Federal Real Estate Settlement (RESPA) rules require that incentives not be built into the cost of the homes they build.
According to the Federal Trade Comissions website (www.ftc.gov) "tie in sales" may violate federal anti-trust laws because they harm competition.
Tie in sales are defined as the sale of one product on the condition the consumer purchase a 2nd product which the consumer may not want or could buy elswhere at a lower price.
When a builder links an upgrade or closing cost rebate to the required use of an affiliated lender that can be considered a tie in. When the tie in mortgage is at a higher cost or includes restrictions like prepay penalties not required with loans available elswhere they are effectively preventing their customer from choosing a lower cost alternative & harming competition.
If you have a complaint about builder tieing incentives to their lender call the RESPA enforcement staff at 202-708-0502 or visit www.hud.gov
I will be happy to provide you with a no obligation analysis of your builders proposed mortgage loan.