Thursday, July 02, 2009

Beazer Homes Settles Accusations of Mortgage and Accounting Fraud

Beazer Homes USA, Inc. was charged in a federal bill of information and a deferred prosecution agreement, which were filed in U.S. District Court for the Western District of North Carolina. The criminal charges and accompanying agreement relate to Beazer's participation in a fraudulent scheme designed to increase Beazer Mortgage's profit margin and sell Beazer homes, as well as an accounting fraud scheme designed to "smooth earnings." Under the deferred prosecution agreement, Beazer accepts responsibility for several fraudulent mortgage origination and accounting practices, as set forth in the separately filed bill of information.

Under the deferred prosecution agreement, Beazer agrees to pay $10,000,000 immediately toward restitution for victimized home-buyers, and additional money as Beazer recovers financially, up to $50,000,000. This $10,000,000 includes the $2,500,000 Beazer paid to the North Carolina Commissioner of Banks in May 2009 to provide restitution to North Carolina victim home-buyers, and the remaining $7,500,000 will be paid into a national restitution fund. Any additional payments, up to $50,000,000, will be paid into the national restitution fund. Any monies in the national restitution fund that are unclaimed by victimized home-buyers after the expiration of the agreement will revert to the Federal Housing Administration, subject to the terms and limitations in a separate civil agreement between Beazer and the Civil Division of the U.S. Department of Justice and the U.S. Department of Housing and Urban Development.

As described more fully in the bill of information, Beazer and its subsidiary, Beazer Mortgage Corporation, admit to engaging in several fraudulent mortgage origination practices, including (1) fraudulently retaining so-called "discount points" that should have been used to provide some home-buyers with a decreased interest rate; (2) fraudulently informing some home-buyers that they were receiving a "gift" from a charity to cover their down-payment when, in truth, the price of the home was increased to offset the supposed "gift;" (3) fraudulently circumventing the "Neighborhood Watch" and "Credit Watch" programs of the Department of Housing and Urban Development to avoid action from HUD in response to the high foreclosure rate of some Beazer Mortgage offices; and (4) instituting a strategy of willful blindness with regard to some stated income loans.

According to the bill of information, Beazer also admits to having engaged in a scheme to commit securities fraud by practicing a form of what is commonly known as "cookie jar accounting." Specifically, when Beazer's financial performance was stronger than needed, Beazer decreased its net income through the manipulation of a variety of "reserve" accounts. This manipulation left Beazer with excess reserves and excess balances, which it then was able to use to "smooth earnings" as needed.

The deferred prosecution agreement recognizes several important factors considered by the United States in reaching this agreement. These include (a) the efforts undertaken by Beazer's Audit Committee to investigate and report to the United States, regarding the fraudulent mortgage and accounting practices; (b) Beazer's cessation of the business activities of Beazer Mortgage and the consequent elimination of any risk of further fraudulent mortgage practices; (c) Beazer's adoption of remedial measures, including the termination of executives and employees it identified as responsible for the misconduct; (d) Beazer's commitment to continue to cooperate with the United States in its ongoing investigation; (e) Beazer's commitment to provide appropriate restitution to buyers in cooperation with the North Carolina Commissioner of Banks and through the establishment of a national restitution fund; (f) the Chief Executive Officer and Chief Operating Officer's voluntary contribution of the funds they received from their 2008 yearend bonuses to the restitution fund; (g) Beazer's commitment to provide appropriate restitution to the Federal Housing Administration as part of a separate civil agreement; and (h) the recognition that the imposition of additional criminal penalties or the requirement of additional payment at this time would jeopardize the solvency of Beazer and put at risk the employment of approximately 15,000 employees and full-time contractors not involved in the criminal wrongdoing.

Acting U.S. Attorney Edward R. Ryan said, "Mortgage fraud devastates those who become victims while pursuing the American Dream, as well as the neighborhoods impacted by foreclosures. Today's agreement holds the company responsible for the fraud of its employees, and puts money back in the hands of victimized home-owners."

"At this time of uncertainty in the mortgage market, it is especially important that all lenders, including builder-affiliated lenders, are held to the highest standards of conduct," said HUD Secretary Shaun Donovan. "This action shows that the Administration is serious about making the mortgage market as safe as possible for American home buyers, and will crack down on those who violate their trust."

