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As of right now, false. They cannot require you to use their mortgage company, but they sure can make it worth your while, which is what most builders do. Then you would say, why on earth would a builder give us 22K in incentives (or whatever) to do our mortgage and only make $6000? (Because if you do the actual math, on paper, the builder loses more than they make on concession in return for the earnings on the mortgage).
But I can tell you I do not feel it's to "stick it to you twice." (which is how most people feel). Almost all new construction by large builders is not in the MLS, so the closed sales are not readily available. The appraisers can't find out which house had what and sold for what. Put 10 different lenders just in one subdivsion calling the builder for comps, plans and specs and HUD I's will send the builder over the edge. There is just so much work they have to do if someone goes with an outside lender.
If you buy a home using VA, FHA, or USDA financing, there are new construction docs that the lender requires. The average loan officer does not know what forms are needed, so in the 11th hour someone just fingured out while clearing to close a form is missing and now is calling for this form from the builder. Your builder, who is use to their mortgage division to prepare these pesky forms is now scrambling to find out what goes where. Outside lenders don't care about the builder because they know they won't be getting additional transactions from the builder. Delaying the closing means nothing,
Over 80% of my business is new consruction lending, and with major, national builders, where I have been approved as an alternate lender when their lender cannot provide the loan. There's a different rhythm with processing a new construction loan. It really doesn't have anything about making more money off you, it's to control the level of calls coming through their sytem and to shut down the extra work for someone that doesn't know the inside routine.
You may ask if they have any approved outside lenders - most builders do have outside lenders for special situations. But in the end, you are going to have to evaluate if the concession is worth leaving behind.
(note: there's talk that the ABA - affiliated bussiness arrangements - will be challenged by the Consumer Finance Protection Bureau and additional legislation. It was already challenged in the Frank-Dodd, and it's possible, a new legal interpretation of those regs could be release. Keep an eye on the news. The concession and your lender choice could all be yours with the stroke of a pen),
As of right now, false. They cannot require you to use their mortgage company, but they sure can make it worth your while, which is what most builders do. Then you would say, why on earth would a builder give us 22K in incentives (or whatever) to do our mortgage and only make $6000? (Because if you do the actual math, on paper, the builder loses more than they make on concession in return for the earnings on the mortgage).
But I can tell you I do not feel it's to "stick it to you twice." (which is how most people feel). Almost all new construction by large builders is not in the MLS, so the closed sales are not readily available. The appraisers can't find out which house had what and sold for what. Put 10 different lenders just in one subdivsion calling the builder for comps, plans and specs and HUD I's will send the builder over the edge. There is just so much work they have to do if someone goes with an outside lender.
If you buy a home using VA, FHA, or USDA financing, there are new construction docs that the lender requires. The average loan officer does not know what forms are needed, so in the 11th hour someone just fingured out while clearing to close a form is missing and now is calling for this form from the builder. Your builder, who is use to their mortgage division to prepare these pesky forms is now scrambling to find out what goes where. Outside lenders don't care about the builder because they know they won't be getting additional transactions from the builder. Delaying the closing means nothing,
Over 80% of my business is new consruction lending, and with major, national builders, where I have been approved as an alternate lender when their lender cannot provide the loan. There's a different rhythm with processing a new construction loan. It really doesn't have anything about making more money off you, it's to control the level of calls coming through their sytem and to shut down the extra work for someone that doesn't know the inside routine.
You may ask if they have any approved outside lenders - most builders do have outside lenders for special situations. But in the end, you are going to have to evaluate if the concession is worth leaving behind.
(note: there's talk that the ABA - affiliated bussiness arrangements - will be challenged by the Consumer Finance Protection Bureau and additional legislation. It was already challenged in the Frank-Dodd, and it's possible, a new legal interpretation of those regs could be release. Keep an eye on the news. The concession and your lender choice could all be yours with the stroke of a pen),
So pretty much you'll telling me that while it might be against the law to force me to use their mortgage company, they're still within the law if I want to benefit from a better incentive price on the house and other incentives?
