At least one home builder is still feeling the full effect of the mortgage bubble implosion — and this time, the wounds were self-inflicted. For builder Beazer Homes USA (BZH), news Wednesday of a costly settlement was not the first sign of trouble out of its mortgage lending division. Beazer Homes and its mortgage origination arm Beazer Mortgage agreed to pay $5m to the US and up to $48m in contingency payments to homeowners affected by allegedly fraudulent mortgage practices. The settlement resolves allegations that when Beazer Mortgage originated Federal Housing Administration-insured mortgage loans for buyers of Beazer-built homes, the companies fraudulently charged “interest discount points” at closing but failed to reduce the borrowers’ interest rates and instead kept the cash. The allegations also state Beazer funded improper cash “gifts” through charities to be used as the required down payment and as a result inflated home purchase prices. Beazer Mortgage allegedly obscured default information to avoid FHA scrutiny and ignored “stated income” requirements and made loans to unqualified purchasers. The combined effect, the allegations claim, was a high concentration of unqualified borrowers defaulting on FHA-insured mortgages with inflated values. And the FHA program within the US Department of Housing and Urban Development (HUD) was left to foot the bill. “We deeply regret these matters and have used what we have learned to strengthen our control and compliance culture and reinforce our absolute commitment to act according to the highest standards of ethical conduct throughout our organization,” said Ian McCarthy, Beazer Homes president and CEO, in response to the settlement announced Wednesday. The settlement aims to correct the financial wrongs, according to a US Department of Justice statement issued Wednesday, as Beazer will pay restitution to both the FHA and to affected homeowners. “This action shows that the Administration is serious about making the housing market safe from mortgage fraud and will crackdown on those who violate the trust of American homebuyers,” said HUD Secretary Shaun Donovan. “At this time of uncertainty in the mortgage market, it is especially important that lenders, including builder-affiliated lenders, are held to the highest standards of conduct.” It marks the second multi-million-dollar settlement over the company’s mortgage practices in as many months. In May, Beazer Mortgage agreed to pay out $2.5m to more than 1,000 North Carolina borrowers as part of a settlement reached with the North Carolina Office of the Commissioner of Banks over alleged origination violations in 2007. The company, once a major builder in the Charlotte area, left the market last year at the time it ceased mortgage operations, turning over its lending license to the state. Write to Diana Golobay.