Beazer Homes on Friday said it is exiting the mortgage origination business, pulling out of five Midwestern and Southern markets and entering the Northwest Florida market in cooperation with the St. Joe Company (NYSE:JOE).
Beazer has stopped originating mortgages through Beazer Mortgage Corporation and ended its related mortgage services relationship with Homebuilders Financial Network. Instead it is creating a "preferred lender" relationship with Countrywide Financial Corp., which is being acquired by Bank of America. Countrywide representatives will be stationed on site at Beazer sales centers.
"Given the increasing complexities in mortgage financing today, we believe working with an established leader in mortgage lending makes the most sense for our homebuyers and our business," said Ian McCarthy, Beazer CEO, in a statement. The company said it expected there would be costs associated with the shutdown that had not yet been calculated.
Beazer's mortgage operations are currently the target of both state and federal investigations into improper lending practices stemming from allegations contained in an investigative series of news stories in the Charolotte Observer.
The company also announced it suspending homebuilding operations in Charlotte, N.C., Cincinnati/Dayton, Ohio, Columbia, S.C., Columbus, Ohio, and Lexington, Ky., markets that made up about 5% of the company's home building assets on June 30 of last year.
In a statement, Beazer said it "intends to complete all homes under construction and is committed to maintaining customer care resources to provide ongoing warranty service to homeowners through their warranty periods." Beazer said it had not yet determined "the appropriate methods and timing for disposition."
Beazer said it is evaluating the land and inventory it holds in those markets and is deciding how and when to dispose of it. Leaving the market should help the company generate some cash. Plus it will list the property in those markets as "property held for sale" then impair it to reduce the carrying value to estimated proceeds from a potential sale minus costs. The company may log more losses on lot options it abandons in the markets and shut-down costs will also be incurred.
Beazer also said it plans to enter the Northwest Florida market in cooperation with The St. Joe Company. The two companies have an arrangement going back to 2006 under which St. Joe entitles and sells home sites in a number of the region's markets to Beazer Homes. "The two companies work together on several projects and together plan to identify new opportunities as market conditions in the region improve," the statement said.
In a research note to investors, David Goldberg at UBS said, "On the whole, we view these changes positively, as they will allow the co to focus its efforts and capital in more profitable markets. That said, we believe they reflect BZH's weaker positioning through the downturn vs. peers."
Beazer stock (NYSE:BZH) closed up 6.9% at $9.31 but slipped back to $9.20 in after-hours trading on Friday at 4:30 p.m.