Beazer May Owe Millions to FHA
October 14th, 2007
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Beazer Homes is reporting that it may owe money to Uncle Sam in connection with FHA loans originated by its mortgage lending subsidiary.
In general terms, lenders can be required to buy-back loans if the borrower does not make one or more payments within the first 60 to 90 days of the loan term or the loan was originated on the basis of fraud, according to Austin, TX lender and author David Reed. Lenders typically have reserves to fund buy-backs, however if the buy-back demands are larger than reserves than a lender will need additional funding or it may fail.
The Beazer statement relating to mortgage originations states that:
“The internal investigation found evidence that employees of the Company’s Beazer Mortgage Corporation subsidiary violated certain U.S. Department of Housing and Urban Development (”HUD”) regulations, particularly in relation to Down Payment Assistance programs, in certain Federal Housing Administration (”FHA”) insured loans originated by Beazer Mortgage Corporation dating back to at least 2000. As discussed below, due to several uncertainties regarding the Company’s ultimate liability from these matters, at this time it is not possible for the Company to determine the total financial statement impact related to the mortgage issues identified in the internal investigation.
“The Company’s potential future liability relates, in part, to the impact of providing reimbursement of losses arising from mortgage defaults in circumstances in which the Company’s FHA-insured mortgage origination activities would have violated standard representations made to mortgage purchasers. In the event of fraud or certain misrepresentations at the time of the sale of such FHA-insured loans, the Company may be liable for losses suffered either by the mortgage purchaser, or HUD if any payment was made pursuant to an FHA loan guarantee. The factors influencing the extent of such potential future liability include, among other things, the number of FHA-insured loans originated by Beazer Mortgage Corporation, the percentage of such loans in which misrepresentations or fraud may have occurred, and the default rate, principal amount and losses associated with such loans.
“The Company intends to attempt to negotiate a settlement with regulatory authorities that would allow the Company to quantify its exposure associated with reimbursement of losses and payment of regulatory fines, if they are imposed. Based on an analysis of the factors described above and available precedents, the Company currently believes that an aggregate settlement with regulatory authorities in a range of $8 - $15 million may be attainable. However, no settlement has been reached with any regulatory authority at this time and there can be no assurance that any such settlement, if reached, will be within this range. The Company is also potentially liable for damages, costs and expenses related to potential civil litigation involving FHA-insured loans that cannot be quantified at this time.”
The full release can be found by pressing here.
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October 15th, 2007 at 12:43 pm
Companies like this stand to ruin FHA loans for thousands that the program could help.