A plan to spin off Dominion Homes mortgage division will make it impossible for the public to continue tracking the embattled home builders loan defaults.
Dominion, whose customers high default rate on government-insured mortgages has recently triggered lawsuits and investigations, announced details yesterday of a plan to sell a controlling interest in its mortgage division.
Wells Fargo Home Mortgage will pay Dominion $1.8 million for a 50.1 percent share of Dominions loanorigination division, according to the Dublin-based builders quarterly financial report filed with the Securities and Exchange Commission.
Anthony Sanders, a finance professor at Ohio State University, said it makes "enormous sense" for Dominion to become a minority partner in the new venture, which will be a subsidiary of Wells Fargo.
"Dominion is a home builder; Wells Fargo is a full-service financial intermediary," Sanders said. "Wells Fargo has an excellent reputation in terms of loan origination and securitization. Its a good move."
Wall Street barely noticed the deal. Dominions stock closed at $9.60 yesterday, down 16 cents. Dominion stock traded at a 52-week high of $23.78 last year.
Home builders have had the latitude to operate their own mortgage origination businesses for decades. But they really started to get into the business during the credit crunch of the early 1990s, said Steve Melman, an economist with the National Association of Home Builders in Washington, D.C.
Dominion opened its mortgage division in 1999.
Not many other home builders have been eager to pair up with banks the way Dominion has, Melman said. "The successful firms seem to be operating on all cylinders in the mortgage business."
About 70 percent of Dominions mortgages are insured by the Federal Housing Administration. Of Dominions FHA loans, 13 percent were in default within two years, the most current federal data show. That was more than double the state average.
By comparison, the financing division of local competitor M/I Homes, with an FHA default rate of 5.2 percent, was well below the national and state averages.
Loans on Dominion-built homes that Wells Fargo originates no longer will be traceable through Neighborhood Watch, a federal database.
The U.S. Department of Housing and Urban development posted the database online in 1998 so that consumers and community groups could monitor the performance of lenders, and track defaults and foreclosures by state and ZIP code.
But because the loans no longer will be identified as Dominions, they wont be distinguishable from the thousands of other Wells Fargo loans in the system.
Wells Fargo has a far lower default rate on governmentbacked mortgages in Ohio than Dominion Homes Financial Services. For the two-year period ending Jan. 31, 4.8 percent of Wells Fargo loans had gone into default in Ohio. Statewide, 6.4 percent of all governmentbacked home loans went into default during the period.
Thomas Leach, director of HUDs Columbus field office, said prospective home buyers and consumer groups frequently consult the searchable database.
"Neighborhood Watch is a great tool for people looking to buy a home. Its sort of like looking at the Better Business Bureau," he said. It shows the "track record of a company. Its a good tool for prospective home buyers."
A HUD special audit of Dominions lending practices is under way. Yesterday, Dominion reported that it expects the results in late March at the earliest.
The audit, a state attorney general investigation and several lawsuits filed by homeowners followed the Dispatch series "Brokered Dreams," which reported in September that Dominion home buyers had the highest default rate in the nation among large home builders with financing divisions.
Dominion Homes Chief Executive Douglas G. Borror said yesterday during a conference call with financial analysts that since the series ran, Dominions customer traffic has been down by 25 percent.
"We are working very hard to overcome that," he said. "We believe that we have followed all rules and regulations at all times, and we believe these things are without merit."
Another home builder partnered with a financial services company last year but has failed to silence critics skeptical of its methods and motives.
KB Home, one of the nations largest home builders, spun off its mortgage division several days before HUD announced a $3.2 million settlement with the builder for overstating borrowers income and failing to account for all of their debt.
KB Home, based in Los Angeles, sold its mortgage lending assets to a subsidiary of Countrywide Financial Corp. and they created a joint venture. Like Dominion, KB Home said the move was unrelated to HUD scrutiny.
"There still remains a tie there. The homeowner still needs to be very cautious," said Janet Ahmad, founder of HomeOwners for Better Building, a Texas-based group that pushes for stronger oversight of home builders.
She said partnerships between builders, lenders, title companies and appraisers typically benefit the companies at the expense of buyers.