KB Home Settles U.S. Allegations
KB Home agreed to pay $3.2 million to settle federal allegations that its mortgage unit engaged in poor lending practices, including approving loans to ineligible borrowers, the government said Wednesday.
The Department of Housing and Urban Development said the settlement was the largest ever collected by its mortgage review board, which takes administrative actions against Federal Housing Administration-approved lenders.
The action also reflects what some say are growing lending abuses encouraged by today’s frenzied housing market, and heightened government efforts to crack down on the problem.
“This settlement sends a strong message that FHA will not tolerate violations of its requirements, especially when they can cause homeowners to default on their mortgages,” said Brian D. Montgomery, HUD assistant secretary for Housing-Federal Housing Commissioner.
The 13 alleged violations by KB Home Mortgage Co., a unit of the Los Angeles-based home builder, involved underwriting practices such as approving loans to ineligible borrowers, approving loans based on overstated or incorrect income, failing to include all of borrowers’ debts and failing to properly verify sources of funds, HUD said.
KB Home didn’t admit wrongdoing and will remain an FHA-approved lender.
KB Home spokeswoman Kate Mulhearn said the settlement would be paid directly to the federal government and would not affect the company’s earnings. KB Home had $3 billion in loan production last year and reported a 2004 profit of $481 million.
The settlement announcement came less than a week after KB Home, one of the nation’s largest home builders, with $7 billion in annual sales, agreed to sell its mortgage unit to home-loan giant Countrywide Financial Corp.
The settlement, Mulhearn said, was “separate from the deal and wasn’t the motivation for it.” Executives at Calabasas-based Countrywide declined to comment Wednesday.
“We are pleased to reach a resolution of the procedural issues with HUD, all of which have been thoroughly addressed internally by the mortgage company,” Mulhearn said.
FHA loans give low-income or first-time buyers with shaky credit a chance to finance a home with a lower-than-typical down payment and more liberal qualifying criteria. The federal government then insures the loans through FHA and sells them to government-sponsored enterprises Fannie Mae or Freddie Mac. They in turn package and resell the loans to investors as mortgage-backed securities.
The limit for mortgages to qualify for FHA insurance is about $300,000 in California.
HUD began a review of KB Home practices after receiving complaints from borrowers, including some in California, Texas and Florida, said HUD spokesman Jerry Brown. Further details about the alleged violations weren’t immediately disclosed.
Some regulators and consumer advocates have suggested that questionable lending practices have grown in the red-hot housing market, with buyers forced to stretch finances to qualify for loans and some lenders eager to accommodate them.
“Lenders have a lot of incentives to make loans when they shouldn’t be,” said Jordan Ash, director of the financial justice center for ACORN, a consumer advocacy group that is fighting predatory lending practices. And builders “get profits from making the loans but also from selling the house,” Ash said.
Since 1998, HUD has taken about 300 actions against lenders, yielding $16 million in fines or settlements.
