Pulte Can't Dodge Mortgage Risk Proposal

A “no-action” request by Pulte Homes to exclude a proposal on mortagage lending risks was recently denied by the Securities and Exchange Commission’s Division of Corporation Finance, according to a RiskMetrics report.

The proposal, which was filed by the International Brotherhood of Electrical Workers’ Pension Benefit Fund, calls on Pulte to establish a committee of outside directors to generate and enforce policies to ensure that nontraditional mortgage loans “are consistent with prudent lending practices,” and that the board report to shareholders within a year on policies and their enforcement, according to RiskMetrics.

In a Feb. 27 letter to outside counsel of Pulte Homes, SEC staff rejected the company’s view that the proposal could be omitted on “ordinary business grounds.” The SEC allows firms to exclude proposals that deal with management functions, or those relating to ordinary operations, according to RiskMetrics.  The proposal also recommends that prudent lending practices include the consideration of borrowers’ ability to repay the loan and that they are fully aware of loan terms and associated risks.

To date, the SEC has allowed home builders and financial services companies to omit various proposals seeking to address risks connected to mortgage lending practices, or exposure to mortgage-backed securities. RiskMetrics is tracking about 22 shareholder proposals to date for 2008 annual meetings that focus on subprime mortgage lending or exposure to nontraditional mortgage investments, 18 of which have either been omitted at the SEC or withdrawn.