THE COLUMBUS DISPATCH
Auditors at door of Dominion Homes

High default rate stirs concern; buyer reports illegal loan

Friday, December 23, 2005
Jill Riepenhoff

State and federal agencies are investigating the business practices of Dominion Homes.

The Dublin-based builder has come under scrutiny because so many of its customers can’t pay their mortgages and can’t sell their houses for what they paid for them.

Several sources confirmed the investigations:

• The Ohio attorney general’s office has subpoenaed mortgage records involving the Galloway Ridge subdivision on the Far West Side, where more than one in six middle-class home buyers have faced foreclosure, bankruptcy or both.

"We can’t confirm or deny the existence of an investigation," senior deputy attorney general Michael Gonidakis said yesterday. "However, if these allegations are true, it would cause great concern for our office. A home is the single biggest purchase a consumer is going to make."

• The U.S. Department of Housing and Urban Development is auditing the builder’s mortgage operation, Dominion Homes Financial Services. More than half of Dominion’s home buyers have governmentbacked loans. The HUD review is the most expansive the company has faced.

• HUD’s random review of loan documents turned up a Columbus woman, Germain Gilton, who said that a Dominion sales representative gave her a personal loan to help buy a house, a potentially fraudulent act. The saleswoman, Janice Lewis Anderson, who is not a licensed real-estate agent, left the company Dec. 9 for undisclosed reasons. She had worked at Dominion for 13 years.

In an e-mail yesterday, Anderson said The Dispatch "is misusing information to make a story." She declined further comment.

Both women could face sanctions for falsifying HUD documents, which require disclosure of all money used in real-estate purchases. HUD officials say it’s illegal for home buyers to receive money from anyone who has a financial interest in the purchase.

"If we had a pattern, we could refer the case to the Office of the Inspector General for further review," HUD spokesman Lemar C. Wooley wrote in an e-mail response to The Dispatch from his office in Washington, D.C. The inspector general’s office has the authority to pursue civil and criminal prosecutions.

The investigations began after the September publication of a four-part Dispatch series, "Brokered Dreams," that detailed Ohio’s lax oversight of the mortgage-lending industry and Dominion’s high default rate.

In a written response to questions, Dominion senior vice president Lori Steiner characterized the investigations as routine.

"Dominion routinely receives requests from regulatory authorities like the Attorney General’s Office and HUD for files and information, and we always comply fully," she wrote in an e-mail. "It is also our policy to avoid commenting on information or audit requests, if any, until work from these agencies is complete."

As the investigations continue, Dominion’s default rates continue to climb. Dominion now posts the fourth-worst default rate in the country among lenders who make more than 1,000 government-backed loans in a two-year period.

Among large builders with financing divisions, Dominion’s default rate is the highest.

Dominion’s chairman and chief executive officer, Douglas G. Borror, said his company is operating within the law.

"Dominion Homes is committed to conducting business with the highest ethics and utmost integrity. Policies and procedures at Dominion Homes evolve on an ongoing basis," Borror wrote in an e-mail. "We are constantly working to improve our effectiveness in every aspect of our operations, which includes compliance with all regulations pertaining to real estate and mortgage financing transactions."

Galloway Ridge residents haven’t been able to sell their houses for what they owe, even though the average Franklin County property appreciates about 3 percent a year.

Most who bought there used Dominion’s financing incentives: interest-rate subsidies and "free" down payments. No documents indicated to the buyers that the incentives, worth $10,000 to $20,000, were built into the home prices.

Shannon Rece said her house isn’t worth what she and husband Cliff paid for it in 2001.

The couple recently received their tax-valuation statement from Franklin County Auditor Joe Testa. Their house value had dropped $10,000.

"We paid $178,000 for this house and we owe, like, $174,000," she said. "We will never get out of here. We’re going to die in this house."

Delinquent mortgages

High default rates trigger HUD audits.

It happened last year to builder KB Home, a Los Angelesbased company that paid a $3.2 million settlement to HUD because so many of its government-insured loans had gone bad.

The company had two-year default rates ranging from 8.9 percent to 16.7 percent in six southwestern U.S. cities.

Dominion’s default rate, now 13.5 percent, has been double the national figure throughout 2005.

The company’s rate has increased almost every month this year. HUD posts monthly updates to a database that tracks the number of home buyers who fall more than three months behind in repaying their government-backed loans within the first two years of buying houses.

In Kentucky, the other state where Dominion builds, nearly 20 percent of the home buyers have been more than 90 days delinquent on their FHA mortgages in the past two years. That’s more than triple the national rate.

Steiner wrote that Dominion, too, is reviewing its default rate, which company officials attribute in part to Ohio’s weak economy.

"To help reduce defaults and foreclosures, Dominion Homes is working with several organizations to provide financial counseling, and to determine whether there are other contributing factors that we can help address," she wrote.

Auditors arrived at Dominion’s office in September and asked for paperwork on 125 loans.

During the company’s two previous audits, in 2002 and 2004, HUD reviewed 20 and 22 cases, respectively. Investigators documented violations that involved Dominion giving mortgages to buyers with shaky credit, income or jobs.

The results of the most recent audit haven’t been made public. Gilton, the customer who said she received a loan from her saleswoman, told HUD her story on Dec. 10.

Money troubles

Gilton could not have bought a new Dominion house two years ago without help.

Gilton said the incident unfolded like this:

First, Anderson, the Dominion saleswoman, convinced Gilton that she could afford a $134,850 house on her annual salary of $36,000.

Then she loaned the first-time home buyer $475 from her personal account for the deposit and loan-application fee, because Gilton had no savings.

Gilton said she deposited the check into her National City Bank account in January 2003, then wrote checks to Dominion to cover the earnest-money deposit and the application fee.

She repaid Anderson in two installments by the end of March, writing "Thank you!" on the note line of the checks. She provided copies of those canceled checks to The Dispatch and the state attorney general’s office.

As it turns out, Gilton can’t afford the house.

"My life is in such disarray trying to make ends meet," said the 50-year-old Gilton, who lives in the Village at Eastern Glen subdivision near Ohio Dominican University on the North Side. "I’m $600 in the hole every month."

She works three jobs and has maxed out her credit cards paying utility bills and car insurance. She drained her 401(k) retirement account to pay her mortgage; it covered just two months.

Steiner said Dominion officials reviewed Gilton’s file and found no evidence of wrongdoing.

"It is inappropriate and against company policy for Dominion personnel to make personal loans to customers," Steiner wrote. "If we learn that personal loans were made to any customer, we will take appropriate action to address the matter."

Steiner did not elaborate.

Mortgage and legal experts said the scenario Gilton described appears at least unethical.

"It doesn’t pass the smell test, that’s for sure," said Steven Olden, a lawyer with the Cincinnati Legal Aid Society. "It puts the buyer in the situation of potential duress. FHA is very adamant that you just can’t go around getting loans from other people."

Others were concerned that Dominion could qualify someone with such a small income for such a big mortgage. An online calculator offered by Fannie Mae shows that Gilton should have qualified for a loan of no more than $97,000.

"She was led to believe she could afford it," said Kathleen Keest, a lawyer with the Center for Responsible Lending in North Carolina. "That’s a systematic problem. It becomes the American nightmare instead of the American dream."

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