On Friday, March 6th, HUD announced that they were going to further delay implimentation of the new RESPA rule that would have made it illegal for builders to require home buyers to use their affiliated mortgage lenders. This rule, which was part of a larger RESPA reform, was scheduled to go into effect on January 16, 2009, but was delayed at the last minute until April 16, 2009 because of a lawsuit filed by the National Association of Homebuilders. HUD has once again suspended the implimentation of this rule until July 16, 2009 because of this ongoing litigation and also because HUD would like to receive additional public comments on this issue.
The "required use" debate has been going on for quite some time. There are several arguments to both sides of the issue.
Supporters of the "required use" rule offer many reasons why they believe this would be a good law for consumers and competition in general. Here are some of the arguments that I've heard:
- Requiring the use of an affiliated lender amounts to steering and stifles competition, creating a virtual monopoly in some cases.
- The rates and fees that builders charge are often above market.
- The incentives are made up either by charging higher rates or increasing the price of the home, depending on the individual builder.
- Builders often do not adequately collect for tax escrows on budget loans, nor do they conspicuously disclose that underfunded tax escrows will lead to much higher PITI payments once the tax assessor revalues the home.
- Buyers often believe they have no other choice but to use the builder's affiliated lender.
Opponents of the "required use" rule also cite many reasons why this would not be a good idea:
- Builder's affiliated mortgage companies have a better track record of on-time closings than outside lenders.
- The rates and fees offered by affiliated lenders are more competitive than rates and fees offered by outside brokers and lenders.
- Affiliated mortgage companies that get the majority of their business from builders would not be able to survive if this rule were to go into effect.
- Affiliated lenders are more familiar with the builder's closing process and therefore are able to provide a better experience to the home buyer.
- HUD's definition of "required use" is ambiguous and incomplete.
I'm sure i've left out a few on both sides of this argument, so feel free to comment. In fact, if you really feel the need to comment on this issue, tell HUD what you think by making a public comment. Here's how to do that:
Go to http://www.regulations.gov/search/index.jsp and enter docket number FR-5180-F-05 and follow the instructions to submit a public comment for HUD's consideration on this issue.
The press release about the delay is located here: http://www.hud.gov/news/release.cfm?content=pr09-020.cfm
Here's a link to HUD's original rule that was to go into effect on January 16th. The ruling about required use begins on page 33 http://www.hud.gov/offices/hsg/sfh/res/finalrule.pdf
So what do you think? Is this a good rule, or should HUD reconsider?