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Builders to settle kickback probes

October 30, 2007|From Bloomberg News

Pulte Homes Inc. and KB Home are among six builders that agreed to pay a total of $1.4 million to settle federal investigations into whether they accepted rebates from insurers for referrals when selling homes.

The kickback investigations, ended as part of the settlements, are among hundreds being conducted by states, including California, and the U.S. Department of Housing and Urban Development into payments by title insurers. State regulators found that the referral payments to real estate agents, developers, lenders and builders led to higher closing costs for consumers.

Pulte, the third-largest U.S. home builder by revenue, and KB Home, the fifth-biggest, agreed to pay $466,000 and $456,000, respectively, to settle the probes without admitting wrongdoing, the federal housing agency said Monday.

The top five U.S. home builders have written down land and recorded other charges totaling $5 billion in their most recent quarters and have reported a total net loss of $2.8 billion. New-home sales are projected to fall to the lowest pace since 1997.

The other builders that settled were Beazer Homes USA Inc., the ninth-largest U.S. home builder, which agreed to pay $261,000; Ryland Group Inc., which agreed to pay $84,000; Meritage Homes Corp., which agreed to pay $66,000; and Tousa Inc., which agreed to pay $52,000.

Under so-called captive reinsurance arrangements, title insurers agreed to rebate portions of the premium they got from home buyers to a company formed by a builder, a real estate agent or a lender that referred the business to them, according to the settlements. The insurers said they were transferring a portion of the risk to the companies, which paid few if any claims, HUD said.

"It's increasingly clear to us that these complicated business arrangements serve no other purpose than to hide referral fees and kickbacks which are expressly forbidden by law," HUD Assistant Secretary Brian Montgomery said.

Representatives of the six companies didn't immediately comment.

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