HUD Cracking Down on use of Builder's Preferred Lender?

Donna.... true in many aspects that the lender is the builder... but not in my case. But there are more and more preferred lenders popping up on these contracts. I just highered two loan officers in Florida who are very close to becoming a preferred lender for 110 units for a builder. And his reason fro picking them... because of their service, professionalism, and our rates. And he is not asking for anything else. And we are even knocking off our application fee of $195 and paying for the clients appraisal. Because I am looking at it from a units perspective. And that is what I told my loan officer to do, to solidify the deal.

I agree with Kristal.  Incentives should not be tied to financing as long as buyer quilified for mortgage they should be able to benefit from the incentives that the builders offer.  Sometimes the interest rates are not the greatest from the Builders lenders.

Actually, the original reason for builder's mortgage companies was to control the transaction, not necessarily make it a profit center.

Here's the cool thing, though Realtors.  Let the builder's lender  give them the high rate loan.  It can be refinanced within 30 days.

Well, clients hsould be directed to NOT accept  pre-payment penalty; they will get an even higher rate but that doesn't matter.  They're going to refinance out of it.

NO lender can require a prepayment penalty; they always offer an option to "buy it out" 

We really have to look at the preferred lender's rate carefully.  I don't encourage our buyers to give up great incentives to use the builder's lender, but sometimes the builders get slick. 

Example:  Ryan Homes in Virginia tied $63,000 incentives to using their NVR.  What buyer is going to argue with that.

Example:  40West in Howard County had a preferred lender tied to $5,000 closing help.  However, the builder's lender tried to put my buyers in a sub-prime loan and they had decent credit.  In fact, the builder's lender expressed doubt that they could even get approved.  I took them out and got them approved in 3 days.  They lost the $5,000 but gained a lot more in lower closing and mortgage payments.

Example:  Centex's lender has a high enough rate that I told them that we would just not buy the house before paying their interest rate.  We went outside and still got the incentive.  That was a class act.

Examples are all over the place.  Quite often our buyers can see the advantage of giving up the incentive to go outside.  But, the slick builders like Ryan Homes tie so much of the incentives and upgrades to using their lender, the buyers really can't give it up.  All we can do is try to find another home.

This is a problem.  That said, I have sympathy for a builder not wanting to deal with 20 different lenders.  If they didn't get so greedy, they wouldn't have to.

 

 

 

Can you say "bait and swtich" ? Thats all this is in my opnion. These clients whether or not they have a prepayment penalty will still refinance anyways.

the builder can say whatever they want about 'controlling' the process and 'trust'

i say bull****!!!!

they own a mortgage company most times.

the best we can do is keep fanning the flames and educate the borrowers/buyers.

 

Lenn:

Another great comment.  In the words of the late Milton Freidman...There Ain't No Such Thing As a Free Lunch 

Now you see it - now you don't.  Not that I'm suspicious at all - but wouldn't you think that a builders lender should be able to do BETTER than their competitors given the volume they do?

I have run into situations where the builder has in house Realty Company, and Mortgage Company, and they do everything they can to keep everything in house.  Hopefully Buyers will check out other financing options before locking themselves in with the builder’s lender.  But that is usually not the case, my experience is that they follow their recommendation.

Much of my opinions have already been stated (above) - but I must agree, that I have yet to have a positive experience w/ a builders preferred lender. Not saying that it is impossible, but rare in our neck o' the woods.

Furthermore, I have often found that foregoing the builders' incentive (in many cases) in lieu of a reputable lender has actually saved the buyers' more money at the end of the day.

Mariana.... then get me with those builders and I will change all opinions....  ;o)

I wish HUD would crack down on this... there are several new builder projects going on here in Lake County.  Most have stopped right now because of the market, but they are still trying to get the business.  The amount of incentives that they offer are making it tougher to steal the client away.  They know that they are going to pay for it somehow.  All I can do is do what Brian Brady said.  Refinance them after closing when they see how they are going to pay for it.

We have a couple major developers here that do it a little different.

They require that you do a pre-qual with one of their approved lenders. 

You can do the actual loan with your own lender, but you will get some type of incentive from the approved lenders.

The other side - we recently had a buyer purchasing a Lennar home - it was originally going to be ready the end of November, but they did push things and let us know the first of November that we could close mid-November. We kept asking the title company for a HUD and the client was finally told, the day before closing that closing wasn't until Nov 30 and the builder told her the same. She called us in a panic - we called the proper person at the builders, sent Lennar a copy of the letter from another department at Lennar saying that closing would be Nov 15, and said that since Lennar was the seller, it was their lender and their choice of title company, that they'd better find a way to get this done the next morning - they did! 

Jeff~ I saw that one coming...

Builders like to use a company and lo they trust that will be honest and reliable. We have had relationships in our office where some local broker promised the world and a couple of months later after all the talk the builders finally told them to take a walk and called us back. It's a relationship thing and it's about closing the deal.