Problems in the bad credit mortgage market continued to take their toll on home builder confidence regarding the housing market in April, an industry trade group reports.
The crisis in risky home mortgages 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 home purchase 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 Homes in Winchester, Va., 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% 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 mortgage 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 bad credit mortgage 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 home 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.
SOURCE: USA Today
Beazer Homes, which has recently suffered hefty losses amid a downturn in the housing market, is now facing a federal investigation of home mortgage fraud and other allegations.
The FBI and the U.S. attorney’s office in Charlotte, N.C., along with the IRS and the U.S. Department of Housing and Urban Development, launched an investigation of Beazer Homes last week, FBI agent Ken Lucas said.
Lucas, a spokesman for the FBI’s Charlotte field office, said the inquiry involves “fraud in general,” and more specifically is related to corporate, Georgia mortgage and investment issues.
Asked whether investigators would seek to question corporate officers and subpoena the home builder’s records, Lucas said he wasn’t sure.
“We just started this,” Lucas said.
Lucas declined to release more details about the ongoing home loan investigation. He also would not say what prompted the inquiry in the first place, or what the next step(s) would be.
In a statement regarding the mortgage fraud investigation, Beazer said it “cannot comment on or verify any investigation. However, we will fully cooperate with any government agency.”
“Beazer Homes has a long-established commitment to managing and conducting business in an honest, ethical and lawful manner,” the statement said.
Last week, Beazer Homes said that its CFO, James O’Leary, was stepping down after four years with the home builder to become president and CEO of Kaydon Corp.
Beazer has suffered from the housing downturn.
Weak demand for new construction, slow new home sales, properties at very steep discounts and the need for inventory writedowns have taken a toll on the company’s results.
This is the latest major company to face allegations of mortgage loan impropriety stemming from the housing market cooling. We’ll be monitoring this situation to bring you the latest.
SOURCE: SmartMoney.com
Forgive our language in the headline - but that wasn’t the word we chose to describe the world of home mortgage loans.
The same can’t be said for D.R. Horton Inc. The largest U.S. home builder expects builders’ pricing power to return by January 2008, after the hard-hit industry works its way through inventory of unsold homes, the company’s chief executive said Wednesday.
“I don’t think ‘08 is going to be a great year, but it’s going to be much better than ‘07,” CEO Don Tomnitz told the Citigroup Industrial Manufacturing Conference.
He added: “‘07 is going to suck.”
Home price slump continues
D.R. Horton said it may have to make further write-offs to reflect unsold homes or lower land values.
“We may have more impairments coming,” Tomnitz said. “We’ll know that on a quarter-by-quarter basis.”
First-time home buyers account for about 40 percent of the company’s sales. Its treasurer, Stacey Dwyer, said subprime/bad credit mortgage borrowers - those with weaker credit histories - account for fewer than 5 percent of its customers.
The Fort Worth, Texas-based company, which builds homes in 27 states and had a backlog of 16,694 homes as of Feb 13, has demanded price cuts from its vendors and has reduced selling and general expenses in recent months, the CEO said.
The company is targeting free cash flow of $1 billion in its fiscal year, which ends on Sept. 30.
Tomnitz said in the current environment it was hard to determine the value of land, so merger and acquisition activity was not likely to pick up in the sector. The main purpose of a merger was to get another company’s land and lot position, he said.
“It’s a little early to be talking about M&A,” Tomnitz said.
D.R. Horton, like its rivals Toll Brothers (Charts) and Pulte Homes (Charts), has cut the number of new homes it starts to build, but a large supply of existing homes is also forcing homebuilders to reduce prices or offer home buyer incentives.
For example, in Las Vegas, formerly a “hot” market, there are 2,500 unsold new homes, Tomnitz said. But this Nevada housing market has 25,000 unsold existing homes, many of them unoccupied.
The company’s least profitable market right now is California, with particular weakness in the north and south of the state, Tomnitz added. Adjustable-rate home loans in that region have caused problems for current owners, while also scaring away future ones.
SOURCE: CNN Money
Remodeling activity remained steady in the fourth fiscal quarter of 2006, according to the National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI).
What this means locally is that home improvement loan activity is not sagging off nearly as much as traditional home purchase loan demand.
The current market conditions index edged up slightly from 47.8 to 48.2 on a seasonally adjusted basis and future expectations moved up to 46.0 from 45.4. The RMI measures remodeler perceptions of market demand for current and future residential home remodeling projects.
