments for most of its borrowers, leaving them with little stake in the homes. It also arranged loans with monthly payments that started low but rose sharply after the first and second years, a feature known as a buydown."

Parts of the report, with such titles as:

• One builder, hundreds of foreclosures,
• Failed mortgages fly under the radar
• The Prices: Homes with Beazer loans cost more
• The Loans: Data wrong on some applications

only begin to give a reader a taste of what The Observer's revelations contained. To read more, including links to the entire four part report, see Sold a Nightmare (Concord subdivision proves lucrative for builder and costly for 1st-time owners).

Video: Chris and Amy Wood's financial struggle
Video: Lea and Mark Tingley's problems
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Beazer Homes Faces Another North Carolina Homebuyer Lawsuit

The Charlotte Observer reports:

• "More Charlotte-area homebuyers are suing Beazer Homes, alleging a litany of misdeeds and claiming the company "fraudulently qualified" them for loans they couldn't afford.
  A lawsuit filed Tuesday by 10 homebuyers in northern Charlotte's Oak Hill development says a Beazer sales agent, Roderick D. Williams, falsified documents to help buyers get loans for Beazer homes. Williams and Beazer Mortgage, which arranged five of the loans, are also named as defendants."

Charlotte, North Carolina attorney Ken Davies, whose firm represents the mostly first-time homebuyers, calls the litigation "an abuse-of-trust case." His clients claim that that they were told they could afford the homes and could qualify for the financing. "They had a right to rely on the professionals to guide them appropriately," says Davies. For more, see Beazer facing new suit (Oak Hill homebuyers say they weren't properly advised about loans).

Go here for other posts on Beazer Homes, including links to investigative reports on Beazer by The Charlotte Observer.

Builder/Lender To Cough Up Million$ In Settlement With Feds Over Fraud Allegations That It Screwed Over Homebuyers In Loan Application Process

In Charlotte, North Carolina, The Charlotte Observer reports:

• Federal investigators [last week] filed mortgage and accounting fraud charges against Beazer Homes USA, but the homebuilder will escape prosecution because it agreed to pay $50 million to victims and accepted responsibility for its actions. The charges, entered in U.S. District Court in Charlotte, relate to Beazer's participation in a scheme designed to fraudulently increase its mortgage company's profits and sell homes, as well as an accounting scheme designed to "smooth earnings." As a result, authorities said, homebuyers defaulted on their loans, and neighborhoods plagued with foreclosures watched home values plummet.(1)

***

• Under the agreement with the U.S. Attorney's office, the homebuilder accepts responsibility for fraudulent practices and will pay $10 million immediately toward restitution for victimized homebuyers, plus additional money up to a total of $50 million as the company recovers financially. The U.S. Attorney's office has agreed not to prosecute the company as long as it satisfies its obligations in the next five years.

For more, see Beazer agrees to pay victims $50 million.

For the U.S. Department of Justice press release, see United States Settles False Claims Act Allegations Against National Home Builder and Mortgage Lender:

• Beazer Homes USA Inc. has agreed to pay the United States $5 million dollars, plus contingent payments of up to $48 million dollars to be shared with victimized private homeowners, to resolve allegations that it, and Beazer Mortgage Corp., were involved in fraudulent mortgage origination activities in connection with federally insured mortgages.

(1) According to the Department of Justice, the settlement resolves allegations that when Beazer Mortgage Corp. made Federal Housing Administration (FHA) insured mortgage loans for the purchase of homes built by Beazer Homes USA Inc., the companies fraudulently and improperly:

• required purchasers to pay "interest discount points" at closing, but then kept the cash and failed to reduce interest rates;
• provided cash "gifts" to home purchasers through certain charities, so purchasers could come up with minimum required down payments, with assurances the "gifts" would not have to be repaid, and then increased home purchase prices to offset the amount of the gifts;
• obscured which of its branches made defaulting mortgage loans to avoid FHA detection of excessive default rates; and
• ignored "stated income" requirements in making loans to unqualified purchasers.

Commentary On Homebuilder Beazer Homes USA

For commentary from the folks at The Motley Fool on the potential problems at Beazer Homes USA, see:

• Beazer's Just the Beginning (by Seth Jayson, 3-28-07)
• Leave It to Beazer (by Rick Aristotle Munarriz, 3-28-07)

TheStreet.com's (and of MSNBC) Jim Cramer also chimes in on Beazer with If Beazer Bamboozled.

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Class Action Lawsuit Filed Against Beazer Homes USA

Two law firms have recently announced the filing of a class action lawsuit against Beazer Homes USA on behalf of all persons or entities who purchased or acquired the common stock of Beazer Homes USA, Inc. during the period from July 28, 2005 through and including March 27, 2007.

