KB Home's midyear decision to transition its mortgage marketing agreement to a new lender caused significant delays in the Los Angeles-based homebuilder's ability to close home sales in the last quarter of its fiscal year.
Beginning in July, KB Home began promoting MetLife Home Loans as its nonexclusive “preferred lender,” a marketing arrangement that was previously held by Bank of America.
Jeffrey Mezger, president and CEO of KB Home, said in the time it took MetLife to mobilize its operations in the markets where KB Home sells houses, many homebuyers chose to work with other lenders to finance their purchases, causing delays in the closing process as most of these lenders “were not reliable in meeting a closing date,” he said in the company's earnings call Wednesday.
“To give you some color on this, in the past, our preferred lender is providing mortgages for as many as 80% of our customers,” Mezger said. “But in the fourth quarter of 2011, this ratio was less than 40%.”
KB Home delivered 1,995 houses in its fiscal year fourth quarter that ended on Nov. 30, a 4% increase from 4Q10 that was the first year-over-year delivery increase of 2011. But Mezger said the increase was below internal expectations. He said many homes that were completed and ready for delivery at yearend will now close in the first quarter of its 2012 fiscal year.
“MetLife performed well for our customers during the quarter, and is achieving sequential month-to-month improvement in the share of our customers' business that it earns. We expect this ongoing trend to result in more predictable closing going forward,” Mezger said.
Dan Oppenheim, an analyst at Credit Suisse, projects KB Home will close 1,410 sales in fiscal year 1Q12, generating $325 million in revenue, he wrote in a research note Wednesday.
KB Home reported fiscal year 4Q11 net income of $13.9 million, or $0.18 per share, down from net income of $17.4 million a year ago. For the full 2011 fiscal year, KB Home reported a $179 million net loss, worse than 2010's $69 million net loss.
Even with MetLife Home Loan's preferred lender agreement running more smoothly, uncertainty still surrounds the future of the arrangement, given the insurance giant's
Potential suitors for MLHL include American Home Mortgage Servicing Inc., American Express, PNC Bank, along with the
“Until there is a decision on MetLife's Home Loan business, and we are able to evaluate its impact, we expect to continue our existing arrangement,” Mezger said. “We have developed a contingency plan if the outcome is not advantageous to KB Home or our customers.”
Oppenheim wrote that Credit Suisse still expects “some mortgage-related delays, and lower conversion rates, to occur at least until KBH is able to finalize a strategy on a partner for the mortgage business.”
Should KB Home's deal with MetLife come to a close, Mezger said the builder will find another partner.
“It remains our strategic intention to reestablish a joint venture on the mortgage side, which can provide additional benefits in terms of predictability of loan closings, synergies and profits,” he said.
