HUD is delaying implementation of the "required use" provision of the final RESPA rule that was slated to be implemented January 16th. This provision would keep builders from making incentives or discounts available to buyers only upon using the builders' preferred lenders. The delay comes after the National Association of Home Builders (NAHB) filed a preliminary injunction against the rule in late December.

NAHB argues the provision "limits the options available to new-home buyers as they seek out the services necessary at closing." On the contrary, HUD believes this provision makes other lenders available to the buyers, encouraging them to use the lender who offers the most competitive rates & fees.  HUD references statements by consumers that point to higher rates and fee charges by builders' affiliated settlement service providers.

Delaying the implementation of the "required use" provision does not mean it will not be implemented, but rather gives HUD time to build its case in support of this provision. The provision is expected to take effect April 16th.

There are valid arguments on either side, but offering large incentives through exclusive lenders can be anti-consumer. Admittedly, I'm biased having lost many clients to builders' lenders due to the large, exclusive discounts they offer; but I've experienced a number of times when a builder's lender offers completely uncompetitive rates & fees, and gets away with it because the buyer gets a large amount of incentives exclusive to using their services.

Do buyers end-up with a net benefit through these affiliated business arrangements despite the higher mortgage costs? Yes, many times they do; but how much more of a benefit would buyers enjoy with a more competitive mortgage AND all the builder incentives?

NAHB CEO, Jerry Howard, stated, "For the first time ever, HUD has disallowed home builders from offering bona fide discounts and packaging of real estate settlement services, which have saved home buyers thousands of dollars over the years in closing costs, title searches, and other fees. This rule is bad for consumers, bad for the housing industry, and bad for the economy." However, nothing in the new provision states builders can not still offer these incentives or suggest a buyer use their preferred lender; they just can not make these incentives contingent upon using this preferred lender.  

This new provision will likely disrupt builders' operational efficiency in the short run, but that's the name of the game if you're in the real estate business right now -- adaptability is something we're all dealing with on a daily basis. To argue this provision is anti-consumer because it will increase the settlement costs to the buyer is just not true. Builders make their money selling homes, not building the businesses of their lenders; therefore, they will still offer their large incentives even if not through their preferred lender if it helps them sell a home.

This provision is ultimately in the consumer's favor as they will still enjoy builder incentives, and now can combine them with the most competitive mortgage.