Homebuilder news roundup: Fraud, bankruptcy and soaring stocks

Let’s catch up on all of the recent news from the homebuilder segment happening around the country:

• Builder confidence in the market for newly built, single-family homes was unchanged in March from a revised level of 28 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).  This means that following five consecutive months of gains, the HMI is now holding at its highest level since June of 2007.
  
  “While builders are still very cautious at this time, there is a sense that many local housing markets have started to move in the right direction and that prospects for future sales are improving,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a homebuilder from Gainesville, Fla. “This is demonstrated by the fact that the HMI component measuring builder expectations continued climbing for a sixth straight month in March, to its highest level in more than four years.”
  
  Regionally in March, the HMI gained five points to 25 in the Northeast, two points to 32 in the Midwest and two points to 27 in the South, but fell 10 points in the West following a 22-point gain in the previous month. 
  
  
• American West Development Inc. filed for Chapter 11 bankruptcy protection and reorganization in U.S. Bankruptcy Court in Las Vegas. American West is owned by developer Larry Canarelli. The filing said American West had $55.4 million in assets against liabilities of $207.7 million. American West had 165 closings in 2011 and was the eighth largest builder in Las Vegas. American West expects to keep all of its operations.
  
  
• A federal grand jury indicted homebuilder Patrick Belzner for conspiring to commit wire fraud arising from an investment fraud scheme. According to the indictment, from at least August 2009 to August 2011, Belzner and a co-conspirator also in the homebuilding business, targeted individuals seeking investment opportunities or commercial real estate development lending.
  
  Belzner, who falsely presented himself as “Patrick McCloskey” with certain investors, instructed the victims that in order to obtain loans for commercial real estate projects, the purported lenders required that large sums of money be deposited in an escrow bank account to show “liquidity.” The indictment alleged that in order to gain their victims’ confidence, Belzner and his co-conspirators caused victim investors and borrowers to enter into escrow agreements which stated that no person other than the victims had the ability to remove the escrowed funds without the victims’ permission. Belzner told the victims that a co-conspirator had to be the attorney assigned as the escrow agent. The indictment alleged that Belzner and his co-conspirator fraudulently withdrew approximately $14.7 million from the escrow accounts and used these stolen funds to satisfy their business and personal debts.

• The National Association of Home Builders (NAHB) announced a new comprehensive framework for housing finance system reform that would transition Fannie Mae and Freddie Mac to a new mortgage securitization system for single-family and multifamily conventional mortgages. NAHB said the system must include private, federal and state sources of housing capital; offer a reasonable menu of sound mortgage products for both single-family and multifamily housing that is governed by prudent underwriting standards and adequate oversight and regulation; and provide a federal backstop to ensure that 30-year, fixed-rate mortgages are available at reasonable interest rates and terms.
  
  Under this scenario, Fannie Mae and Freddie Mac would be gradually replaced by private housing finance entities (HFEs) that would be chartered to purchase single-family and multifamily mortgages from loan originators and package the loans into securities for sale to investors worldwide. The federal government would guarantee the securities, not the mortgages. The HFEs would only purchase mortgages that are well understood and have reasonable risk characteristics, such as standard 30-year fixed-rate loans. The HFEs would operate under the oversight of a strong independent regulatory agency to ensure all aspects of safety and soundness.
  
  NAHB believes the 12 regional Federal Home Loan Banks could serve as HFEs. Federal support to the conventional mortgage of the future would consist of a privately funded insurance fund where the government would guarantee its solvency in a manner similar to the Federal Deposit Insurance Corp.’s backing of the fund that insures savings deposits. Under this system, mortgage originators would pay premiums to capitalize the insurance fund, which would cover losses and ensure full payment to investors. The federal government would be required to pay investors only if the insurance fund was depleted.
  
  
• A Credit Suisse analyst upgraded five homebuilder stocks, citing improved order prospects as real estate agents report higher interest from potential homebuyers. This caused stocks to soar. The analyst, Daniel Oppenheim, upgraded three stocks to “outperform” from “neutral:” DR Horton Inc., Lennar Corp. and Toll Brothers Inc. Shares of Meritage Corp. and Ryland Group Inc. were raised to “neutral” from “underperform.” Lennar’s stock in particular has continued to grow during the last five months and recently reached a new 52-week high.