Beazer Homes to restate earnings amid U.S. probes
Beazer Homes USA Inc., a builder under investigation by the Securities and Exchange Commission, will restate earnings going back to 1999 after an internal probe found its mortgage unit violated federal regulations.
The inquiry also found accounting errors in the company’s sale-leaseback program. The revisions will affect financial statements from 1999 to 2006 and include parts of this year. A settlement with regulators might cost as much as $15 million, the Atlanta-based company said in a statement.
Employees violated U.S. Department of Housing and Urban Development rules related to the agency’s down-payment assistance program, Beazer said. Beazer shares fell to a seven-year low this year as the SEC and the FBI started investigations of its accounting and lending practices. Thursday’s disclosures signal the company may be trying to resolve its legal matters.
“They’re not going to fight. They can’t win,” said Peter Henning, a law professor at Wayne State University Law School in Detroit. “You admit your accounting is wrong and there were problems in your loan documentation, there’s nothing to fight about.”
Beazer spokeswoman Leslie Kratcoski declined to comment on the violations beyond the company’s statement.
Beazer shares rose 20 cents to $10.13 on Thursday. The shares fell 80% this year through Wednesday, giving the company a market value of $388.3 million.
“While we believe the findings are a modest positive, we remain concerned with still some lingering litigation risk,” wrote Michael Rehaut, an analyst at J.P. Morgan Securities Inc., who rates the stock “underweight.”
The FBI opened a potential fraud probe after the Charlotte Observer reported in March that Beazer had sold homes to low-income buyers who couldn’t afford them. The loans were based on the assumption the buyer’s income would rise, a practice restricted by the Federal Housing Administration.
The company’s FHA-insured mortgage origination business might have violated “standard representations made to mortgage purchasers,” according to Thursday’s statement. The company may be liable for losses suffered by mortgage purchasers or HUD, Beazer’s statement said.
Beazer said the investigation found that some of its accounting for land development and leaseback transactions didn’t comply with generally accepted accounting principles. The overall effect of the restatements will probably lead to an increase in net income.
Beazer issued preliminary financial results for the fourth quarter and said home closings fell 39%. New orders plunged 52% as the cancellation rate surged to 68% “in large part [because of] the pronounced tightening in the mortgage markets in August and September.”
HUD ended the down-payment program this month after saying it led to higher prices and more foreclosures.
