PulteGroup Inc (PHM.N), the No.2 U.S. homebuilder, said quarterly profit jumped fourfold, buoyed by a rebound in the housing market, but a $49 million charge for potential loan repurchase obligations dragged down its shares.
The charge aroused concerns that PulteGroup was at the risk of having to buy back bad mortgages it originated during the subprime lending boom, when underwriting standards were lax or non-existent, RBC Capital Markets analyst Robert Wetenhall said.
The risk is commonly known as a "put-back".
Government-backed mortgage financers Fannie Mae and Freddie Mac have been pressing banks to buy back soured home loans made during the housing boom.
PulteGroup, whose shares were down 4 percent at $20.24 in early afternoon trading on the New York Stock Exchange, originates home loans through its in-house mortgage lending arm.
"We were a little disappointed to see additional reserves for the put-back risks," said Williams Financial Group analyst David Williams. "We had largely thought that had been an issue of the past and did not expect it now."
However, the charge is a temporary headwind that may stifle some new order growth only in the near term, Williams added.
"Fundamentally, the company is performing much better today than it ever has through the downturn," he said.
U.S. builders sold 367,000 new single-family homes in 2012, the most in three years, Commerce Department data showed last week.
"We now look ahead to 2013 with expectations for a continued rebound in U.S. housing driven by record low interest rates, rising home prices and sharply lower overall housing inventory," PulteGroup Chief Executive Richard Dugas said in a statement.
An improving U.S. economy and population growth have led to a surge in demand for new homes while the number of homes ready to be sold has declined sharply.
Collective new home inventory in the United States is at its lowest since before the housing bubble, which burst in 2007.
PulteGroup said new orders -- a key indicator for builders, which do not recognize revenue until they close on a home -- rose 27 percent in the fourth quarter ended December.
Its order backlog jumped 65 percent to 6,458 homes.
Smaller U.S. homebuilders Meritage Homes Corp (MTH.N), MDC Holdings Inc (MDC.N) and M/I Homes Inc (MHO.N) also reported sizeable jumps in new orders for the fourth quarter.
PulteGroup said its average selling price rose 6 percent to $287,000 as it sold more move-up homes in the quarter.
Revenue rose 25 percent to $1.57 billion. Analysts on average had expected $1.50 billion, according to Thomson Reuters I/B/E/S.
Net income rose to $58.7 million, or 15 cents per share, from $13.8 million, or 4 cents per share, a year earlier.
Excluding charges of 21 cents per share and a tax benefit of 2 cents per share, PulteGroup earned 34 cents per share, beating the average analyst estimate of 31 cents.
(Additional reporting by Sagarika Jaisinghani in Bangalore; Editing by Don Sebastian and Ted Kerr)