George S. May Business Blog

Beazer back and busted again. Agrees to a $50 million settlement for fraudulent mortgage practices

Beazer Homes USA and its mortgage orientation arm, Beazer Mortgage, have agreed to pay over $50 million settling the charges against them of fraudulent mortgage practices.

Allegedly, the Beazer Mortgage scandal is a two headed snake.

In part one, the settlement claims that Beazer Mortgage, after charging “interest discount points” at closing on the Federal Housing Administration-insured loans they handed out, never reduced the borrowers’ interest rates and instead kept the money.

Part two claims that Beazer paid for cash “gifts” through charities to be used as the required down payment, resulting in inflated home purchase prices. Beazer Mortgage allegedly obscured default information to avoid FHA scrutiny and ignored “stated income” requirements and made loans to unqualified purchasers.

Well, you know how the story goes, unqualified buyers + inflated mortgages = many, many defaults.

But, Beazer wasn’t too worried about that at the time as, well, the FHA program would just foot the bill.

Well not anymore, Beazer…not anymore.

“This action shows that the Administration is serious about making the housing market safe from mortgage fraud and will crackdown on those who violate the trust of American homebuyers,” said HUD Secretary Shaun Donovan. “At this time of uncertainty in the mortgage market, it is especially important that lenders, including builder-affiliated lenders, are held to the highest standards of conduct.”

I really enjoyed the statements made by their CEO, Ian McCarthy, regarding the matter. He tried to make it seem like matter was out of their control. As if this whole thing wasn’t something they created intentionally:

“We deeply regret these matters and have used what we have learned to strengthen our control and compliance culture and reinforce our absolute commitment to act according to the highest standards of ethical conduct throughout our organization”.

Excuse me, but what I believe you meant to say is that you, Mr. McCarthy, and the rest of the Beazer-bigwigs for that matter, deeply regret getting caught…twice.

Oh yeah, this isn’t the first time the Beazer bad-boys have bit the big one.

Not two months ago, Beazer Mortgage agreed to pay out $2.5m to 1,000+ North Carolina borrowers as part of a settlement reached with the North Carolina Office of the Commissioner of Banks over alleged origination violations in 2007.

Now it begins to make more sense as to why Ian McCarthy was among the people nominated by Time magazine as the “25 People to Blame for the Financial Crisis”.

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