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And then, of course, there are all the games Beazer played to get houses for potential buyers without the money for a down payment. The federal rules are straightforward -- and not especially onerous. A buyer has to have a 3% down payment, and neither home builders nor mortgage lenders are supposed to lend it to them. Beazer, however, jumped through hoops to lend buyers that down payment, using intermediaries to hide the transaction.
The advantage to the home builder in making the loan is clear -- it creates a new pool of buyers. The downside of selling homes to potential buyers without even a 3% down payment is gradually becoming equally clear. In one Beazer Homes subdivision in Concord, N.C., almost one in five homes are now in foreclosure, according to The Charlotte Observer.
Whether the fines Beazer eventually pays are $15 million or $150 million, however, they won't do anything to help investors recoup the $1.5 billion they've lost in the stock as it plunged to $8.38 on Oct. 17 from $47 a share at the end of 2006. The best those folks can expect from an Enron-style settlement is pennies on the dollar.
And the fines won't do anything to help home buyers who are about to lose their homes to foreclosure. Nationally, the number of foreclosures hit 223,538 in September, a jump of almost 100% from September 2006, according to RealtyTrac.
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What we need is to put some people who know the ins and outs of this mess -- because they helped create it -- to work on the problem, and then motivate them, and I mean really motivate them, to fix as many of these problem loans as they can before the loans go bust. The bust would hurt both borrowers and shareholders in the home-building and mortgage-lending companies. Getting more loans worked out before they go into foreclosure would be a good deal for everyone.
And the nominee is . . .
And we may even have the perfect candidate to head up such an effort in Angelo Mozilo, the CEO of Countrywide.I had this thought when I read that on Oct. 8, Richard Moore, state treasurer of North Carolina, asked the Securities and Exchange Commission to open an investigation into Countrywide stock sales made by Mozilo in the months before the subprime-mortgage meltdown took the price of company shares from $45 to $19. (On Oct. 18, the SEC acknowledged that it had opened an investigation into stock sales by Mozilo and other mortgage company CEOs.)
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Jubak’s Journal: Home-price cuts hit banksHousing prices will eventually fall enough to clear out excess inventory. That’s how markets are supposed to work, says MSN Money’s Jim Jubak. But in the lending sector, prices of asset-backed paper aren’t falling -- because bankers are waging an $80 billion battle to prop up prices.
At the heart of Moore's request for an investigation, now under way, are changes to Mozilo's "automated" selling plans made in December 2006 and February 2007 when shares were selling for $40.50 and $45.03 respectively, that allowed the CEO to accelerate sales of company stock that he had acquired by exercising options.
Mozilo has had an existing 10b5-1 plan designed to automatically sell stock at regular intervals since 2004. Many CEOs use plans like these to avoid any appearance of selling on insider information. After all, if the sales occur every month on a regular schedule set when the plan is put in effect, then what the CEO knew and when the CEO knew it become irrelevant.
Mozilo's problem is that he put a new automatic selling program in place in October 2006 to replace the 2004 plan. Sales under the new plan were at a faster pace than under the old plan.
Then, on Dec. 12, according to the Los Angeles Times, he added a second automatic selling program that increased the number of shares he sold each month to a total of 465,000 from 350,000. And then, on Feb. 2, according to The New York Times, he amended the second plan to increase the number of shares sold each month to 580,000.
At the least, by adding and then amending these selling plans, Mozilo removed exactly the protection that the automatic nature of these plans is supposed to provide a CEO.
We don't know if Mozilo did anything illegal, and we won't until the Securities and Exchange Commission finishes its investigation. But he's certainly going to have to be more forthcoming with the regulators than he was in an interview conducted by CNBC's Maria Bartiromo and published in BusinessWeek on Sept. 10. Bartiromo asked Mozilo point-blank, "Did your planned selling accelerate beginning last fall?" And he said, "Let me see, there were two contracts involved. One, I think -- I don't know when these things originate -- was in October and one in December. And they didn't accelerate. There was just an additional contract put on, I believe, in December."
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