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Beazer Probe Stokes Homebuilders' Fears

Paul Krugman
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Paul Krugman

Worries that Beazer Homes' rivals may also be investigated pushed down homebuilder stocks, said CNBC’s Diana Olick on "Power Lunch."

Beazer Homes, the nation’s sixth-largest homebuilder, is the subject of an investigation by the FBI and IRS, among other government organizations. Problems surfaced after The Charlotte Observer newspaper reported an unusually high number of foreclosures in one Beazer community.

The Observer’s Binya Appelbaum told Olick that the company rolled financial incentives into the prices of homes, and at times, wrote loans larger than buyers could afford. “What we found when we looked was that Beazer had arranged many of the loans in those neighborhoods,” he said.

Fears that the probe could spread to competitors have pushed homebuilder stocks lower.

“Specifically we're looking at issues related to securities fraud, to the extent there were individuals who were forging loans,” Andrew Stoltmann, a partner at Stoltmann Law Offices told Olick. “Or there were individuals who had inaccurate information put on their application for a home loan. That's fraud -- and it's just a question of how many employees engaged in it, (and) obviously whether it was even happening in the first place -- but if it was happening, what did the company do to prevent this from going on?”