When Builders Lend, Part II

by Alex Stenback on May 2, 2005

Pulte_scamBack in February we discussed in this space the practice of builders offering dramatic "incentives" for buyers to use their ‘preferred’ lender, and how this practice was actually hurting consumer choice; in effect forcing home buyers to not only pay more for the home, but also to accept less-than-optimal financing terms.

Today, we’re pleased to see that the National Association of Mortgage Bankers has recently filed a complaint with the government’s real estate settlement regulators.  The complaint alleges that "builder financing incentives frequently steer home purchasers to more costly mortgage deals than competing, nonaffiliated brokers could provide."
ยท A Closer Look at Incentives [Ken Harney via latimes.com]

To anybody paying attention, it’s easy to see the how these incentives are purely a ploy to restrict consumer choice and reap additional profits.  The article outlines a few of the more eyebrow raising tactics, which we’ve summarized on the other side of the link below.

Here’s a few snippets from the article:

  • One salesman not only threatened to withhold a $5,000 settlement-cost incentive if Savitt declined to use the builder’s affiliated lender, but also refused to sell the house to him under any circumstances, absent an application to the designated lender.
  • Another salesman [gave notice ] that the builder "will not execute a purchase agreement" if the buyer did not apply to and use one of a short list of "approved lenders." Topping the list was the builder’s own lending unit, which was labeled the "preferred choice" in boldfaced letters but not identified as an affiliate.
  • In North Carolina… brokers found a builder that offered the identical new house for $204,000 to buyers who used an affiliated lender, but charged $210,000 if the buyer went out in the local market or shopped for mortgage money on the Web.
  • builder affiliate loan packages often are "one-eighth to one-quarter" of a percentage point higher than what competing, independent lenders and brokers can provide, adding thousands of dollars onto home buyers’ long-term costs.

One final note: If you, or anyone you know has had similar experiences with any builders local to the Twin Cities, we’d love to hear about them:  alex@alexstenback.com

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May 3, 2005 at 7:34 pm

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