A major U.S. builder has found that employees of its mortgage unit may have committed fraud on government-insured loans. The company, which hopes to escape with $15 million in settlements, will also restate three years of financial statements.
Provisions of the U.S. Department of Housing and Urban Development down payment assistance regulations were violated on FHA-insured loans by employees of Beazer Mortgage Corp., parent Beazer Homes USA Inc. announced today. The violations, which date back to 2000, may leave the company liable for civil litigation expense as well as losses to HUD and mortgage purchasers.
Beazer said it discovered the abuse through an independent investigation begun earlier this year and conducted by its board of directors’ audit committee, the law firm of Alston & Bird LLP and the forensic accounting firm of Navigant Consulting Inc.
The Atlanta-based company said it hopes to negotiate a settlement with regulatory authorities that will total between $8 million and $15 million.
Beazer and its mortgage unit were previously subpoenaed by the Department of Justice and notified by the Securities and Exchange Commission about a formal order of a private investigation to determine whether it violated federal securities laws.
Beazer also found that reserves and accrued liabilities for land development costs and home completion expenses were overstated by $25 million, the statement said. Estimated excess reserves of $20 million were reflected in 2006 income.
In addition, because Beazer maintained an interest in the appreciation of model homes that had been sold in certain sale-leaseback transactions, it was disqualified from using relating accounting. As a result, it expects to shift $20 million in income from fiscal 2006 to future periods.
Financial statements for fiscal 2004, 2005 and 2006 will be restated, according to the announcement. In addition, financial results from 1999 to 2003 are also expected to be impacted. While the cumulative effect is expected to be an increase to reported income, last year will reflect a decrease. No adjustments are expected to its current cash position.
