Bonfire of the homebuilders

[Contrary1]

By rushing into lending, homebuilders helped fuel the housing crisis

Elizabeth and Armando Motto are living a real estate nightmare with a new breed of monster:
the big homebuilder as lender. In November, 2005, the couple, who have four children, agreed to pay $540,000 for a newly built three-bedroom house in suburban Clarksburg, Md., near Washington, D.C. Rather than send them to a bank, the builder, Beazer Homes USA Inc., offered to provide a mortgage itself in an arrangement of the sort that helped fuel the long housing boom across the country.

But when it appeared that the Mottos might not qualify financially for the loan, things took a troubling turn. Beazer, according to the couple, inflated the pair's earnings in loan-application documents by incorrectly stating they were collecting rental income from the house they were leaving. "I don't want to misrepresent myself," Elizabeth said in e-mail correspondence with Beazer's outside mortgage service, dated July 14, 2006. But in the end, the couple signed the documents, and soon after they closed on the Clarksburg house.

They now regret it. The Mottos moved to Clarksburg, but they haven't succeeded in unloading their previous home in Rockville, Md. They have nearly $1 million in mortgage debt on the two dwellings. With $145,000 in family income, Elizabeth says, they are "on the brink of foreclosure" on both houses. "We are so broke."

Beazer, one of the dozen or so large publicly traded builders that have started or stepped up mortgage-lending businesses to put more buyers in freshly finished houses, declines to discuss specific customers. The Atlanta company has much more than the Mottos to worry about. On Aug. 1 its stock fell nearly 18 percent on rumors that it was preparing to file for Chapter 11 bankruptcy court protection — which Beazer swiftly denied, calling the Wall Street gossip "scurrilous and unfounded." Just five days earlier, Beazer revealed that the Securities & Exchange Commission had elevated an informal inquiry into its mortgage business to a formal investigation. The company warned that criminal penalties could follow. Earlier this year, Beazer received a subpoena from the Justice Dept. seeking documents related to its home loans, and the company is also under civil investigation by the North Carolina Attorney General's office..."

http://www.msnbc.msn.com/id/20145724/

[Wcross]

1. No sympathy for the Motto's.

They obviously bit off more than they could chew. They signed the false credit application KNOWING they wouldn't qualify otherwise. They closed on their new home with no contract on their old home. They went into this with their eyes wide open. They rolled the dice and crapped out. Too bad.

[Contrary1]

4. You got to wonder if Beazer also did this without discussing it with their clients...

Of course, it would have had to have been written up in the loan ap somewhere. Unfortunately, there are still a lot of people out there who do not read every single thing they affix their signature to.

[Wcross]

7. They knew.

"""But when it appeared that the Mottos might not qualify financially for the loan, things took a troubling turn. Beazer, according to the couple, inflated the pair's earnings in loan-application documents by incorrectly stating they were collecting rental income from the house they were leaving. "I don't want to misrepresent myself," Elizabeth said """

[Contrary1]

8. Sorry I did not make it clear in my post...

I meant that I wondered if there were any other home buyers out there who did not know because Beazer didn't discuss it with them.

Wouldn't let them off the hook though, since it would have been in the contract.

[Rydz777]

5. Yes, they are living recklessly beyond their means. It's a

big boat they are in, an overcrowded one at that, and it's springing leaks from prow to aft.

[jody]

2. Don't gamble if you can't stand to lose. n/t

[Sadie4629]

3. Most offers to purchase

include a contingency of sale of the previous homes. It's just stupid to not consider the possibility that your own home won't sell.

[DURHAM D]

6. If it seems too good to be true - its too good to be true.

Why would anyone making $145,000 a year think they could possibly afford a house valued at $540,000? Good grief.

[Clark2008]

9. No - that's about accurate.

Most people's homes cost about 3 to 4 times their yearly income, on average.

$145,000 X 4 = $580,000

True, it's a little on the high-end of average, but it's not undoable, providing you don't have two mortgages, as they do.

[Wcross]

10. The standard USED to be 2 1/2 times your yearly income.

This was the standard back in the pre-bubble days.

[DURHAM D]

12. The first time I bought a house (not that long ago)

I was told twice my annual income. I ran the numbers and felt that ratio was optimistic.

[tammywammy]

13. I was told 2.5 times you annual income, just a few months ago

I just closed on my first home in June. They told me 2.5 times your annual gross income. But then again, I wasn't looking at a house more than I could afford anyways. And this was with a regular 30-year conventional loan.

[marions ghost]

11. on $145,000

shouldn't they have been able to rent one and pay the other one off? I don't get how they got so far behind....unless the "rental" is just impossible to deal with somehow, while waiting to sell it.

4 kids? :shrug:

Something isn't adding up, but I certainly think the lender is culpable also. These lender builders OUGHT to be investigated. They sucker people. Everything is a risk, but these kind of clueless homeowners are also targeted and exploited. That doesn't make it OK. Consumer fraud is Huge.

[City of Mills]

14. LOL

Sorry, just LOL. No excuse, they speculated, and got burned. I'd like a >$500K home too!

(actually I would NOT like a >$500K home)

[tammywammy]

15. I don't feel sorry for the Mottos

They knew the lender falsified their income amount and while she didn't feel right about still signed the contract. They shouldn't have bought a house that expensive if they couldn't afford it. And they should have put in their contract to buy a clause on selling their other home first. Sorry, bad decisions all around, I don't feel sorry for them.