Government Says Home Builders Cannot Require you use their lender to receive incentives

Greg - as always, a very informative post.  We don't have much new construction around her in Ventura County so I don't run into this problem but I am really getting annoyed with all the REO listings demanding that all prospective buyers be pre-approved with their Countrywide rep. or else they can't submit an offer.

Ventura County is a military county with two large naval bases and with so many returning vets, I'm starting to get a lot of VA/Cal-Vet clients.  CW is not approved to do Cal-Vet so my Cal-Vet clients are automatically ineligible to submit offers on these REO listings that demand CW pre-approve the buyers.  I know this isn't a RESPA violation but it is definately unethical and something needs to be done about it.

Sorry for the rant, I'm just a little annoyed today with these CW practices.

Greg - thx for the info.  Seems I remember reading about the CA suit a few months back, which was filed the same day as the IL suit.  I was also checking out some of your archived posts and liked the one back in May about the Georgetown study on APR.  I would love to re-blog that post on my outside website, if that's ok with you, of course.

Hello! Very interesting post... I just recently came across a builder in Nashville, TN that required you to use their lender to receive a 10,000 credit off their home and A VA foreclosure where Countrywide (Seller) required you to pre-qualify thru Countrywide before they would accept your offer... Both buyers were DU approved with me & my company. Neither deals sounded fair or legal to me! Brenda :)

I will pass this number to them... and update you if I hear anything. I try to be fair to all but both of these happened the same week. Even my customers asked me if they could do that and that it did not sound fair. Thanks and I hope you are having a good week-end! Brenda :)

Greg - I hate to disagree with you, but I must.  This issue, specifically, is addressed on the hud.gov website under RESPA "FAQ's for Homebuyer's" section:

Example Situation

Question: A builder is offering to pay my closing costs or give me an upgrade package only if I agree to use his mortgage company. Is this legal under RESPA?

Answer: Yes. While a builder cannot require you to use a mortgage company with whom he is affiliated, a builder is allowed to offer you a discount if you use a specific company. Under RESPA, the builder cannot charge you more for the home if you do not use his affiliated mortgage company.

click here for link

In the case with Brenda's situation above, I have challenged this with HUD directly myself.  They told me there was no violation.  HUD told me that they might "trust" the other mortgage professional more and, therefore, know that the offer is "true and valid" (HUD's words, not mine), but as long as the builder doesn't require the buyer to go there to close the loan, there is no violation.

I know this stinks (I wish it were a violation, since it is CLEARLY steering), I have been told that it is not a violation :(

Maryellen

Greg - I, too, have contacted HUD about CW practices of demanding that prospective buyers pre-approve with them (CW) as a condition of submitting an offer and I was told the same thing.  It's not a RESPA violation to demand that prospective buyers pre-approve with a designated buyer just as long as it's not a requirement that the buyer use the lender in order to close the transaction.

Having said that though, I still find CW practices of demanding that every prospective buyer pre-approve with them (CW) or they can't submit an offer are unethical and they need to be stopped.  As I illustrated above, CW can't approve everyone (they are not Cal-Vet approved) so just because they can't approve someone, doesn't mean that the buyer isn't a valid and qualified buyer.

Greg,

Absolutely, I'd love your .pdf's!  I'll contact you off-line with my e-mail address.  The more ammo we have, the better off we'll all be.

It may not be a violation of RESPA, but that wouldn't be the first time one part of the government said something is legal and another part of the government said it is illegal.  Politics as usual.

What Donne says it true - it is unethical and needs to be stopped.  I had a work around one time when this happened to me.  The builder was requiring a CW approval letter.  Since I am an approved broker, I submitted the loan through CLUES/CLOUT, got the underwriting findings and forwarded it.  "There's your CW approval!"  That was one fax I sent with a smile!

Maryellen

Maryellen - a couple of times, I was fortunate to get a CW rep who agreed to take my own DU findings as proof of qualification.  But the next time, I will try your way and just run it through clout.

Donne,

Just one word of warning: make sure your builder/seller agent has a good sense of humor.  I'd like to say this won me brownie points for ingenuity and creativity, but it didn't.  But, at the very least, I got my point across - especially when they found out I used to be a corresponding underwriter for CW.  I had a good laugh, though.

Maryellen

Maryellen - I'll keep that in mind but I'm still going to try it, if for no other reason but to get my point across as well.  Needless to say, if the shoe were on the other foot, they be singing another tune.  Heck, they would do the same thing.

I have noticed a builder who builds not only in Louisiana, but Texas and several other states offering $4000 or more to buyers who use both their lender and title company.  If buyer fails to use either, the monetary offer isn't given.  This seems like steering to me too.  However, when my buyer client contacted the government, she was told as long as the relationship is disclosed in writing and agreed to by the buyer, it isn't illegal. 

The closing group used a notary, not an attorney who could not answer any of my clients questions at closing.