Beazer was the subject of a number of media reports by the Charlotte Observer and others regarding inquiries relating to, among other things, mortgage fraud in connection with new home purchases made by its customers and shoddy construction of some of its homes. See other posts on Beazer Homes.

For the law firm press releases, see Milberg Weiss & Bershad LLP Press Release, and Chitwood Harley Harnes LLP Press Release.

For a post on the Lawyers and Settlements website, see Beazer Homes Foreclosures.
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The High Cost Of "No Closing Cost" Mortgages

Another "Beazer Homes" investigative report appeared in the Charlotte Observer recently. This time, The Observer talks about Beazer's reported use of so-called "no closing cost" mortgage loans in financing their home sales. More specifically, the focus is on Beazer's reported practice of arranging for no-cost mortgages for its homebuyers through its mortgage affiliate, which reportedly charged a higher rate of interest for providing such a loan without informing the homebuyer, and collected yield spread premiums in the process . For more, see `No closing costs' add up fast (When Beazer offers incentives, homebuyers think they'll save money. Some don't.).

Go here for other posts on so-called no cost mortgages.

Go here for other posts on the Charlotte Observer's investigative reports on Beazer Homes.

Another "Beazer Homes" Foreclosure Story

In North Carolina, The Charlotte Observer reports on the aftermath of 41 foreclosures in a 107 unit development of starter homes built by Beazer Homes USA several years ago. Reportedly, Beazer arranged mortgages for 37 of the 41 homeowners who lost their homes. For more, see Lost homes haunt families (107 homes. 41 foreclosures. An ongoing crisis in Barrington ruins finances, credit and lives).

Go here for other posts on Beazer Homes, including links to investigative reports on Beazer by The Charlotte Observer.

Did Homebuilders Getting Into The Mortgage Lending Business Help Fuel Subprime Problem?

BusinessWeek.com recently ran a story about how homebuilders who got into the mortgage lending business to finance their own sales has reprtedly fueled the subprime mortgage lending mess. The story states:

• "In addition to spitting out subdivisions, many of which now stand half-empty, builders jumped into the mortgage business to a degree they never had. Wall Street provided the same encouragement it offered other lenders. Even as the housing supply began to exceed demand last year, builders kept sales brisk by pushing adjustable-rate, interest-only, and other risky loans. In some cases they attracted clientele who couldn't afford conventional mortgages. In others, builders allegedly violated federal lending standards to get customers to sign on the dotted line."

Among those homebuilders getting a mention in the story is Beazer Homes USA Inc., which is currently the subject of a Federal investigation, as well as a number of lawsuits in connection with the lending practices of its mortgage financing arm. For more, see Bonfire Of The Builders (By rushing into the mortgage business big-time, homebuilders helped fuel the housing crisis).

Go here for other posts on Beazer Homes USA.

Builders Bail Out Of Bakersfield

In Kern County, California, The Bakersfield Californian reports:

• Two major builders have abandoned housing projects near northeast Bakersfield’s City in the Hills development. A third is halting construction at an Arvin site it recently said was going forward. [...] In the northeast, Centex Homes and KB Home have stopped construction at a pair of contiguous tracts immediately west of City in the Hills.

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• Unfinished tract walls, utility hookups and tiers of graded lots stretched into the distance south and west of the unpainted [Centex] model units. [...] A county tract map recorded last September indicates the 48-acre site is slated for at least 99 homes.

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• Immediately east of the Centex site, KB Home’s partially constructed Olympia neighborhood is home to an abandoned construction trailer. [...] Neat green lawns abut empty brown lots. In all, 174 houses are planned for 40 acres, tract maps show. Property records indicate the empty lots are owned by GMAC Model Home Finance LLC, a Minneapolis-based financial company.

***

• In Arvin, meanwhile, K. Hovnanian Homes has apparently stopped new construction at its Azul and Brisa neighborhoods. [...] About 128 of the tract’s planned 325 homes have been built.

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• Another national builder with a [Bakersfield] presence, Atlanta-headquartered Beazer Homes, formally pulled out of Fresno in June, as well as recently leaving Colorado.
  Kern County property records indicate the company owns more than 225 lots here in at least three tracts, though the company’s Web site shows only one active neighborhood in Bakersfield. A spokeswoman at Beazer’s regional office in Valencia did not return a message left Thursday afternoon asking about the company’s plans for its Bakersfield holdings.

For more, see Three more major builders halt housing projects.

