KB Home Foreclosure Rate More Than Double Other Builders

KB Home Foreclosure Rate MORE THAN DOUBLE other builders

This report will illustrate that KB Home has a much higher foreclosure rate than other builders in the areas sampled for this study.  All attempts were made to reduce the number of variables involved, such as location, price and date range, and so on.  Based on the information I have accumulated, I strongly urge further research into the causes for the disparities that will be shown.

This investigation was launched following a meeting with KB Home representatives in February of this year.  In our meeting, I mentioned I was seeing significant foreclosure activity in my four-year old neighborhood.  The number of foreclosures at this time stands at 17.  This unfortunate activity is driving my property value down on the order of 20%, a figure that represents more than a $24,000 potential loss in value if I were to attempt to sell my four year old home (I was among the first to move into this subdivision).  This severe decline in value for my home is in spite of the fact that they are appreciating the base price of similar sized new homes in the very same neighborhood by at least 10% in the same time period.  Somehow, they feel that their new homes are worth more than they were a few years ago, yet mine is worth much, much less.  In some way, they are not reflecting the market realities in the neighborhood that their ‘old’ customers are being forced to confront.  I told them that it was insulting to have such a huge disparity in appreciation and depreciation between ‘old’ and new homes, a fact to which they agreed at the time.

However, KB has consistently attempted to assume no responsibility whatsoever for the foreclosures and subsequent loss in value of homes in the neighborhood.  I was told by the representatives and other KB employees since that meeting, in effect, “We just qualify people and sell them homes using FHA and other guidelines, so foreclosures are not due to anything on our part.”  If this were true, I believed that investigating foreclosure rates of several builders and comparing them with KB would yield similar results.  After all, if the same standards are being used by different companies, the resulting foreclosure rates should also be similar.  This letter only provides a summary of my findings; the original data is available for your review upon request.

I am sure you realize that this situation will quickly affect people who are not in my immediate neighborhood.  Sooner or later, a ‘comp search’ for values of homes in other areas will begin to pick up these foreclosures for other potential sellers, driving the market value of those homes down in the process.  This is one reason why this investigation was launched and the organizations listed at the end of this report were provided with the results of my study.
Summary of Findings:

The chart below is based on three KB neighborhoods compared with neighborhoods from other builders.  In this chart, the average foreclosure rate of the KB Home subdivisions is MORE THAN DOUBLE the nearest builder.  In fact, one KB neighborhood has a foreclosure rate that is almost 30%, meaning almost 1 in 3 homebuyers have been unable to continue paying for their homes and have had to leave!  Admittedly, it is possible that somehow I happened to select exceptional subdivisions for all builders involved.  However, it is much more likely that there is another explanation, as these neighborhoods were chosen only for proximity and price range comparisons.  At the very least, I firmly believe this information raises a serious enough question to warrant further investigation by dedicated people within the industry that have access to more data than I have had as a private citizen working on my own.  After all, if the three KB neighborhoods were treated individually, they would rate first, second, and third in having the highest rate of foreclosure, with fourth place being almost half the value of the third-place KB neighborhood.

Methodology:

For my research, subdivisions developed by several builders were located, plattes printed and ID numbers (‘R’ codes) for the properties were extracted from the Williamson County Appraisal District (WCAD) website.  These R numbers were used to research transaction history at the WCAD offices via computer on-site and the relevant information was captured into spreadsheets.    The following information was noted where possible:      

• Original sale date to an individual

• Subsequent transactions and to what parties the transactions occurred

• Housing and Urban Development (HUD)/Veteran’s Administration (VA)/Federal Housing Authority (FHA)/Fannie Mae ownership at any point in the history of the house

• Bank ownership subsequent to the original purchase

• Unusual activity, such as multiple transactions between the same parties

The assumption is that in most cases, FHA/VA/HUD/Fannie Mae or bank ownership after original purchase is the result of a foreclosure; banks generally would not have ownership of a house unless they acquired it through non-payment or other issues with a mortgagor.

The builders and subdivisions chosen were:

• KB Home – Chandler Creek, near Stony Point High School between Sunrise and FM 1460

• This was the neighborhood completed by KB prior to opening mine for development.

• KB Home – Chandler Creek at FM 3406 (Old Settler’s Boulevard) and FM 1460

• My neighborhood, referred to in some circles in the building industry as the ‘Dog Pound’ due to its poor reputation and canine street names.  This neighborhood is still being developed, with the final phase under construction as of today.

• Lennar/Kimball Hill – Chandler Creek near FM 1460 and FM 3406

• This area is within 1 mile of both KB Chandler Creek developments above, and is in a similar price range as well.  It is slightly older, with the first home having sold in July 1995, and has been developed by several builders, including Southern Homes, Lennar and Kimball Hill.

• KB Home – Westwood, in Leander

• This neighborhood opened in 2001 and is still in development at this time.  This allows for a comparison of a similar neighborhood owned by KB being developed at the same time, only in a different area of Williamson County.

