First time home buyers, digital mortgages boost KB Home's results

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KB Home attributed significant growth in its building and mortgage income to first-time homebuyer activity and new lending technology in its fiscal second quarter.

Net income at KB Home rose 80% from the previous year to more than $57 million during the quarter that ended May 31. Homebuilding operating income was up 50%, at more than $74 million, and the company's financial services revenue rose to more than $3.1 million, from more than $2.8 million a year ago.

"The first-time buyer continues to fuel housing market activity and with 53% of our deliveries this quarter to first-time buyers," Jeffrey Mezger, chairman, president and chief executive officer, said during the company's earnings call.

KB's mortgage joint venture with Steans Lending, which recently passed its first anniversary, "ramped up nicely during the start-up year," said Mezger.

"The performance contributed to us exceeding our expectation for deliveries in the second quarter and also to the year-over-year growth in the JV's income," he said.

A mobile and desktop technology platform called Stearns Digital is helping the company's joint venture process deliveries more quickly by verifying income, employment and assets electronically, he added.

Second-quarter mortgage originations through the company's joint venture had an average loan-to-value ratio of 88%, Mezger said. First-time homebuyers often prefer lower down payments, which raise the LTV but reduce upfront expenses.

Higher mortgage rates added to borrower's expenses, but did not affect home buying activity, Mezger said.

"While we are mindful of changes in interest rate, the key internal measures that we track that the homebuyer is willing and able to purchase a new home," he said.

During the quarter, KB Home's tax rate was an estimated 27%, down from 39% a year ago. This was primarily due to tax reform that reduced the federal corporate tax rate.

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Homebuilders Digital mortgages First time home buyers Mortgage rates Tax reform KB Home Stearns Lending