For a sample of Kern County stories on building projects going under, see:

• Three major defaults posted in northeast Bakersfield (A trio of large developments in northeast Bakersfield have defaulted — two of them from the master developer of the City in the Hills project, county records show, continuing a string of such troubles in Kern. More than $26 million was past due on the three loans),
• Another day, another default in Wasco (A 10th housing development has defaulted in Wasco, the city of 24,300 — including a state prison population of nearly 6,000 — that touts itself as the “rose capital of the nation”),
• McAllister Ranch slated for the auction block (The unfinished McAllister Ranch development is headed to the auction block Aug. 22, something that could make Lehman Commercial Paper Inc. landlord of three square miles of dust, curbs and an unkempt Greg Norman-designed golf course in southwest Bakersfield. The developer of the 6,000-home community defaulted on a $235 million loan from New Jersey-based Lehman in April.). unfinished development

HUD Settles Case With Six Home Builders In Alleged Scheme To Hide Title Insurance Kickbacks

HUD allegations of violations of Federal law by six major homebuilders involving hidden title insurance kickbacks, referral fees, etc. allegedly received by them were settled by the parties, according to the following excerpt from a 10-29-07 HUD press release:

• The U.S. Department of Housing and Urban Development [...] announced separate settlement agreements with six major homebuilders that engaged in complex business arrangements involving captive title reinsurance. The agreements announced [...] stem from alleged violations of The Real Estate Settlement Procedures Act (RESPA) and total nearly $1.4 million. [...] “There’s no legitimate purpose for captive title reinsurance when it comes to single-family homes,” said Brian D. Montgomery, HUD Assistant Secretary for Housing and Federal Housing Commissioner. “It’s increasingly clear to us that these complicated business arrangements serve no other purpose than to hide referral fees and kickbacks which are expressly forbidden by law.” [...] In HUD’s view, any captive title reinsurance arrangements in which payments are not bona fide and exceed the value of the reinsurance are a violation of RESPA.

The six builders targeted by HUD in this enforcement action were: Pulte Homes, Inc., KB Home, Beazer Homes USA, Inc., Meritage Homes Corp. and affiliates, The Ryland Group, Inc., and Technical Olympic USA, Inc. (TOUSA Homes), along with their captive title reinsurance companies.

For more, see HUD Announces Six Settlement Agreements With Builders Involved In Captive Title Reinsurance Arrangements (Nearly $1.4 million in settlements the result of Department’s enforcement effort).

For links to the six separate 10-29-07 settlement agreements, as well as RESPA settlement agreements resulting from enforcement actions by HUD against other alleged RESPA violators, see RESPA Settlement Agreements, on the HUD website.

Go here for other posts involving legal issues related to title insurance. title insurance legal issues

North Carolina Feds Indict Six In Alleged Mortgage Fraud Scheme Involving $15M In Loans On 270 Properties

In North Carolina, The Charlotte Observer reports:

• A federal indictment alleges mortgage fraud schemes in Mecklenburg and surrounding counties involving appraisers, lawyers, mortgage brokers, builders and investors and at least $15 million in loans on 270 properties. The indictment, charging six people and listing others as unindicted "co-conspirators," alleges a web of players, from companies accused of lying about homebuyers' income to builders who allegedly paid kickbacks. A subsidiary of Atlanta builder Beazer Homes and a local builder are included as unindicted co-conspirators. The indictments refer to them only by code names; the Observer used public records to identify them. The indictment, which details transactions from 2000 to 2004, elaborates on four alleged scams. The allegations, with names such as the "Flip Scheme" and the "Builder Kickback Scheme," are detailed through 19 home sales.

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• Two of the six defendants were indicted last year in this same mortgage fraud case. Victoria Sprouse and broker Michael Pahutski face previous charges of bank fraud conspiracy, mail fraud and money laundering. Sprouse and Pahutski, both of Charlotte, now face new charges. [...] The new defendants are a Mooresville appraiser R. Michael Gee, Charlotte mortgage broker Jules A. Springs and two Charlotte real estate agents, Gregory A. Mascaro and Gregory D. Rankin.

Sprouse, a Charlotte real estate lawyer, was found liable in a 2007 civil mortgage fraud case and ordered to pay $746,983.

For more, see Indictment alleges web of mortgage fraud (6 people charged in cases involving loans on 270 area properties).

Go here for The Players Who was accused? (Six indicted and 11 unindicted co-conspirators).

See also, The Associated Press: Federal indictment charges in mortgage scheme (A $15 million mortgage fraud scheme in the Charlotte area has spawned more criminal charges).

Go here for other posts on this case.