A pool of $11 billion in mortgages with recourse to the nation's largest homebuilder may not have met investor guidelines and analysts project PulteGroup may be on the hook for as much as $323 million in buybacks from secondary market investors.
PulteGroup's August 2009 acquisition of Centex Homes made the Bloomfield Hills, Mich.-based homebuilder the biggest in the nation. But with the acquisition, Pulte also added Centex's mortgage origination division, inheriting its "legacy" problems.
In recent commentary, analysts at Credit Suisse say the $11 billion pool consists of mortgages Centex originated in 2006 and 2007, during the height of the housing bubble.
CS estimates that PulteGroup could be forced to buyback as much as $323 million of that pool – and may face additional buyback claims in the future.
PulteGroup reported a net loss of $995 million in 3Q10 off revenue of $1.1 billion. PulteGroup's results were impacted by $986 million in various charges and reserve allocations. It had combined losses of $931 million through the first nine months of the year.
In 3Q Pulte Mortgage funded $508.5 million of residential loans, down 18% from 3Q09.
Despite the challenges, Credit Suisse upgraded Pulte to neutral from underperform. While Pulte is as risk of increased mortgage buybacks, weak demand and falling home prices, CS believes those issues are better reflected in Pulte's stock price and the company's aggressive cost-cutting measures can offset weak sales and margins.
