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KB Home teams with Nationstar Mortgage to offer home buyers loans

January 22, 2013|By E. Scott Reckard
  • KB Home executive Steve Ruffner tours the Sage development in Irvine Ranch in September. L.A.-based KB is forming a joint venture with Nationstar Mortgage to provide home loans to buyers of its new homes.
KB Home executive Steve Ruffner tours the Sage development in Irvine Ranch… (Anne Cusack / Los Angeles…)

KB Home and Nationstar Mortgage Holdings Inc. are forming a joint venture that will offer home loans to KB customers across the country, so they can shop for a house and a mortgage at the same time.

Nationstar, of Lewisville, Texas, agreed last year to be KB’s preferred lender, providing representatives to pitch mortgages to potential buyers at KB’s tracts of new homes. Those employees will now work for Home Community Mortgage, the new company jointly owned by KB and Nationstar.

Jeffrey Mezger, president and chief executive of Los Angeles-based KB, called the venture a “natural progression” for the nation’s fifth-largest home builder.

“A quality, predictable mortgage process is an essential element” of KB’s business model, Mezger said in a news release Tuesday. “Nationstar’s performance as KB Home’s preferred mortgage lender has already resulted in more consistent execution.”

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One critic said such alliances can result in homes being overpriced, as lenders, enticed by the prospects for a huge amount of business, obtain high appraisals for new homes on which comparable sales are hard to find. 

"It's one of the things that contributed to the housing crisis," said Bruce Marks, chief executive of the Neighborhood Assistance Corp. of America.  

In a housing version of one-stop shopping, KB began helping home buyers obtain financing decades ago, a practice now standard throughout the industry. It’s especially important for KB, which makes more than 60% of its sales to buyers taking on mortgages for the first time.

The venture will provide KB with what Barclays research analysts called an “incremental upside to earnings in future years.”

Borrowers are free to choose any lender. But Barclays said such joint ventures, or alternately the fully owned lending arms of builders, can capture financing for 80% of the builders’ customers. It said home loans from KB’s in-house mortgage arm had provided 8% of the builder’s pretax income during the housing boom.

KB agreed in July 2005 to spin off its in-house mortgage business into a joint venture operated by Countrywide Financial Corp., the aggressive Calabasas lender that later nearly went bankrupt under a tide of souring sub-prime and other high-risk mortgages.

Bank of America Corp. acquired Countrywide in 2008 and became KB’s mortgage partner. BofA was followed by Metlife Inc., which decided last year to quit originating mortgages, at which point Nationstar took over.

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