“Remodeling retained strength across most of the country compared to late last year,” said NAHB Remodelers Chairman Mike Nagel.
“Certainly the regional economy and housing market play an important role, but overall we see maintenance of high levels of remodeling activity and solid future prospects.”
The RMI component for the rental market indicated a stronger than expected increase in activity for that sector in the fourth quarter of 2006.
Current conditions index for renter-occupied markets increased from 38.8 to 44.1, while conditions in owner-occupied units decreased from 51.4 to 49.7.
At a time when mortgage rates remain steady but home sales remain slower than recent years, future expectations for the renter-occupied units also grew from 37.1 to 42.4, while owner-occupied units edged up from 45.0 to 45.6.
“Though the substantial reductions in home sales and new housing production have impacted the remodeling market to some degree, we feel that remodeling of both owner-occupied and rental housing will remain strong compared to other areas of the industry,” said NAHB Chief Economist Dave Seiders.
“With record levels of owners’ home equity and a constant need to upgrade the older housing inventory, the remodeling outlook appears quite good for years to come.”
Regionally, the Southeast reported the most growth as current conditions increased to 52.8 and future expectations moved up to 51.1. While the slumping of the housing market has been widely reported, this indicates record amounts of home equity waiting to be tapped.
The current conditions in the West grew to 52.4, but future expectations fell to 51.3. In the Northeast, current conditions moved down to 45.7 while future expectations increased to 50.1. Only the Midwest showed declines in both, with current conditions decreasing to 44.4 and future expectations lowering to 35.7.
The RMI is based on a quarterly survey of home remodeling professionals, whose answers to a series of questions were assigned numerical values to calculate two separate indexes.
The first index gauges market conditions based on remodelers’ reports of major and minor additions and alterations on both owner- and renter-occupied dwellings.
The second index gauges expectations for the future and is based on remodelers’ reports of their calls for bids, the amount of work committed for the next three months, job backlogs and appointments for proposals. This can be considered an accurate gauge of future demand for home equity loans.
SOURCE: National Association of Home Builders
After a slow start, the Kentucky real estate market will “pick up steam in the spring,” the president of The Market Edge, a Knoxville housing research firm, told the Home Builders Association of Lexington on Tuesday.
Dale Akins predicted that building permits will be down by about 10 percent nationally in 2007, but only 5 percent in Lexington, Louisville and other Southeast cities where his firm collects building permit data.
The biggest threat is psychological.
The media, Akins observes, generalizes as if there is one national housing market that behaves uniformly, when in reality there is actually a diverse collection of local markets.
“I’m concerned that the media will get it wrong and cause home buyers to get stage fright,” Akins told the home builders. “The picture in most markets is not nearly as gloomy as they make it out to be.”
Earlier Tuesday, the National Association of Realtors said home sales of existing properties rose by 3 percent in January, the largest gain in two years, raising hopes that the worst of the slump might be over.
The national median home price, however, fell for a sixth straight month as home mortgage loan demand continued to lessen nationally. The median price dropped to $210,600, a decline of 3.1 percent from the figure of a year ago.
Akins said the slump in the Lexington market is hard to understand because job growth continued and Kentucky mortgage rates remained low in 2006 even as building permits declined by 30.1 percent in Fayette County - and by similar amounts in several nearby Bluegrass counties.
Permit totals generally move in the same direction as jobs.
“My concern for Lexington is that politically, the powers that be don’t realize how much we as an industry impact the housing market or, worse, maybe don’t care,” said Akins, who is also a real estate developer.
“The markets that are doing well have one thing in common,” he said. “The politicians support growth and realize that we don’t destroy communities, we create them.”
The five hottest areas of Lexington for home mortgage activity, based on 2006 residential permit values, are Hayes Boulevard off Richmond Road, Man o’ War Boulevard and Interstate 75, the Todds Road/Man o’ War area, and the Clays Mill-Boston Road area along Man o’ War.
SOURCE: Lexington Herald-Leader
A few years ago, the Canton (Oh.) Repository reports, the vast majority of newly constructed homes were single-family detached residences, often with large yards. Today, it’s a different story.
Within the past few years, there’s been a significant swing toward attached units — heavy condo demand as well as townhouse demand. In these units, buyers share walls and areas such as walks, pools, even yards.
The most obvious advantage of an attached home is cost.
The price of a high-quality condo or multi-family home unit is less than a comparable single-family detached home. They are both expensive in today’s market, but attached units are less expensive because per-unit building expenses are split among multiple people and therefore cost less.
