The Veterans Administration is investigating an estimated $3.5 million in kickbacks in the manufactured-home industry.
The agency announced the probe last week after one of the nation's largest home manufacturers pleaded guilty to abusing the VA's loan-guaranty program.
Investigator Robert A. Hincken this week said the VA received a tip last summer that Guerdon Industries Inc. of Denver and other manufactured-home companies were inflating the prices of mobile homes sold to veterans by adding dealer rebates to the total cost of the units.
This practice, believed to be widespread, is specifically prohibited in VA regulations governing loan guarantees for mobile homes, VA spokeswoman Donna St. John said.
Last week, Guerdon pleaded guilty in U.S. District Court in Atlanta to the practice and agreed to pay $500,000 in fines and to fire its president, chairman and several other managers, according to court papers.
St. John said the VA inspector general has targeted another 30 home manufacturers for investigation and has subpoenaed the records of a total of 75 manufacturers. There are about 150 home manufacturers in the country.
She said the inspector general has estimated that kickbacks on mobile homes with VA loan guarantees may exceed $3.5 million.
"If there is a default, the VA ends up paying for the kickback to the dealer, which isn't something the VA should pay for," St. John said. "The VA guarantees the loan [for] the home, not any sale-incentive rebate the manufacturer might give to the dealer."
She said the VA has guaranteed more than 90,000 personal loans to veterans buying manufactured homes over the 13-year history of the program. Since 1981, the VA has paid more than 3,000 claims on defaulted loans.
Holt E. Blomgren, president of the National Manufactured Housing Federation, said this week that it is common for manufacturers to give kickbacks to dealers as a way to prompt sales.
"But, of course, they have to be aware of regulations," Blomgren said. "If the VA says that cost cannot be included on the invoice, then it shouldn't."
However, Blomgren said it is possible that some manufacturers do not know that kickbacks cannot be included in the price of mobile homes guaranteed by the VA.
"I can't comment on that," said Hincken, the VA investigator.
Bromgen said the VA investigation will not hurt the industry because consumers will continue to buy manufactured homes if they believe the price is right. "They are interested in what the home is worth on the market, not kickbacks," he said.
VA Inspector General Frank Sato said last week it is likely that some manufactured-home corporations and individuals will be indicted on criminal charges in the near future and said other companies already are negotiating pleas with his office.
"The investigation is moving rapidly, and we are going to pursue it aggressively," he said.