It may not be big news compared with the Microsoft-Yahoo! merger, or the Labor Department's lousy jobs report, but Beazer Homes' announcement today that it is getting out of the mortgage lending business is a good sign for the long-term health of the housing market and the troubled mortgage-lending industry.
Like lots of other home builders, Beazer has tried to offer customers a one-stop home-buying shop. They arrive at Beazer's sales office, pick out their dream house, and apply for a loan with Beazer's mortgage arm, and it's a fait accompli.
Many home builders actually require buyers to fill out a loan application with their lending arms, which offer everything from conventional mortgages to the most exotic subprime varieties. By law, buyers aren't required to get their mortgage from their builder. But let's just say there are a lot of incentives, if not outright pressure, on them to do just that.
Trouble is, when home sales started to slip last year and sellers began to miss their sales targets, the one-stop setup created strong incentives for Beazer's underwriters to approve buyers just to keep the company up with its sales quotas. As a recent U.S. News story about a large housing development in Colorado uncovered such arrangements among buyers, builders, and lenders have helped push thousands of underqualified buyers into homes they can't afford.
Many observers say such collusion between builders and lenders is at the root of many of the foreclosures now pushing home prices downward. At the very least, it creates an insidious conflict of interest that undermines the underwriting process and at the most creates incentives for the sort of mortgage fraud that has recently pushed up the FBI's caseload by 50 percent.
According to the Associated Press:
As the nation's housing crisis worsens, there has been a dramatic spike in the number of mortgage fraud cases under investigation. An FBI spokesman said 1,210 such cases are open, up from roughly 800 a year ago.
The FBI said Tuesday it was working with the Securities and Exchange Commission to investigate 14 companies, from mortgage lenders to investment banks, for possible accounting fraud, insider trading, or other issues connected to subprime mortgage lending.