Lennar’s trickle up ‘profits’


by Ann Garrison

“Pretending to promote job creation, the government is dispensing cash to companies that either do not need it or need it precisely because they didn’t run their businesses prudently. Isn’t there something wrong with that picture?” – Gretchen Morgenson, New York Times

On Jan. 7, 2010, the Lennar Corp., Miami-based darling developer of San Francisco Mayor Gavin Newsom, the San Francisco Redevelopment Agency and an ongoing majority on the San Francisco Board of Supervisors, reported its first profit – in three years: $35.6 million, or 19 cents a share, compared to a loss of $811 million, or $5.12 a share, a year earlier.

What finally helped Lennar turn the corner? Homebuyers flocking back into its overbuilt communities in Florida, Nevada, California and Arizona, despite fierce competition from all the foreclosures and distressed properties, including those on Lennar built – and financed – homes?

No, the good news was a federal bailout for big industrial homebuilder-lenders. Though described as a “tax credit,” this was cold cash – a check in the mail – straight up help for a corporation that had been reporting losses for three years in a row.

Lennar got $320 million – cash – because the “tax credit” generated a “tax refund,” retroactive five years back to when Lennar was actually generating a profit. The corporation invested $240,000 in lobbying for it and, without it, Lennar would have posted a $284.9 million, or $1.15 a share, loss.

The refund for Lennar and the other big builder-lenders was tucked inside the Worker, Homeownership and Business Assistance Act of 2009 that President Obama signed into law on Nov. 6. The act included an $8,000 tax credit to homebuyers, another boon to Lennar and the other big builders and bankers: a home sales incentive.

But the homebuyer’s tax credit wasn’t cash assistance; it was a tax deduction from earned income – assuming the homebuyer had a job, held onto it and earned enough money, over and above standard deductions like dependents, tuition, child care etc. and then still needed an $8,000 tax deduction. And assuming the homebuyer was able to hold onto the home.

As usual, those with the cash to lobby for more got it. Those with no cash got earned income tax credits of questionable value to them but sales “incentive” value to Lennar, the other big builder-lenders and the rest of the real estate industry.

Stockholders responded to Lennar’s surprise “profit” by driving its stock upwards by 15 percent in one day, confirming once again that a corporation’s ability to turn a “profit” with legal, in-your-face corruption – a.k.a. paid lobbyists – now makes it a desirable investment. On Jan.14, 2010, Barclay’s upgraded Lennar stock to “Overweight from Equal Weight, as analysts believe there is further upside to be seen this year,” and increased the stock’s target price to $20 from $17.

Never mind that Lennar’s revenue fell 29 percent to $913.7 million, because of a 22 percent drop in the number of completed home sales.

Never mind that the average sales price of a home dropped 9 percent annually to $238,000.

Never mind the next waves of foreclosures that, barring drastic federal action, will further heighten the foreclosure and distressed real estate competition in Lennar’s markets, which include parts of Nevada, Florida, California and Arizona, states with the highest foreclosure rates.

And, never mind that Lennar’s “profit” didn’t even equal the cold cash handout. Lennar used $284.9 million of its cash tax refund to cover its losses and then reported the remaining $35.6 million as profit to its shareholders.

AIG also reported a “profit” in November 2009, as it begged the U.S. Treasury for another $4.2 billion and is now reporting a profit, yet again, in 2010.

Sleight of hand and language most of us don’t understand

The criminal financial sector now laying the world to waste is getting away with it largely because most Americans’ eyes glaze over at terms like derivatives, mortgage-backed securities and credit default swaps and even the fairly comprehensible accounting tricks and sleight of hand. But we can also thank a lot of lazy business press for bizarre reports like this:

“The surprise Lennar profit may also indicate the extent to which the California market has recovered, as one of Lennar’s strengths on the road to recovery is expected to be its concentration in California neighborhoods where home prices and sales have been rebounding.” – The Street, Jan. 8, 2010

Profit? What profit?

Two paragraphs later in the same article, the writer acknowledges, “The quarterly profit was, in truth, driven by a one-time tax benefit …”

But he then continues, in the very same paragraph, to say, “Lennar earned $35.6 million, or the 19 cents-per-share profit, versus a loss of $811 million, or $5.12 a share, a year earlier.”

Earned? By sending lobbyists to Washington for a handout to cover Lennar’s hundreds of millions in quarterly losses, plus $35.6 million to post as profit, driving its share price upwards?