"The current economy is causing people to question the business practices of lending institutions, and the recent actions of Beazer Homes further compound those concerns. However, Beazer is taking responsibility for the damage it has done and the customers hurt by its actions. This case shows Charlotte and the rest of the nation that the federal government is working diligently to restore the faith we all once held. We are holding people accountable," said Owen D. Harris, Special Agent in Charge of the Charlotte Division of the FBI.

"This settlement not only provides relief for homeowners harmed by Beazer's practices, but it highlights the potential for abuse when homebuilders push borrowers to use the builder's mortgage company," said North Carolina Deputy Commissioner of Banks, Mark Pearce. "We appreciate the U.S. Attorney's Office's leadership in coordinating this wide-ranging and complex investigation."

"The North Carolina Real Estate Commission is committed to the fight against mortgage fraud. We are pleased that we were able to partner with the U.S. Attorney's Office in the Western District and each of the other agencies involved in this complicated and detailed investigation and work together to bring about a result that includes restitution to so many consumer victims, both in North Carolina and nationwide," said Janet B. Thoren, Chief Deputy Legal Counsel, North Carolina Real Estate Commission.

Today's announcement is made by Acting U. S. Attorney Edward R. Ryan of the Western District of N.C., along with Secretary of Housing and Urban Development Shaun Donovan; Owen D. Harris, Special Agent in Charge of Federal Bureau of Investigation Operations in North Carolina; Jeannine A. Hammett, Special Agent in Charge, Internal Revenue Service, Criminal Investigative Division; Keith Fixel, Inspector in Charge, United States Postal Inspection Service; Fernando Ramos, Special Agent in Charge, Office of the Inspector General, Department of Housing and Urban Development, Joseph A. Smith, Jr., Commissioner of Banks for North Carolina, and the North Carolina Real Estate Commission.

The Acting U.S. Attorney commends the thorough investigation by the FBI, the Criminal Division of the IRS, the U.S. Postal Inspection Service, the Office of the Inspector General of HUD, the North Carolina Commissioner of Banks, and the North Carolina Real Estate Commission which resulted in the resolution of this matter. Acting U.S. Attorney Ryan added that the Securities and Exchange Commission provided invaluable assistance during the investigation, in conjunction with their parallel investigation. The government is represented in this matter by Assistant United States Attorneys Matthew T. Martens and Kurt W. Meyers of the U.S. Attorney's Criminal Division in Charlotte.

mortgage fraud

1. Interesting how a massive fraud scheme on the part of a large builder can be made to “go away” by throwing enough money at the problem.  There still seems to be two sets of standards in this country.  All the “small” fraud cases see people rightly being sent to jail.  But the large fraud cases, Beazer, Fannie Mae, Freddie Mac, et. al. involve financial settlements but no jail time.

   As long as the government maintains two sets of rules for fraud, there will always be fraud.

   Posted by  on  07/02  at  09:50 AM

2. If you don’t enforce the law at the top, you can’t expect to enforce it at the bottom.  The Fed. has got to stop coddling racketeers.  The world is watching.

   Posted by  on  07/02  at  05:02 PM

3. This is a joke. It goes on to show that big corporations can simply out muscle the law. Think about it, read the boards and you will see that if someone lies on their loan application, they can get 5-10 years. Then you have a big mammoth doing all kind of criminal things and they pay it back and on the go. It is almost like robbing a bank, and when the robber gets caught, he offers to return the money back and he goes on with his life.

   Posted by  on  07/04  at  08:17 AM

4. I am very upset by the series of events that have happen to my family within the last 6 months.  I entered into a lease purchase agreement that stated I had up to a year or 2 to purchase the house.  I was working on getting my credit up to par. I gave the owner $2000.00 down and an additional $1100.00 for the first months rent.  We were paying faithfully until March 2009, we received a letter from HUD as well as the mortage company that the house was in foreclosure.  We contacted the owner and he stated that it was all a mistake.  We continued to pay him and we received a letter stating that the house was still in foreclosure and his loan modification was denied.  I really love the house! He keeps pressuring us to give him money.  I am really afraid of him because he is a pathological lier.  He has gone from a Phyiscal Therapist, Banker, Ambulance Driver, Manager at Shoney’s, Business Owner all in 6 months.I can’t really afford to leave right now. We are still in the house he is over $10,000 behind in the house note. Someone please help me I have two kids and no where to go. Should I leave and the house is vacate for months or am i entitled to my $2000.00 deposist back.

   Posted by  on  07/04  at  03:02 PM