"As REALTORS, we need to always be concious of the law, the rules, the codes and the COE. "
Lenn - we're on the same page here. Wishful thinking doesn't make it so!
BACKGROUND: See ReBlog of a post by Ed Gillespie wherein he claimed that HUD, through RESPA prevented NEW HOME BUILDERS from offering incentives to home buyers if the buyer obtained financing with the builders' in-house lender or "approved" lending source.
I DISPUTE THAT CLAIM.
If you read the original post by Ed Gillespie wherein he makes a claim that the builders' requirement is "illegal or unethical, Do I Really Have to Use the Seller's Lender?, you'll see that Mr. Gillespie does not support his claim with a citation or source, other than eventually writes: "Section 8 RESPA".
This is a classic example of a conclusory statement without supporting authority.
A spirited debate ensued with Mr. Gillespie maintaining the position that, under Section 8 of RESPA, builders are acting illegally when they require a home buyer to use in-house or approved lender financing. Even after a citation of the EXEMPTION that permits the builders' action, Mr. Gillespie persists in his position.
See my Reblog of Mr. Gillespie's post with excerpts from RESPA. This is the announcement from the Federal Register in the process of ruling on this RESPA matter.
However, Section 8(c)(4) provides an exemption for affiliate referrals that allows for returns on ownership interest if the referrals involve an affiliated business arrangement and three other conditions are met. The three other conditions are:
(1) The referral is accompanied by a disclosure of affiliation and estimated charges by the provider to which the consumer is referred,
(2) the consumer is not "required to use" a particular settlement service provider; and
(3) the arrangement does not involve otherwise prohibited compensation. (See 12 U.S.C. 2607(c)(4).) Requiring the use of an affiliate is thus presumed to involve a violation of Section 8, insofar as it violates a condition for exemption from liability under Section 8.Show citation box
WHY DO BUILDERS WANT TO CONTROL FINANCING ON THE PURCHASE OF THEIR LOTS/IMPROVEMENTS???
NOWHERE DOES MR. GILLESPIE address the many reasons WHY this practice benefits home buyers. Of course, there are examples of builder's using in-house lenders for pure profit. However, my experience is different.
I SEE BUILDER CONTROL OF FINANCING AS ESSENTIAL TO GETTING THE HOMES BUILT, examples below.
WHY DO BUILDERS WANT TO CONTROL THE FINANCING?? That is one factor that is rarely mentioned when a loan officer/broker makes a statement like "it's illegal or unethical for the builder to require that buyers use the builders' lender".
In addition to that statement being inaccurate, there are good reasons why builders wish to control the financing.
1. If a builder leaves the choice of financing source to the buyers, a builder with 50 lots to sell and improve may be faced with 50 lenders with which to work. HOW INEFFICIENT IS THAT??? Buyers do not have the ability to compare mortgage types or mortgage companies.
2. The builder has already vetted the approved lender and knows the lender's representatives. Communication is important in new home construction. Buyers do not have the ability to select loan officers based on that lenders' ability to perform.
3. Buyers will often leave the selection of the lender to their agent. Agents are far too likely to recommend an in-house lender or a lender with whom the agent is comfortable who may or may not be experienced with new home construction and some loan types such as const/perm, etc.
4. The mortgage loan is a profit center for the builder and that enables the builder to offer significant incentives to the home buyer. Without the profit from the financing arm, base prices or upgrades would very likely be higher. Since builders are competing with other builders in an area, these incentives are often what makes one builders' product more attractive over another. The beneficiary of this competition is the consumer/home buyer.
5. When a builder requires that a buyer select one of 3, 4, 5, "approved lenders"the builder is limiting the choice of lenders to the few that have been vetted and have expertise financing the builder's product. In exchange for the efficiency of using an approved lender, the builder offers the buyer "closing help" usually amounting to several $Thousand Dollars. Builders often tie promotional "specials or sales" to the use of their lenders. That benefits the builder and the buyer.
I could list many examplesof new home purchases whereby my buyers benefited from pricing/upgrade incentives that were tied to the use of the builders' lender.
My buyers benefit from the use of the builders' lenders. If a lender believes that they have a product, company, personal service, rate, etc. that is better than the builder can offer, that lender or loan officer should be selling their company/services/loan products to the builder. When lenders try to use the law to force builders to use any lender that a buyer may introduce, the price of new homes will, IMO, be higher. When the price of a home is higher, the buyer doesn't just pay when they buy, they pay for as many years as they own the home in their mortgage payment.
THE ABOVE ARE A FEW OF THE REASONS I DO NOT ENCOURAGE HOME BUYERS TO TRY TO AVOID USING A BUILDER'S LENDER.
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