But, the business press also characterizes private prisons as “private prison realty” or “real estate investment trusts,” a.k.a. REITS, so why be surprised?

Not all business writers, however, are quite so sloppy or unintelligible. Eric Rosenbaum, another The Street writer, reported, on Jan. 12, 2010:

“After Lennar’s (LEN Quote) surprise profit last week based on a similar, and even larger-sized tax benefit, shares of all the homebuilders surged, especially Lennar, which managed a one-day 15% gain. The government’s new Too Big to Not Build tax bailout plan for the homebuilders seemed to send investors back into the beleaguered homebuilder sector.

“However, analysts were somewhat perplexed by the level of excitement generated by the Lennar tax-based profit, since taking tax gains has been a trick used by banks for years to engineer, as opposed to earn, profits.“

Just to make Lennar’s “profit” as simple as it really should be – which should be simple enough to stop it from happening – here’s a summary in 1-2-3 form:

1) Lennar paid federal lobbyists $240,000 to win them a $320 million cash bailout characterized as a retroactive tax refund.

2) In the accounting for its fourth quarter report, announced on Jan. 7, 2010, Lennar used $284.9 million of the $320 million to offset its quarter losses.

3) Lennar then reported the remaining $35.6 million as profit, earned income.

4) Taxpayers, yet again, footed the bill.

And our federal government justified this, just as they have every move made to relieve economic stress, as trickledown economics. By giving Lennar money, the feds would encourage them to employ the rest of us, putting wages in our pockets, which we would then spend and circulate to get the whole merry-go-round going again. To quote the Worker, Homeownership, and Business Assistance Act of 2009:

Creates Jobs by Cutting Taxes for Struggling Businesses. The bill provides an expanded tax cut to tens of thousands of struggling businesses, providing them with the immediate cash they need to pursue an expansion or avoid contracting or furloughing their workers. … Today, the President extended that benefit for an additional year and expanded it to medium and large businesses as well.”

Large businesses – meaning big builder-lenders, including Lennar. This bill began as a break for the rest of us, but then the federal lobbyists moved in, even though most of the big builder-lenders, including Lennar, are sitting on lots of cash. Though the company just reported its first “earned income profit,” all the financial media report that it’s flush:

“Lennar ended the quarter with $1.3 billion in cash. Several other builders also have robust balance sheets after spending the last several years trying to accumulate cash, even at the expense of profitability, in order to survive the slump.” – Yahoo Finance, Jan. 7, 2010

With Lennar and others already hoarding to survive the slump, why would Congress or anyone expect them to let more government gifts trickle down to people suffering the consequences of the predatory lending and foreclosure, recession and now “jobless recovery”?

As the New York Times’ Gretchen Morgenson wrote, “Given that the supply of housing far outstrips demand, it is unlikely that these companies will use these tax breaks to hire workers (unless they go into a completely new line of business).”

So bail out the people

So why not bail out the homeowners still struggling to hold onto Lennar’s overbuilt, oversold, over-mortgaged homes, instead of the big builder-lenders? Why not further extend unemployment benefits? Create green jobs doing things that need to be done, like solar installation, bioremediation, forest restoration? Restore public transportation? Fund higher education, so that students don’t leave college strapped with desperate mountains of debt for the rest of their lives? Dare I say health care?

We all know why not: Because these constituencies don’t have the money to lobby for more. And they don’t have the money to elect federal legislators.

Put the San Francisco Board of Supervisors in control of the Redevelopment Agency

But, as Sigmund Freud said, “The voice of reason is very faint, but it is very persistent.”

So I’m still hoping for a local coalition, before the 2010 Supervisors’ elections in Districts 2, 4, 6, 8 and 10, that will call for abolishing the appointed Redevelopment Agency Commission, putting the San Francisco Board of Supervisors in charge and ending the City’s relationship with Lennar.

San Francisco writer Ann Garrison writes for the San Francisco Bay View, Examiner.com, Digital Journal, OpEdNews, Global Research, Colored Opinions and her new blog, Ann.ie. She is also active in international Green Party organizing, with special focus on supporting the Democratic Green Party of Rwanda, which is struggling for official recognition and a free and fair election in Rwanda in August 2010. She can be reached at anniegarrison@gmail.com.

