Beazer Homes shares fell by over 15% in late trading Tuesday on comments from an FBI spokesman that the FBI, the IRS and the Department of Housing and Urban Development are investigating the homebuilder's lending practices. A report published last week in the Charlotte Observer alleged that Beazer's aggressive sales tactics were "producing an unusually high rate of foreclosures in many of its Charlotte-area developments". In a statement, Beazer said: "At this time, Beazer Homes can not comment on or verify any investigation... The allegations by the Charlotte Observer focused primarily on one Charlotte subdivision, Southern Chase. In that subdivision, Beazer Mortgage Corporation originated the loans for the borrowers and served as a broker, not a lender... Based on our internal investigations to date, we have not found any evidence to support the allegations in the Charlotte Observer." Beazer's CFO announced last week that he was resigning to become CEO of Kaydon Corp; in an SEC filing last month, Beazer said its General Counsel had been terminated for cause. The Beazer news pulled down housing stocks after-hours, adding to the damage caused by Lennar's statement earlier in the day that it couldn't forecast when the housing market would stabilize and its retraction of its earlier guidance. Housing related stocks also suffered from news that furniture retailer Ethan Allan Interiors missed the consensus EPS estimate of $0.59 by three cents.
Sources: Press Release, Charlotte Observer, Business Week, Wall Street Journal
Commentary: Lennar's Profit Takes a 73% Hit; Shares Lower • S&P: Subprime Meltdown Could Affect Car Loans • Yale's Shiller Calls for Further 20-30% Housing Price Declines • Asset Manager Sy Jacobs' Subprime Longs and Shorts
Stocks/ETFs to watch: Beazer Homes (NYSE:BZH). Competitors: KB Home (NYSE:KBH), Lennar Corp. (NYSE:LEN), D.R. Horton Inc. (NYSE:DHI). ETFs: iShares Dow Jones US Home Construction (NYSEARCA:ITB), SPDR Homebuilders (NYSEARCA:XHB)
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