They ain't forcing you to go with them. Shop around and see where you can get a better deal factoring everything and then make a decision.
Actually the saleswoman was forcing us to go with their mortgage company in order to get all of their incentives. Even though I was 99.99% sure was illegal.
Good, bad or indifferent they matched my own bank's rates, which I was satisfied with.
As of right now, yes, they can take away every incentive, whether in options or closing costs, or both, if you go with an outside lender and they will remain within the boundaries of the current law.
Actually the saleswoman was forcing us to go with their mortgage company in order to get all of their incentives. Even though I was 99.99% sure was illegal.
Good, bad or indifferent they matched my own bank's rates, which I was satisfied with.
Here's the regulation. I am assuming the OP was told of the relationship between the builder and lender. This text can be found on numerous sites, hud.gov, wiki, ftc.gov, Federal Register
TITLE 12--BANKS AND BANKING
Chapter 27 - REAL ESTATE SETTLEMENT PROCEDURES
Sec. 2607. Prohibition against kickbacks and unearned fees
a) Business referralsNo person shall give and no person shall accept any fee, kickback,
or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be
referred to any person. b) Splitting charges No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed c) Fees, salaries, compensation, or other paymentsNothing in this section shall be construed as prohibiting (1) the payment of a fee (A) to attorneys at law for services actually rendered [or (B) by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance or (C) by a lender to its duly appointed agent for services actually performed in the making of a loan, (2) the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed, (3) payments pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and brokers, (4) affiliated business arrangements so long as (A) a disclosure is made of the existence of such an arrangement to the person being referred and, in connection with such referral, such person is provided a written estimate of the charge or range of charges generally made by the provider to which the person is referred (i) in the case of a face-to-face referral or a referral made in writing or by electronic media, at or before the time of the referral (and compliance with this requirement in such case may be evidenced by a notation in a written, electronic, or similar system of records maintained in the regular course of business); (ii) in the case of a referral made by telephone, within 3 business days after the referral by telephone,\1\ (and in such case an abbreviated verbal disclosure of the existence of the arrangement and the fact that a written disclosure will be provided within 3 business days shall be made to the person being referred during the telephone referral); or (iii) in the case of a referral by a lender (including a referral by a lender to an affiliated lender), at the time the estimates required under section 2604(c) of this title are provided notwithstanding clause (i) or (ii)); and any required written receipt of such disclosure (without regard to the manner of the disclosure under clause (i), (ii), or (iii)) may be obtained at the closing or settlement except that a person making a face-to-face referral who provides the written disclosure at or before the time of the referral shall attempt to obtain any required written receipt of such disclosure at such time and if the person being referred chooses not to acknowledge the receipt of the disclosure at that time, that fact shall be noted in the written, electronic, or similar system of records maintained in the regular course of business by the person making the referral), (B) such person is not required to use any particular provider of settlement services, and (C) the only thing of value that is received from the arrangement, other than the payments permitted under this subsection, is a return on the ownership interest or franchise relationship, or (5) such other payments or classes of payments or other transfers as are specified in regulations prescribed by the Secretary, after consultation with the Attorney General, the Secretary of Veterans Affairs, the Federal Home Loan Bank Board, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the Secretary of Agriculture. For purposes of the preceding sentence, the following shall not be considered a violation of clause (4)(B): (i) any arrangement thatrequires a buyer, borrower, or seller to pay for the services of an attorney, credit reporting agency, or real estate appraiser chosen by the lender to represent the lender's interest in a real estate transaction, or (ii) any arrangement where an attorney or law firm represents a client in a real estate transaction and issues or arranges for the issuance of a policy of title insurance in the transaction directly as agent or through a separate corporate title insurance agency that may be established by that attorney or law firm and operated as an adjunct to his or its law practice.
As a banker on the operations/sales side, I've heard horror stories with mortgage brokers over the years. Like coming up with excuses at the last minute to raise fee's or rates.
In my case the mortgage company is owned by the builder and if there is any screw ups I can just point my finger at the builder since they insisted that I use them.
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