Beazer Homes Suffers as Feds Probe Mortgage Biz

The company on Wednesday confirmed media reports that it's been contacted by federal officials investigating its mortgage loan origination business in the Charlotte, N.C., area, where many houses in its lower-priced developments have foreclosed.

It's another blow to an industry that's already reeling from the protracted collapse of the housing boom. New single-family home sales fell 16% from December to January, then dropped another 4% from January to February, according to data released Monday by the U.S. Census Bureau.

Beazer's woes stem largely from the area around fast-growing Charlotte, where the Charlotte Observer newspaper reported that of the approximately 2,900 homes the company built in Mecklenburg County between 1997 and 2006, at least 388 have foreclosed, nearly 13.4% of the total. That's the highest foreclosure rate among the county's 10 largest builders, the paper reported in an intensive investigative series. National foreclosure rates, even as buyers with subprime mortgages face increasing pressure as their payments rise, are at about 3%.

Federal investigators, in a joint inquiry by the Federal Bureau of Investigation, the Internal Revenue Service, the Justice Department and the Department of Housing and Urban Development, are looking at Beazer's aggressive lending practices with low-income buyers, which the newspaper said included potential falsification of borrowers' incomes. The government has already paid about $5 million to cover loan defaults in one Beazer-built Charlotte neighborhood.

"There's all sorts of potential fraud issues here," FBI spokesman Ken Lucas told Business Week in a story published Tuesday. "We're looking at all types of [potential] fraud associated with Beazer — corporate, mortgage, investments."

The company, the nation's sixth-largest home builder, offered brief comments about the investigation on its corporate web site.

"Beazer Homes has been in contact with the U.S. Attorney's Office and, at this time, there have been no allegations of any wrongdoing," the statement said. "Instead, Beazer Homes has received a request for documents generally relating to its mortgage business. We are fully cooperating with this request and the U.S. Attorney's Office. We believe this request was fueled by the articles recently published by the Charlotte Observer. Based on our internal investigations to date, we have found no evidence to support the allegations in these articles."

The company, which didn't return a phone call seeking comment, said it was told by the U.S. Attorney's Office for the Western District of North Carolina that "the statements by the FBI and published by Business Week were not authorized and should not have been made."

Most major home builders have a mortgage origination or brokerage operation along with their construction businesses, but this nice high-margin piece of the puzzle hasn't helped any of the major players.