• Centex – Horizon Park, in Leander

• This subdivision served as another comparison point with KB, being near to the Westwood subdivision mentioned above, and also being developed in the same timeframe as well, with the first home sold in 2000 and the area still in development.

• Capital Pacific/DR Horton – Ryan’s Crossing, in Round Rock

• This was another comparison builder in Round Rock for additional data.  I am not sure of the builder, as I seem to recall that it was a Capital Pacific subdivision, but now shows as D.R. Horton.  It is possible that this is the same builder, but I am not completely up-to-date on any mergers, acquisitions or name changes in the homebuilding industry.  The actual builder is not relevant to my research but again this subdivision serves as another comparison point.  This is fairly close to Chandler Creek, was opened in 2001 and is nearing completion or possibly completed at this time to the best of my knowledge.

For this research, only homes sold between 1999 and 2002 were considered in the calculations to provide a common boundary of activity.  These dates also center on the economic downturn in Central Texas due to the technology ‘bust’ during that time.  This was one of the arguments used by KB – foreclosures in their neighborhoods are due to the economic difficulties of this area in recent years.  These homes generally fall in the $120K-$175K price range with the majority under $150K.  Centex was researched in part due to the fact that they are often first-time homeowner purchases, reflecting the same market pursued by KB.  The Lennar/Kimball Hill subdivision was selected due to close proximity to the Chandler Creek KB subdivisions to minimize a regional effect, if any exists.  I happen to live in this area as well, making it of particular interest for my study. Finally, only foreclosure or bank activity that resulted from the original purchaser is calculated; subsequent purchasers with such activity are less likely to be attributable directly to the builder.  I am confident that if any errors were made during the accumulation and calculation of this information, it should not greatly affect the findings due to the large number of homes in each pool.

Neighborhood Detailed Findings

KB Chandler Creek – Stony Point                           

 

 

 

 

 

This neighborhood has 104 homes with the first sale going back to 1999.  Of the 104 homes sold in this subdivision, there were 23 with FHA/VA/HUD/Fannie Mae and 8 with bank ownership transactions.  In this pool, two of the bank-owned homes had such activity with a subsequent owner (not the original purchaser), and two had transactions that I could not interpret from the appraisal data.  For example, one home had KB Loan Services (KBLS) purchasing the home from an individual, and the individual in turn purchasing back from KBLS in 2003 (even though all other activity ended in 2001), and another had similar activity.  Removing the 2 unknowns from the pool and ignoring those that had problems after the original purchaser left 102 homes with 23 FHA/VA/HUD/Fannie Mae and 6 bank owned.

            28.4%   homes with bank or Federal ownership from the original purchaser          

            22.5%   HUD/VA/FHA/Fannie Mae acquisition from the original purchaser         

            5.9%    bank-owned, acquired from the original purchaser                      

KB Chandler Creek – Old Settler’s Boulevard and FM 1460

This neighborhood has 238 homes sold going back to 2001.  Of the 205 homes sold through the end of 2002 in this subdivision, there were 17 with FHA/VA/HUD/Fannie Mae and 6 bank-ownership transactions, one relocation firm, and one transaction with unknown interpretation.  Eliminating the extraneous data as above, this left 204 homes with 17 FHA/VA/HUD/FannieMae and 6 bank owned at some point.

           

            11.3%   Homes with bank or Federal ownership from the original purchaser

            8.3%    HUD/VA/FHA/Fannie Mae from the original purchaser

            2.9%    bank-owned from the original purchaser

KB Westwood – Leander                  

This neighborhood has 257 homes going back to 2001.  Of the 161 homes sold to individuals through the end of 2002 here, there were 14 with FHA/VA/HUD/Fannie Mae and 5 bank transactions, with no uncertain transactions.  Working as above, this leaves the numbers as recorded.

                       

            11.8%   Homes with bank or Federal ownership from the original purchaser

            8.7%    HUD/VA/FHA/Fannie Mae from the original purchaser

            3.1%    bank-owned from the original purchaser

                       

KB Subdivisions (combined):                       

If you combine the three neighborhoods in this study, you end up with a total of 467 homes sold from 1999-2002.  Of these, there were 54 with FHA/VA/HUD/Fannie Mae and 17 with bank ownership transactions involving the original purchaser.

            15.2%   Homes with bank or Federal ownership from the original purchaser

            11.6%   HUD/VA/FHA/Fannie Mae from the original purchaser

            3.6%    bank-owned from the original purchaser                  

Lennar-Kimball Hill – Chandler Creek

This region has 488 homes going back to 1995.  Of the 367 homes sold from 1999-2002, there were 8 with FHA/VA/HUD/Fannie Mae transactions, and 7 bank transactions involving the original purchaser, 3 relocation firms and one unknown transaction.  This left 366 homes with 8 FHA/VA/HUD/FannieMae and 7 bank owned.

