Beazer Homes USA confirmed on Wednesday that it had received a request from the U.S. Attorney's Office in Charlotte, N.C., for documents "generally related to its mortgage business," Beazer Mortgage.

That subsidiary of the Atlanta-based builder was the subject of a scathing four-part series of articles in the Charlotte Observer last week, which raised questions about Beazer's mortgage lending practices in North Carolina several years ago.

On March 29, Beazer filed an 8-k report with the U.S. Securities and Exchange Commission, in which it stated that it had received a grand jury subpoena from the Charlotte U.S. Attorney's office for documents about its mortgage origination services. The builder says the subpoena was issued upon application of the Office of Housing and Urban Development's (HUD) Inspector General. In previous statements it posted on its Web site, Beazer says that it surmises that the document request might be the result of the Observer's reporting, which the builder claims is unsupported by an investigation that Beazer conducted internally. The company also says that statements made by a spokesperson for the FBI that the inquiry was looking into possible fraud "were not authorized and should not have been made." Beazer says it had not been accused of any wrongdoing, and that it was cooperating with the U.S. Attorney's request for documents.

The Observer articles, based on its examination of government sales records and interviews with customers, focus on a subdivision in Mecklenburg County, N.C., called Southern Chase, which Beazer opened for sale in 1997. That community, with 406 homes, represented an experiment by Beazer in selling first-time homes to low-income buyers. However, 77 buyers ultimately lost their homes to foreclosure, and the Observer asserts that some of Beazer's lending practices made those foreclosures "inevitable" by facilitating loans for buyers who could barely afford mortgage payments that escalated after two years.

The newspaper reported that Beazer Mortgage brokered loans for two-thirds of the buyers at Southern Chase, and, in some cases covered down payments, closing costs, and portions of mortgage payments for the first two years. In 2002, Beazer was marketing homes in this subdivision for $1 down. The Observer also found examples where buyers' incomes were overstated and debts understatedon the final versions of loan applications. The Federal Housing Administration insured those loans and has since paid out $5 million to cover the foreclosures.

The newspaper reports that of an estimated 2,900 homes that Beazer built in the county between 1997 and 2006, at least 388 have foreclosed.

Beazer responded by stating that its mortgage subsidiary complied with the law; that its operations were carefully monitored; and that lending decisions are ultimately made by the company providing the money. At Southern Chase, National City Corp. of Ohio approved and funded two-thirds of the loans Beazer Mortgage had brokered. Beazer also asserts that customers were informed about loan terms, and they signed documents indicating understanding and acceptance of features such as interest-rate buydowns or down-payment gifts.

Rick Thames, the Observer's editor, defended his newspaper's reporting when he told BUILDER: "We have documented everything that we¹ve reported and have made available what we found for everyone to read. I'm not sure what Beazer is referring to because it refused to be interviewed." Thames also reiterated what he told Bloomberg News earlier: that the Observer began tracking the abnormally high rates of foreclosures in the Charlotte area more than a year ago "and eventually that research led to Beazer Homes." Toni Glover, assistant to Beazer's CEO Ian McCarthy, says that the company had no comment beyond statements it had already filed or posted.

Sue Ellen Pierce, a spokesperson for the U.S. Attorney's office in Charlotte, N.C., declined to comment beyond Beazer's statements. Ken Lucas, spokesman for the FBI's office in Charlotte, N.C., also did not return BUILDER's phone call. However, the Boston Globe reported on March 29 that it had confirmed that the Bureau and HUD would investigate Beazer's mortgage practices. HUD had previously told the Observer that it is looking into whether Beazer Mortgage complied with lending rules. Other news reports stated as well that the IRS is involved in the inquiry, although BUILDER was unable to confirm this independently.

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