HUD Halts Abusive Homebuilder Practices

The Housing and Urban Development better known as HUD has finally halted abusive practices by home-builders in which they would revoke huge buyer incentives for not using their preferred/affiliated mortgage company. When a colleague of mine Tom Burris shared this with me, I was jumping up and down in excitement. Over the last 2 years I have written 4 posts about this abusive behavior.

Are Builders Violating RESPA with Using In-House Lending?
Home-builders and Abusive Practices
Should I use the Home Builders Lender?
I decided to try and take some action against Home-builders and Abusive Practices

Effective Jan. 16, 2009 a new home builder can no longer use “disincentives” to steer their customers to their preferred mortgage company. In practice, builders have for years offered huge monetary incentives to steer customers to their preferred/affiliated lenders. Likewise, if the customer chose not to use the preferred/affiliated lender a huge “disincentive” was created in that the monetary incentives were taken away. HUD makes it clear that economic disincentives that are used to improperly influence a consumer’s choices are as problematic under RESPA as are incentives that are not true discounts. Under the new rules a consumer would be more likely to shop for a home and the loan and settlement service that is best for them, free from the influence of deceptive referral arrangements. RESPA Final Rule:

Now for the 1st time both the consumer and the mortgage provider will have a fair playing field with the home builder. This will allow the consumer to have more options when shopping for a home loan. It also puts the control back into the consumers hand. During the last 3 years, I saw a lot of consumers who ended up with a bad mortgage because that is what the builders preferred lender offered them. When the consumer questioned the loan, the builder threatened to pull their incentives for walking away from that loan. Some of these same folks lost their homes because that preferred builder lender put them into a wrong loan product such as an adjustable rate mortgage.