The big story in the homebuilding biz involves a federal investigation into the way Beazer Homes helped cut lending deals to low-income buyers in the area around Charlotte, N.C. The Charlotte Observer reported that of the 2,900 homes the company built in Mecklenburg County between 1997 and 2006, at least 388 have foreclosed. That's a 13.4 percent foreclosure rate, compared with national rates of 3 percent or so. The newspaper said that Beazer's aggressive lending practices included potential falsification of borrowers' incomes. "There's all sorts of potential fraud issues here," FBI spokesman Ken Lucas told Business Week. "We're looking at all types of [potential] fraud associated with Beazer ó corporate, mortgage, investments."
Most of the major home builders have some sort of relationship with a brokerage operation - and that, of course, can create potential conflicts in a booming housing market. MarketWatch columnist Herb Greenberg notes, for example, that L.A.-based KB Home teamed up with Calabasas-based Countrywide Financial in a joint venture. According to KB's 10-K, "We believe that the ability to offer customers a variety of financing options on competitive terms as a part of the sales process is an important factor in completing sales." Fine - and Greenberg isn't suggesting any deliberate hanky-panky between KB and Countrywide. But c'mon - when new home sales start to fall, won't the homebuilder and the mortgage broker be likely to offer more incentives? In the summer of 2005, separate from the Countrywide joint venture, KB Home Mortgage Co. paid a $3.2 million settlement in connection with a bunch of alleged violations of HUD requirements. From the press release:
The 13 alleged violations by KB Mortgage Company involve a number of poor underwriting practices such as approving loans to borrowers who were not eligible; approving loans based on overstated or incorrect income; failing to include all of borrowers' debts; failing to properly verify sources of funds; and, failing to ensure gift letters met HUD requirements.