Other factors that often appeal to home buyers relate to security, professional management of the property and the freedom to leave their unit unattended for extended periods. Some residents like the community feel of living in this type of complex.
Attached housing was once known as being popular with young, first-time home buyers and retiring baby boomers. Today, it’s becoming the home of choice for buyers of all ages and levels of affluence.
The trend toward attached units in the housing market has reached a point where more than half of all new housing starts in many U.S. real estate markets are attached housing.
HOME EQUITY
Another study of buyer trends found an increasing number of homeowners are obtaining needed cash via mortgage refinancing their existing mortgage.
There’s a very good reason for that trend. A home equity loan or a line of credit is usually tied to the prime rate. Those rates have been increasing significantly, while long-term mortgage rates have remained relatively low.
Homeowners feel the best way to generate needed funds in today’s market is through cash-out refinancing. According to the American Bankers Association, the dollar amount of home equity loans increased by 14.6 percent for the first three quarters of last year.
The number of property foreclosures is dropping, according to a report from RealtyTrac, a real estate research firm. About 109,650 properties entered some stage of foreclosure during the month of December nationally, a fact reflecting a decrease of nearly 9 percent from the previous month.
As Colorado mortgage problems continue to mount, the Rocky Mountain State boasted the nation’s highest foreclosure rate in December. Nevada default rates dropped to second highest in the nation, while Texas recorded the most new foreclosure filings of any state in December.
MORTGAGE ‘SUITABILITY’
A new “suitability standard” law has been proposed by Rep. Barney Frank, D-Mass., new chairman of the House Financial Services Committee. This new law would require mortgage providers to grant loans only to applicants who are clearly in a position to make their monthly payments.
The law would require a loan officer to make certain that applicants are financially capable of handling a requested home loan before and after their payment increases, and that they fully understand every pertinent element about the loan they select.
The Mortgage Bankers Association takes a dim view of the proposal.
“Making a mortgage lender responsible for determining which mortgage loan is suitable for a borrower will limit consumer choice and could deepen the slowdown in the housing market,” said Kurt Pfotenhauer, MBA’s senior vice president of government affairs.
“After 25 years of the industry developing increasingly sophisticated and objective underwriting standards,” he added. “Such a suitability standard would turn back the clock on fairness in lending by virtually requiring mortgage company subjectivity in the lending decision.”
50-YEAR MORTGAGE
Last year, the 40-year fixed-rate mortgage became increasingly popular with borrowers, primarily marginally qualified home buyers. Predictably, a 50-year mortgage is now being offered by lenders and mortgage brokers.
This is very close to being an interest-only mortgage, but it’s not quite - the rate of amortization is very slow, particularly in the early years of the term.
It helps some people qualify for needed financing for the purchase of a high-priced, much-desired home, and lower monthly payments make it possible to buy a more expensive home than they could otherwise.
SOURCE: Canton Repository
U.S. housing starts plunged in January to their slowest pace in more than nine years, CNN Money reports this morning, as the latest government reading on the battered housing market came in weaker than forecasted.
New homes started in January fell by 14.3 percent to an annual rate of 1.41 million from the 1.64 million pace in December, the U.S. Census Bureau reported Friday.
Economists surveyed by Briefing.com had forecast a 1.6 million rate for January. The last time starts fell to this slow a pace was August 1997.
The number is not only well below the December pace, but it is 22 percent below the average for all of 2006, when the housing bubble was already slowing down, and about 32 percent below the record pace of 2005.
Applications for new home permits, which is generally viewed as a measure of builders’ confidence in the market, fell 2.8 percent to an annual 1.57 million rate from 1.61 million a month earlier, which was a bit below the economists’ more positive forecast of a 1.59 million pace.
The housing permit reading was helped by a second straight month of strong permit application for buildings with five or more units. The number of permits for single-family homes fell by 4 percent to a six-year low, even as home mortgage loan rates remain relatively affordable.
The one piece of good news in the report is it could help cut down on the glut of homes available for sale on the market, which has been pushing down prices for both new and existing homes. But it also suggests that home builders aren’t seeing the stabilization in the housing market that some economists had been looking for.
The housing sector hit a severe slump in 2006 after a record building boom in 2005 left a glut of homes available for sale on the market, pushing down the demand for home mortgages and home prices.
Thursday, the National Association of Realtors reported a deep, widespread decline in home prices on record during the fourth quarter.
