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Thursday, 27 September 2007

CtW Investment Group Urges Homebuilders to Address Compliance Failures
The CtW Investment Group, pointing to large homebuilders’ role in creating the current crisis in the housing and credit markets, today called on the boards of directors of the nation’s largest homebuilders to establish dedicated compliance committees to protect the companies and their shareholders in the face of mounting legal and regulatory scrutiny. “Homebuilders are not passive victims here,” said Bill Patterson, Executive Director of the CtW Investment Group.  “Through improper business practices, particularly within their mortgage affiliates, the nation’s largest homebuilders in fact helped cause the industry-wide collapse. This turmoil has already destroyed billions in shareholder value, while exposing shareholders to considerable legal, regulatory and reputation risk.”  

CtW Investment Group Urges Homebuilders to Address Compliance Failures

  For Immediate Release
Contact:  Michael Garland (212) 290-0308

CtW Investment Group Calls on Homebuilders to Address Compliance Failures

Dedicated Board Committees Needed to Oversee Legal and Regulatory Compliance

Washington, Sept. 5 – The CtW Investment Group, pointing to large homebuilders’ role in creating the current crisis in the housing and credit markets, today called on the boards of directors of the nation’s largest homebuilders to establish dedicated compliance committees to protect the companies and their shareholders in the face of mounting legal and regulatory scrutiny. 

“Homebuilders are not passive victims here,” said Bill Patterson, Executive Director of the CtW Investment Group.  “Through improper business practices, particularly within their mortgage affiliates, the nation’s largest homebuilders in fact helped cause the industry-wide collapse. This turmoil has already destroyed billions in shareholder value, while exposing shareholders to considerable legal, regulatory and reputation risk.”  

Homebuilders with affiliated mortgage units are especially vulnerable since these units create an incentive for builders to sell families homes they cannot afford by granting them excessively risky mortgages and then offloading that risk by selling the mortgages to unwitting investors in the secondary market. This conflict of interest, the Group argues, requires effective compliance procedures and attentive board oversight.  Failure to effectively manage this conflict is at the heart of the illegal business practices that allegedly took place at Beazer Homes, among others.

In letters to 11 of the largest homebuilders, the Group specifically asks each board to establish a Legal and Regulatory Compliance Committee of independent directors to conduct a comprehensive review of the company’s compliance status and implement a compliance program to detect and prevent material compliance failures.  Such committees are common at firms that face significant regulatory and litigation risk, including health care, insurance and pharmaceutical companies.

The CtW Investment Group works with pension funds sponsored by unions affiliated with Change to Win, a coalition of unions representing nearly 6 million members, to enhance long-term shareholder value through active ownership.  These funds, together with public pension funds in which CtW union members participate, have about $1.4 trillion in assets and are substantial long-term shareholders of the 11 homebuilders.

The 11 homebuilders in the S&P 500 large cap and S&P 400 mid cap indices received letters.  These include Beazer, Centex, D.R. Horton, Hovnanian Enterprises, KB Home, Lennar, MDC Holdings, NVR, Pulte Homes, Ryland Group and Toll Brothers.  In total, the 11 firms—eight of which have been sued by shareholders or homeowners this year—have lost $23 billion in value through the first eight months of 2007. 

For additional information, contact Michael Garland at 212-290-0308.

Please click the following link for specific Board letters:

 
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