Monday, June 26, 2006

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.

5 Comments:

Anonymous UnRealtor said...

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

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

6/26/2006 08:31:00 PM  
Anonymous Anonymous said...

That funny, cause I just got this email....

The Villages At Cinnaminson Harbour

A Riverfront Community

NEW SECTION

Now Open for Sales !!!

Our New Villa Home Collection

from $319,900
NOW with up to $12,000 IN SPECIAL INCENTIVES
You can own a new 3/4 br. town home with a 2 car garage, approx.
2000 s.f. of living space, for only $1570/mo plus taxes*

Stop by to view our MINIATURE SCALE MODELS of big 3
and 4 bedroom VILLA HOMES with 2 car garages. The Jib Sail
model has a first floor master bedroom.

Special Incentives can be used to

Lock in a low mortgage payment for 1 full year

Pay your closing costs, or

To pay decor options. It's your choice

IF you need a home for a quick delivery;

See our three homes remaining in Section One:

2 Baybridge Interior Units with upgrades included, at $214,510 & $212,460,
payments from $1085/mo*

2 Edgewater End Unit Town Homes with upgrades included from
$309,175 payments from $1586/mo*

Incentives on Section One Homes up to $10,000 while they last...

*payments based on 10% down, 5 yr fixed Arm at 6.25% to all qualified buyers,
interest only payment. Taxes must be added to monthly payment. Program by FIF.
Rates subject to change without notice.

6/26/2006 08:39:00 PM  
Anonymous Anonymous said...

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.

6/26/2006 08:42:00 PM  
Anonymous Anonymous said...

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.

6/26/2006 09:18:00 PM  
Anonymous seattle price drop said...

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

Look forward to them with great interest.

6/26/2006 11:28:00 PM  

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