Saturday, July 4, 2009

Beazer Homes Agrees to Pay $53M to Settle Mortgage Fraud Charges

WASHINGTON, DC – In the most blatant case of mortgage fraud disclosed to date, Atlanta-based Beazer Homes USA Inc. has agreed to pay a total $53 million to settle a U.S. Dept. of Justice lawsuit.

The suit could have triggered criminal prosecution against the 41-year-old homebuilder and possibly put it out of business, sources in a position to know tell Real Estate Channel.

The Justice Dept. says Beazer will pay $5 million to the federal government and up to $48 million to victimized homeowners.

"We deeply regret these matters and have used what we have learned to strengthen our control and compliance culture," says Beazer Chief Executive Ian J. McCarthy (top right photo).

The company, which calls itself the 10th largest homebuilder in the U.S., closed its mortgage unit in February 2008. The federal fraud investigation has been going on since 2007.
The company, founded in London in 1968, operates in 16 states.

Beazer Homes has been listed on the New York Stock Exchange since 1994 under the ticker symbol BZH.

The settlement is tied to an agreement with federal prosecutors in North Carolina that will allow the company to avoid criminal prosecution on the mortgage-fraud charges, and on other accounting-fraud charges related to the manipulation of company earnings.
In a separate action, the Securities and Exchange Commission has filed civil charges against Michael T. Rand, Beazer's former chief accounting officer. Rand is accused of conducting a fraudulent earnings scheme and hiding his wrongdoing from outside auditors and other company accountants.

The New York Times and The Washington Post report separately that In the mortgage fraud case, prosecutors said Beazer ignored income requirements in making loans to unqualified buyers, and sought to hide from the Federal Housing Administration that some company branches had excessive default rates on their loans.

Prosecutors in North Carolina also said Beazer charged home buyers interest "discount points" at closing but kept the money and didn't reduce interest rates on the loans, the newspapers report.

The homebuilder provided buyers with cash gifts so they could come up with minimum down payments, only to add the gift price onto the purchase price of the house, according to the Justice Dept.

When home sales slowed in 2006, Beazer tapped into a reserve for land development and house construction and improperly boosted its slumping earnings, the agency says.

In the end, the SEC said, Beazer understated the company's income in SEC filings by $63 million between fiscal years 2000 through 2005.

In addition, the company overstated its income and understated losses by a total of $47 million in fiscal year 2006 and the first two quarters of fiscal year 2007.

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