Regulators Fine Ryland
Over Mortgage Lending

Ryland Group Inc. has become the latest large home builder to run afoul of regulators for its questionable lending practices.

The North Carolina banking commissioner's office said the Calabasas, Calif., builder's affiliated mortgage company, Ryland Mortgage, employed unlicensed loan officers and charged borrowers excessive fees. Ryland has agreed to a settlement in which it doesn't admit wrongdoing but will refund 850 buyers about $250 each and pay a $161,000 fine.

The company also said it agreed to the settlement partly to avoid litigation. "We do not believe that any North Carolina homebuyers were harmed or overcharged," said Ryland spokeswoman, Marya Barlow. "To remove any concerns, we are refunding these costs to the borrowers."

Deputy Commissioner of Banks Mark Pearce said state examiners were concerned that Ryland was charging excessive closing costs and other fees to recoup discounts they were offering to home buyers.

"My question is, did the borrower get a true discount in that transaction," said Mr. Pearce. "It doesn't sound like much of a discount to me."

The Ryland settlement comes amid increasing scrutiny of the lending operations owned or affiliated with builders that helped fuel the housing boom. Beazer Homes USA Inc. is facing multiple federal probes of its use of federally-insured loans. Meanwhile, two lawsuits by a group of home buyers and a former employee allege questionable lending and appraisal practices at KB Home's joint mortgage operation with Countrywide Financial Corp. KB and Countrywide have denied the allegations.

Beazer is being investigated for alleged violations of federal lending laws, primarily in the Charlotte, N.C. area. The Atlanta builder shut down its mortgage-origination operations across the country, citing the "increasing complexities" in the mortgage business.

Mr. Pearce said his office is continuing to investigate "a number" of other large builder-affiliated mortgage companies operating in North Carolina. He declined to identify the companies.

Mr. Pearce said a big problem with builder-lenders is that their incentives can be confusing. As part of the settlement, Ryland has agreed to disclose to home buyers the specific discounts associated with using its affiliated mortgage company. Mr. Pearce said such disclosure will help borrowers decide whether builders, such as Ryland, are offering better deals on mortgages than their competitors. The Ryland spokeswoman said even before the settlement, the company "extensively" disclosed such incentives.

The North Carolina examination of Ryland found 31 instances of unlicensed loan officers listed on loan applications. The company called this an "unintentional oversight" which they have taken steps to correct. Ryland also agreed that it would use at least three different appraisers in each development over the course of a year.

"That's to ensure there are enough independent appraisers so we can have faith in the value they say the houses are worth," Mr. Pearce said.

This week, in an agreement with New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac won't allow bank employees who are involved in making loans to choose appraisers or allow lenders to use appraisals ordered by mortgage brokers.

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