Some years ago I had an agent to whom I referred a lot of business ... seriously a couple every month. She got in with "Dr. Morton" on their close-out list and we were moving a couple of units per month to clients I had generated with my advertising. Suddenly it became a problem for MY BUYERS whom I had created as clients with my efforts and my free training classes to use my mortgages and "Dr. Morton" decided they would no longer honor their closing cost contribution unless the buyer used their preferred/inhouse lender.

Woah.

I'm not that great of a business man or negotiator but I am very protective and jealous of my customers and for my staff members. To make a long story short before I had the agent get me to the right person at "Dr. Morton" to resolve the issue I made a few calls to a few state and federal agencies including the Federal Trade Commission

But "Dr. Morton" wasn't the only builder doing this, several others offered incentives to buyers for using their inhouse or preferred lenders as well. That is until the FTC and even the FBI got involved and started doing some snooping around. Then came the lawsuits and regulators and it's still kind of a mess. So you would think builders would catch on. Not so fast ...

I have a buyer I have been working with for about three months who has been waiting on the builder to finish his home. In the beginning he called me because his builder did not want to get "stuck" with the home so he needed a pre-qualification letter. The buyer called me and I took a full application on an "address to be determined" at my cost for credit, my liability for compliance and my couple of hours of phone, email, fax and office time. I did provide the pre-qualification for the buyer and even sent the letter directly to the builder who also phoned me to verify I was legit.

So here we are, I have answered at least a dozen emails, two dozen phone calls and had the secure data storage responsibility for the buyer's private, financial information. I have also kept him posted on rate changes and changes in FHA guidelines which will or could affect him. I think that's enough to set the stage and you know what's coming.

Today I get an email from the buyer who says, "Ken, I just want to give you a heads up that the builder is offering financing and says he will give me $5000 credit toward closing if I use his financing but only $3000 if I use someone elses."

I thought, oh boy, here we go again! Tell you what I'm going to do, I've asked the borrower to get a GFE and TIL from this lender. I'm going to use my regular pricing and see what they can come up with. You know how it works and so do I so I expect they can't touch my rate/costs and still do the loan for $2000 less without some sort of closet payment.

So here's what I'm telling you if you are a builder: Don't do this. It does harm the market and I'm not alone here in mortgage professional world in my understanding of how that happens. Same thing goes for any seller who offers incentives for a buyer to use a particular lender. Do I want a good relationship with builders? Sure, the ones who pay attention and do business on the up and up. Any builder who would do something like this is very likely to pull other gray area moves, too. Payoff the inspector? Use a cheaper grade of building materials? Beat the subs down on price so low they don't do the job any better than just barely expected.

Play fair and get treated fairly. Try to use coercion/bribes to steal one of my customers and the gloves are off.

References:

Coercion - http://en.wikipedia.org/wiki/Coercion
RESPA - (for the spirit if not the letter) - http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm
Federal Trade Commission - http://www.ftc.gov.bb/library/2003-06-13_unfair_trade_practices.pdf
The Rico Act - http://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corrupt_Organizations_Act