            4.1%    Homes with bank or Federal ownership from the original purchaser

            2.2%    HUD/VA/FHA/Fannie Mae from the original purchaser

            1.9%    bank-owned from the original purchaser

Centex – Horizon Park                     

This subdivision has 599 homes going back to 2000.  Of the 412 homes sold through 2002, there were 18 with FHA/VA/HUD/Fannie Mae transactions, and 3 bank transactions involving the original purchaser, 3 relocation firms and one unknown transaction.  This left 411 homes, 18 FHA/VA/HUD/FannieMae and 3 bank owned.

            5.1%    Homes with bank or Federal ownership from the original purchaser

            4.4%    HUD/VA/FHA/Fannie Mae from the original purchaser

            0.7%    bank-owned from the original purchaser

Continental/CPH/Dr Horton (?) – Ryan’s Crossing             

Ryan’s Crossing has 562 homes going back to 2001.  Of the 357 homes sold through 2002, there were 15 with FHA/VA/HUD/Fannie Mae transactions and 7 bank transactions involving the original purchaser, 3 relocation firms and no unknown transaction.  This left the numbers intact as recorded.

            6.2%    Homes with bank or Federal ownership from the original purchaser

            4.2%    HUD/VA/FHA/Fannie Mae from the original purchaser

            2.0%    bank-owned from the original purchaser

Conclusion

KB Home clearly shows foreclosure rates that are significantly higher than those found in subdivisions developed by other builders, based on the subdivisions and builders in this report.  KB’s lowest foreclosure rate was 11.2% while the next highest rate found in my study was 6.2%.  KB has a foreclosure rate that is almost double the nearest builder in the ‘best’ comparison available (lowest for KB, highest for another).  If the average foreclosure rate for KB across the three subdivisions is used (15.2%), KB fares very poorly when stacked up against other builders, building in the same areas, price ranges, and time period. 

Perhaps there were errors in my methodology; I grant that possibility, which is why I am willing to share my data if desired.  However, anyone can duplicate my efforts given the process shown above for any subdivision they choose.  Regardless of any criticism of the neighborhoods, comparison builders or my assumptions, I still remain convinced that my findings are significant enough to at least merit further research to determine possible reasons for the disparities in these neighborhoods, and possibly other areas and subdivisions as well.  There is some information I have not figured out how to access as a private citizen outside the real estate industry.  I am very curious, for example, to discover what mortgage companies originally financed the loans that went into default – something I have not been able to uncover at this time.

Most people understand the importance of choosing well when purchasing a home.  For most families, this is the single largest purchase they will ever make, and it should never be treated casually by the buyer, builder, or realtors involved.  Each and every foreclosure represents more than numbers for my study – they are all families, many with children.  These families were sold more than a home, they were sold a dream.  This dream included safe places for their families to grow up, future value for their investment, and the chance to capture hope for a better future.  Instead, many are now back in the very apartments or rental houses they had left behind, only now they have ruined credit, embarrassment, humiliation, and heartache as well.  While these tragedies will happen from time to time involving a home built and sold by any builder, it is disturbing to find that one builder in particular – my builder, unfortunately – seems to have such a poor record in this area.  I am hoping that this report will prompt further investigation as to the cause, so that if it is something within the control of KB Home, it can be corrected to reduce the possibility of it happening in such large numbers in the future.  I only hope that my unfortunate situation – watching my neighborhood decline in value and quality of life – can be used to help improve the building and real estate industries in Texas.

I started a twisting, trying odyssey simply because I wished to sell my home; I now find myself entangled in many different facets of home building, ownership, commissions, associations, and laws.  However, regardless of my personal situation, I find it inexcusable, shameful and cruel that one neighborhood, less than a mile from my home, has seen over 1 in 4 families unable to continue living there after being told by somebody they could afford it! 

I hope you have found this information useful and easy to understand.  I welcome your input into discovering the cause for the data that I have provided.

 

David Ross

April 2005

Copies of this information were provided to the following agencies and individuals:

           

Janice Cartwright, Executive Director, Real Estate Council of Austin, Inc.

J.J. Jackson, Chief Executive Officer, Williamson County Association of Realtors

John S. Walton, Jr., Chairman, Texas Real Estate Commission

Louise E. Hull, Vice Chairperson, Texas Real Estate Commission

US Senator John Cornyn

US Senator Kay Bailey Hutchison

US Representative John Carter

Jim Prunty, Federal Trade Commission via facsimile

Jerry Keeton, HUD

Texas Attorney General Greg Abbott

Texas Governor Rick Perry

Carole Keeton Strayhorn, Texas Comptroller of Public Accounts

Texas State Senator Steve Ogden

Texas State Representative Mike Krusee

James R. Nuse, City Manager, City of Round Rock

Janet Ahmad, President, Home Owners for Better Building