Some Builder Incentives May Violate RESPA

From RealtyTimes:

Home Builder “Incentives” to Buyers Under Federal Scrutiny
by Kenneth R. Harney

Have you ever wondered how home builders can offer such generous incentives — thousands of dollars worth of upgrades, closing cost contributions and other financial goodies — provided buyers agree to use the builder’s affiliated or controlled mortgage company? Are these come-ons legit?

The federal government — pressed by the National Association of Mortgage Brokers — is concerned by these questions too. Though no details of investigations or regulatory actions are available at the moment, HUD’s Real Estate Settlement Procedures Act (RESPA) investigative staff is interested in possible violations of federal rules in the builder-incentives field.

Brian D. Montgomery, federal housing commissioner, issued this statement on the issue: “Often consumers feel compelled to use a builder’s hand-picked mortgage company because they feel they’ve been offered an incentive they can’t refuse.” But to comply with RESPA, he said, “these incentives (must) be legitimate and not built into the price of the house or the cost of the loan,” and they must be voluntary to the consumer, not coerced.

Savitt says “mortgage brokers around the country see this sort of stuff every day. Builders are misleading consumers by waving imaginary savings and upgrades in front of them, and are either tacking the ‘savings’ onto the price of the house or into the cost of the mortgage.”

The practices may also violate federal anti-trust and fair trade statutes, according to Savitt. Under those laws, mandatory tie-ins are illegal when they hinder competition, “which is what builders are doing when they are stealing (loan applicants) from brokers and lenders” using intentionally misleading claims of discounts.

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5 Responses to Some Builder Incentives May Violate RESPA

  1. UnRealtor says:

    Wouldn’t such complaints also apply to the auto industry?

    At some point, the consumer must run some calculations, and compare their options.

  2. Anonymous says:

    I’m not sure but I think the above ad has a mortgage broker right on site, not sure if its affiliated though as the article states.

    They are nice houses but still a tad bit overpriced for that particular area.

  3. Anonymous says:

    If sellers/builders would just lower their prices and admit the market has changed it wouldn’t be a big deal.
    The lies and deceit are signaling red flags.
    Lower prices – that’s it. “Incentives” don’t cut it anymore. I am certainly not going to pay top dollar for upgrades I can do myself for $100k less.

  4. seattle price drop says:

    These mortgage/lender stories are going to really interesting over the next couple months.

    Look forward to them with great interest.

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