Top 10 Things Homebuyers Should Know | New Homes By Lennar


  1. I used to be secretary for a consumer org that dealt in builder complaints. Lennar had plenty of complaints as did many others. The org started out in the early 90s and dealt mainly with issues concerning shoddy construction of which there were many serious complaints, even those involving safety issues. Then abuse of arbitration clauses in builder contracts and warranties became a huge issue, as arbitration was being used industry wide to prohibit people from suing and to keep complaints private. In the early 2000s, mortgage fraud committed by builders was added. Many builders operated their own mortgage co’s and also had affiliated title co’s etc. All of this was one big conflict of interest that resulted in everything from just not getting a good deal to outright fraud. Consumers were complaining about all these things and still are, but only when banks were finally burned for their own lack of common sense, did anyone point a finger officially at the builders. Builders are a big part of the economic bust, and yet they along with banks, etc, are getting a gift from taxpayers. If this doesn’t show that corporations ARE this country’s government I don’t know what will convince Americans.

  2. Thanks to dianne feinstein, lennar was a gift to her husband, blum. Doesn’t any one know S.F. has some of the best contrators including the whole bay area, why go to florida? I think the people who do this should be criminally charged with taking money out of bayview, by the CROOKS – LENNAR and Diannne feinteins hubby. She has property in s.f. but won’t do anything to help employ bay area residents. Shame on u D.feinsten and BLUM her hubby!

  3. Thanks to both Cindy and Jay for sharing this info.

    One of the many details I haven’t yet had time to write up is that Lennar has a “donor advised fund” with the San Francisco Foundation, http://www.sff.org/about/publications/annual-reports/ar2009/donor-advised-funds-2009

    Donor advised means that they maintain control of where the money goes and believe me, barely a dime, if anything, goes to Bay View. Donor advised funds almost never give anything to any sort of social justice work. I don’t have time to study Lennar’s SF Foundation fund’s statement this year, but the last time I checked, the biggest contribution was to Harvard’s professional schools.

  4. Lennar’s title company is North American Title. And yes, in spite of all we’ve seen, it’s still somewhat surprising that being a builder/lender/title co. doesn’t represent an illegal conflict of interest, isn’t it?

  5. Lennar, in Southern California’s Inland Empire has created havoc.
    The numbers from the 10-k SEC.Gov show that Lennar converts over 65% of the buyers of their homes.
    It is a must to fill out their lenders loan application. They also state that if their lender is not used then the full discount credits are not allowed.
    Lennar uses a warhouse line in which the promissary note is sent to the warehouse lender as collater. Lennar is the borrower for the funding loans. Most likely they never fund anything.
    Quite a nice profit for filling out forms and pretending you are an actual bank. Now when the appraiser is hired by Lennar for $500 per house, there is little incentive to give an honesrtr appraisal.
    There have been several law suits regarding builders with their own lenders and associated significant penalties.
    The whole scam is documented will with testimonies on the Hill and also from a study done by LIUNA.ORG, “Cruel Hope:
    The Abusive Practices of Homebuilders and Their Mortgage Subsidiaries in California” The facts do not lie.
    One wonders why Lennar has not been investigated–or maybe they have.

  6. Thanks, Brian. Could you tell me what “converts” means? And define “warehouse lender”? Keep in mind that Lennar and all the predatory lenders and securitizers have been able to get away with as much as they have because no one understands what they’re talking about.

  7. Lennar makes all buyers fill out an application for a loan with their lender, UAMC.

    If a buyer doesn’t use their lender then they will not allow a full buyers discount or what some have found to be a trick discount. It really isn’t what they say.

    From my limited studies it is good for Lennar.

    Lennar picks the appraiser, title company, and lender. Now thats vertical integration. Little that can go wrong when all of those are under the builder’s control.

    For filling out loan forms Lennar’s subsidiary collects $15-20k on a $400-500k house.

    Lennar uses a lending warehouse facility which loans them the money to pay off Lennar, UAMC, and title at the closing. The warehouse lending group takes the lien on the mortgage and note.

    Lennar has no risk of default since they never hold the paper. If they do hold a loan it is for as short as possible, usually weeks to 1-2 months

    One early default in the first 2 payments will not allow the loan to move forward. One of the reasons they watch and push the buyers to ensure they pay. Then after it passes it is a non recourse loan. No one can come back on them.

    Nice profitable business. Lennar can hire the appraiser who will do what they want as far as setting the prices. That price keys the Loan to Value Ratio. The higher it is the more they can lend and not be left holding the loan.

    A version of “Hot Potatoes”

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