In the latest news from the homebuilding front, Beazer Homes, one of the largest residential businesses in the country, said that it broke the law when it helped some buyers qualify for mortgages. It’s also restating earnings back to 1999.
The company didn’t specify how exactly it broke the law, but there’s no doubt that in the go-go runup to the subprime mortgage debacle, a lot of people got a lot of questionable loans from mortgage makers. (By the way, Terry Gross’s Fresh Air interview with Pulitzer Prize-winning business journalist Gretchen Morgenson was an excellent recap of the subprime mortgage bust and its ramifications.)
The fact that Beazer fessed up is not surprising — better to take your lumps now than have to undergo an investigation and possibly stiffer fines. What would be surprising is if Beazer were the only company that has to admit to illegal business practices.
Even without that kind of revelation, the residential construction industry is already facing a tough year or years ahead. Companies overbuilt, buyers were overleveraged and, in many cases, were speculators hoping to buy-and-flip.
The market is not sanguine about the recovery, cutting ratings on debt for top builders.
As quarterly earning reports start coming out we’re going to see more of this kind of story. Basically, it can be summed up with, “things are bad and we don’t know when they are going to get better.”
For many builders, they are probably hoping that’s the only kind of bad news they will have to reveal.
Comments
Cheryl Says:
October 16th, 2007 at 11:20 am
Why not try and work with the homeowner at restructuring the loan at a more reasonable rate to help the owner keep the house and make payments they can afford? It is better than having vacant houses sitting there!
Patrice Sarath Says:
October 17th, 2007 at 9:30 am
Some lenders are doing that already. The problem of course is that Beazer is a home builder, not a full-time lender. They probably don’t have the bandwidth to handle that kind of handholding.
The whole thing is uglier and it is apt to get worse as the teaser rates readjust.
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