HUD Suspends New Rule That Would Have Outlawed "Required Use" of A Builder's Affiliated Mortgage Company

Real Estate Agent with Briggs Freeman Sotheby's International Realty 0596165

 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 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:

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

So what do you think?  Is this a good rule, or should HUD reconsider?   



Posted by

John Jones, Realtor

Dallas City Center, Realtors

3100 Monticello Ave., Suite 200

Dallas, TX 75205

Dallas, TX Real Estate and surrounding areas of Richardson, Plano, Addison, Frisco, Carrollton, Farmers Branch, Garland, Allen, Irving, Rowlett, and Rockwall.

Dallas, TX neighborhoods and subdivisions of Lake Highlands, White Rock Lake, Lochwood, Eastwood, L Streets, M Streets, Hollywood Heights, Lakewood, Coronado and Gastonwood, Forest Hills, Lochwood, Eastwood, and Preston Hollow.

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Donna Harris
Donna Homes, powered by JPAR - - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

There are going to be lots of builders hurting if and when this goes into effect, mainly by the ones that actually own the mortgage company they're affiliated with. 

For the most part, builders' lenders have always been very competetive in my market.  My buyers have always had the choice to use an outside lender if the rates weren't competetive and 9 times out of 10, they went with the builder's lender.

My own situation has been completely different and the lender was charging 2 points higher to get the same rate and fees than the lender I went with.  I had never heard of a builder's lender being so far off from par, but I guess it happens more times than not, which is why this new legislation has come into play.

Apr 07, 2009 08:46 AM #1
Thesa Chambers
Fred Real Estate Group - Bend, OR
Principal Broker - Licensed in Oregon

I will be watching to see how things turn out...

Apr 07, 2009 07:57 PM #2
Sara all i have to say...

Apr 13, 2009 04:39 PM #3
Tim Bradford
Cleveland, OH
NMLS 250013

New FHA Federal Register Notice:
24 CFR Part 3500 [Docket No. FR-5180-F-06] RIN 2502-AI61
TITLE: Real Estate Settlement Procedures Act (RESPA): Rule To Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs; Withdrawal of Revised Definition of ``Required Use''
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing Commissioner, HUD.
ACTION: Final rule.
SUMMARY: This final rule withdraws the revisions to the definition of ``required use'' as provided in HUD's November 17, 2008, final rule amending its Real Estate Settlement Procedures Act (RESPA) regulations. The November 17, 2008, final rule, in part, revised the existing definition of ``required use,'' for the purpose of enhancing protections for consumers from deceptive mortgage practices that result from certain affiliated business transactions.
DATES: Effective Date: June 15, 2009, except the amendment to 24 CFR 3500.2, which is effective July 16, 2009. FOR FURTHER INFORMATION CONTACT: Ivy Jackson, Director, or Barton Shapiro, Deputy Director, Office of RESPA & Interstate Land Sales, Office of Housing, Department of Housing and Urban Development, 451 7th Street, SW., Room 9158, Washington, DC 20410-8000; telephone 202-708-0502 (this is not a toll-free telephone number). Persons with hearing or speech impairments may access this number through TTY by calling the toll-free Federal Information Relay Service at 800-877-8339.
To read this final rule in its entirety please visit:

May 16, 2009 01:54 AM #4
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