But other recent readings have also suggested a more recent stabilization in the battered real estate market. A National Association of Home Builders survey of its members, released Thursday, showed home builder confidence at its highest level since June, although the builders surveyed still saw the market as a weak one.
The nation’s leading home builders have all reported declining sales and prices for new homes, due greatly to the glut of inventory available for sale on the market. KB Homes reported a net loss of $49.6 million, or 64 cents per share, for the fiscal fourth quarter ending November 30.
How this plays into experts’ forecasts for the cost of home loans, and the impact of mortgage demand on the 2007 housing market, remains to be seen.
SOURCE: CNN Money
Home builders‘ confidence rose in February, all the way to its highest level since June 2006.
The main reason? In the wake of low mortgage interest rates and sales incentives, demand rose across the country, the National Association of Home Builders said on Thursday.
The NAHB/Wells Fargo Housing Market Index jumped to 40 from 35 in January, its highest reading since hitting 42 in June 2006, the group said. The index has also rebounded from a 15-year low of 30 notched in September 2006.
Economists polled by Reuters had forecast the index to be unchanged. Readings below 50 indicate more builders view their market conditions as poor rather than favorable.
“The … results are consistent with Federal Reserve Chairman Ben Bernanke’s assessment to Congress this week that there are signs of stabilization on the demand side of the housing market,” said David Seiders, Chief Economist at NAHB.
Lower energy prices, favorable mortgage rates and growth in employment and household income have contributed to the recent stabilization of buying demand, he said in a release.
“In addition, builders continue to offer substantial sales incentives to move their product and limit cancellations, which has helped to firm up buyer demand,” he added.
Mortgage finance company Freddie Mac said interest rates on U.S. 30-year mortgages averaged 6.22 percent in January, up from 6.14 percent in December. Rates on 15-year mortgages averaged 5.97 percent, up from December’s 5.88 percent.
Rates on 30-year mortgages, however, were down from last year’s high of 6.76 percent in July. Rates on 15-year home mortgages were also below last year’s high of 6.39 percent in July.
The Dallas Morning News reports this week that in the midst of the biggest housing market slump in over a decade, industry analysts are already trying to figure out where business will head when the downturn is over.
Citing numerous sources, the Morning News says not to be surprised to see a flurry of mergers between home builder groups this year and into 2008.
“We believe there will be a frenzy,” said Jody Kahn Kline of Michael Kahn and Associates. “Once the market begins to stabilize, we fully expect Wall Street to begin to pressure the national builders to achieve growth.
After the cost of a mortgage loan rose so fast from 2001-2005 that demand waned and the wind was abruptly knocked out of the market in 2006, the housing industry has already gone through a major consolidation.
“During the last 15 years, we find more than 150 mergers and acquisitions have taken place among the top 14 builders,” said Gopal Ahluwalia, a top researcher for the National Association of Home Builders.
“In 2006, it seems the merger and acquisition process has slowed down with the slowdown of the housing market,” Ahluwalia said. “The question really is, If the market recovers this summer, will the acquisitions start again?”
Even without further consolidation, the biggest home builders have a firm grip on the U.S. housing market. The 10 largest builders have seen market share grow from less than 6 percent in the early 1990s to about 23 percent.
“If we go back to 1992, there was only one builder whose share was more than 1 percent of the market. In 2005, there were three builders whose share is more than 3 percent,” Ahluwalia said.
While many big publicly held builders are cutting back on construction and selling off raw land and lots because of the current slump, most analysts say they are already positioning for better days - especially with home loan rates remaining low.
D.R. Horton Inc. has been one of the biggest buyers of building companies, acquiring more than a dozen firms since the early 1990s. In last month’s earnings conference call, analysts asked if they were shopping again.
“There have been a couple of times over the last 10-15 years when the home builders got whacked and a lot of fear came into the market and you had an opportunity to step in and make some material acquisitions of assets and people,” said Stephen Kim, a securities analyst for Citigroup.
“I would think we are starting to enter a period of time when maybe it might be time to rev that machine back up.”
But Horton CEO Don Tomnitz didn’t sound convinced. His company, like so many others in the business, has had to offer incentives to buyers in order to move homes. What’s in store for the rest of this year is anyone’s guess.
“The only reason we would want to do that is if we felt like we would need to add to our current land and lot inventory, which at this stage in the game we absolutely do not,” Mr. Tomnitz said.
SOURCE: Dallas Morning News