Houses of Pain

Do you like to buy fear?

Tomorrow you will have your chance. And the fireworks won’t be confined to the Persian Gulf.

Although the homebuilding stocks traded with a resounding thud today on the heels of Lennar’s lousy earnings, the news after the bell appeared to be worse.

Beazer Homes (BZH-NYSE) traded off nearly 15% after hours after Business Week published a story of improprieties in their lending practices, among other things.

Amid the meltdown of the subprime housing sector, mortgage lenders and brokers have come under fire from state and federal officials for predatory lending practices with those risky borrowers. Now one national homebuilder is feeling the heat. BusinessWeek has learned that federal investigators have opened a broad criminal probe into lending practices, some financial transactions, and other dealings at Beazer Homes USA. Details are sketchy, as it sounds like more than just aggressive lending arrangements Investigators, however, are not limiting their probe to possible mortgage fraud. "There's all sorts of potential fraud issues here," FBI spokesman Ken Lucas told BusinessWeek. "We're looking at all types of [potential] fraud associated with Beazer—corporate, mortgage, investments." Business Week Beazer later issued a "no comment" and said it would cooperate with any investigation. While the news certainly appears grim, Beazer's stock already trades at the largest discount to book of any major homebuilder. Although the news certainly won't be getting better for the builders this spring, I can't imagine the news getting much worse for Beazer. It might be too early to buy it, but even Wayne Nef might well agree that shorts consider covering part of any Beazer position tomorrow. Because the news just can't get any uglier. Can it? Oy vey. --------------------------------------------------------------------------------------------------- The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No positions in stocks mentioned above.

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