Huge FHA Fraud Settlement

The settlement with Atlanta-based Beazer Homes USA Inc. includes a $5 million payment to the U.S. Department of Housing and Urban Development, and up to $48 million in contingent payments to victimized borrowers, according to an announcement with the U.S. Department of Justice.

In a statement, Beazer said the total amount will not exceed $55 million.

The agreement was made in conjunction with a Deferred Prosecution Agreement under which the DOJ agreed not to prosecute the company. The agreement requires that the contingent payments be completed within five years.

The settlement amount is far more than the $13 million the company previously said it had set aside for payments tied to government investigations.

Employees of Beazer Mortgage allegedly committed mortgage fraud on loans insured by the Federal Housing Administration. The loans were used to finance Beazer Homes purchases.

The mortgage unit — which shut down in February 2008 — charged discount points without reducing the interest rate, according to the DOJ.

It is also accused of ignoring stated-income requirements and using charities to provide cash gifts to homebuyers — effectively paying for their downpayments itself.

Beazer originally disclosed that it had violated provisions of HUD’s regulations for down payment assistance in late 2007. It claimed the abuse was discovered through an independent investigation. At the time, it hoped to settle the allegations for between $8 million and $15 million.

In addition, Beazer “obscured which of its branches made defaulting mortgage loans to avoid FHA detection of excessive default rates.”

In May, Beazer Homes disclosed a $2.5 million settlement with the North Carolina Office of the Commissioner of Banks over “certain mortgage origination issues in 2007.”

Two Beazer executives — Beazer President and Chief Executive Officer Ian J. McCarthy, and Chief Operating Officer Michael Furlow — have voluntarily agreed to contribute the net pay they received from their fiscal 2008 bonuses.

“We deeply regret these matters and have used what we have learned to strengthen our control and compliance culture and reinforce our absolute commitment to act according to the highest standards of ethical conduct throughout our organization,” McCarthy said in the company’s statement. “We are pleased that the governmental authorities recognized our cooperation and remedial measures.”

Related:
NC Settles With Parent of Defunct Mortgage Unit
The parent company of a mortgage lender that shut down last year will pay $2.5 million to settle a lending investigation by North Carolina regulators. But a federal investigation into mortgage fraud on government originations lingers.