The crisis in risky mortgage loans is shedding light on aggressive lending practices by some of the largest U.S. home builders, which stand accused of using lax standards and illegal sales tactics to arrange financing for buyers.
Last week, Beazer Homes acknowledged that its mortgage subsidiary is being investigated by federal regulators for loans made to hundreds of people who bought Beazer homes. But the complaints about loan practices go beyond Beazer.
The Department of Housing and Urban Development is taking more actions against home builders and their affiliated lenders, says Brian Sullivan, a spokesman for HUD.
“We are seeing increased consumer complaints about builders,” Sullivan says. “Including kickbacks and illegal referral fees, phantom incentives and other violations of our real estate laws.”
One of those complaints was from Griff Carmichael, who looked at a new home built by Ryan in October. The builder said it would finish the basement and give him $10,000 toward closing costs, if he used its lender, NVR.
Carmichael signed a contract to buy a $378,000 home and put down a 10 percent deposit. He had a good credit history. But with his auto and student loans, NVR’s loan broker said Carmichael would qualify only for an interest-only mortgage, according to a letter from James Sack, NVR’s general counsel.
Carmichael, 34, was willing to apply for the loan but insisted it be a “full documentation” loan, which has a lower interest rate than “low-doc” loans. But the broker said he would likely be denied. Sack wrote that Carmichael’s “refusal to apply for loan programs for which he is more likely to be approved is evidence of not using good faith.” Ryan Homes is refusing to return Carmichael’s deposit.
The company has declined to comment.
Most of the largest builders have their own mortgage companies or joint ventures with outside lenders. The business reasons are compelling: Why let a buyer walk out of your model home and into a bank when you can provide the loan and collect the fees and interest?
Once the housing market slowed, builders were stuck with unsold homes. More buyers canceled contracts. Meantime, the builder-mortgage companies faced stiff competition in a lending industry with loose loan standards.
Last year, the lending arm of Pulte Homes settled a case with the North Carolina Commissioner of Banks, which found that 53 of Pulte’s mortgage brokers were unlicensed. The $780,000 fine was reduced to $60,000 after Pulte Mortgage agreed to move operations to Charlotte, creating 230 jobs in the area.
“Pulte Mortgage takes licensing requirements very seriously, and we took prompt corrective action,” said Mark Marymee, a Pulte spokesman. He also noted that no customer complaints were involved in the case.
