Home builder, Beazer Homes, in trouble with the law due to housing bubble squeeze
Real estate and housing trends
Home builders are hurting from the housing bubble pop in more ways than just soft sales and land aquisition write-offs. Case in point, Beazer Homes based in Atlanta, is in trouble with the law, namely the U.S. Securities and Exchange Commission and the FBI.
I'm sure the heads of Beazer Homes are hot and bothered from more than just Atlanta's humid weather. You see, the SEC began a formal investigation in July to see if anyone at the company or an associated entity violated securities laws. In addition, the FBI is investigating Beazer Homes because its chief accounting officer attempted to destroy documents during an internal probe of the company's mortgage unit.
Pressure pressure pressure
With demand for new homes down, interest rates higher, a glut of new homes on the market, and tighter lending standards, home builders may be tempted to "do business" in the grey area. The FBI said in March it was investigating Beazer Homes for potential fraud after the Charlotte Observer newspaper reported the company had sold homes to low-income buyers who couldn't afford them, financing purchases with mortgages based on EXPECTATION the borrower's income would rise.
That practice is prohibited by the Federal Housing Administration, which provides loan guarantees for home buyers.
The U.S. Attorney for the Western District of North Carolina issued a subpoena to the company at the request of the inspector general of the U.S. Department of Housing and Urban Development. The subpoena sought documents on its mortgage origination services.
Who knows how many other home builders and lenders have engaged in such shady practices to "make a sale?" As the sub-prime mortgage collapse investigations unfold, I'm sure lots of dirty secrets will be exposed.
Credit Rating Downgrade Adds to Woes
Today, Beazer Homes' credit rating was downgraded from 'BB+' to 'BB' by Fitch Ratings and was placed on rating watch negative. Why?
The negative watch placement was due to the company's inability to make a timely filing of its Form 10Q (for the quarter ended June 30) with the SEC and possible need to negotiate waivers with its bond holders.
Beazer delayed filing its Form 10Q as its audit committee, which is conducting an independent internal investigation of its mortgage origination business and related matters, could not complete the investigation and make a final conclusion by the required filing date.
Where to invest in real estate now?
In the meantime, as potential home owners and real estate investors, I recommend you pursue buying opportunities in distressed property sales – pre-foreclosures, short sales, and repos. Get out of Bubbleville markets and invest in Bargaintowns across the USA. They're out there.
Commercial property investment is an excellent choice as well. You can buy with as little as 10% down, even just 3% for some property types. You'll enjoy monthly cash-flow along with property appreciation.
If you want some direction on how to get started, visit the Real Estate Investing Guide Section for articles and educational guides written by experts in their investing niche. Check it out.
Sources: http://www.ajc.com/business/content/business/stories/2007/07/24/beazer_0724.html
http://www.forbes.com/markets/feeds/afx/2007/08/14/afx4015949.html
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