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Using Builder's Mortgage Companies to Get Builder Incentives...

I have seen some posts that have discussed an upcoming ruling that will affect the New Home Builder Incentives that a Buyer receives for using the Builder's Mortgage Company.

The underlying idea is that some Realtors have argued that "forcing" a buyer to use a builder's lender... either their "preferred" lender, or a lender actually "owned" by the builder... is infringing on the buyer's freedom, especially when a buyer thinks they can get a better "deal elsewhere... or when the Realtor has some lender that he or she prefers to use... and may also have some sort of a "you scratch my back, I'll scratch yours" relationship.

I really have to take issue with the new ruling.

If the buyer is totally free to use either their lender, or the Realtor's lender... not only will the builder's "marketing" be affected... but their profit picture will also be affected.

Yes, the builder wants their lender to be used by the buyer... and there are several reasons.

First:   The builder usually had special financing set up... which they have paid an upfront commitment fee to get.  With this program, the builder knows that once their buyer has been "pre-qualified" that there is a very small chance that the buyer would be rejected.

When the buyer uses the Builder's lender... Realtors often feel that the builder will financially benefit if the loan goes to the builder's lender.

The is probably true.  Builders often pay for interest rate "commitments" to give special loan rates to buyers.  They also know the individual buyer's loan qualifications that go along with those programs.  If the buyer does not use that "committed" money program, the money goes unused... and the fee paid to secure that loan rate commitment is wasted.

Secondly, the builder probably will benefit from the loan going to their own lender... probably from either a rebate back to the builder, or some other lender concession back to the builder from the lender.

Sure, the builder makes some profit on the loan... but that is taken into consideration by the builder when arriving at a selling price.  If that profit disappears... it's got to comeback from somewhere.

Second:  It is very important for a builder's loan to close on or before the date it is supposed to... as written in the contract.  If a closing is scheduled for the 29th or 30th of the month, and the lender runs into a "glitch," the builder's mortgage company will somehow find a legal way to close on the loan... to somehow make it work.

I have never seen a loan program that was promised by the builder's mortgage company "disappear" when it came time to close because the loan program disappeared.  

I have seen this happen with some outside lenders.  Often times... if a loan is not ready to close and falls into the next month... it is an outside lender.  Usually the lender's typical answer is to simply let the loan fall into the next month for the builder and buyer... assuming it really makes no difference to anyone.

When the closing, and the loan, falls into next month... it can have a costly effect on the builder... making them liable for extra construction financing on their (the builder's) end.  If this happens because of the buyer's lender... there's no way the builder is going to "eat" that cost... and they should not have to.  That leaves the buyer to eat the cost... but often times the buyer cannot.  What happens next... often the deal blows up.

Also... I have seen outside lenders break the bad news that a "wonderful" loan program that existed when the application was written... is no longer available.  Now the buyer has to be put into a one of the outside lender's new loan programs... which may or may not match the program that disappeared.  Again... a closing date is missed, and the buyer is usually facing a mortgage program not quite as good as the one that went "bye bye."

Again... I cannot remember this happening with a builder's lender.

My final thought.  If it ain't broke, don't fix it.  And make sure while you are trying to find out if it IS broke... make sure you know ALL the facts.

(Note) The builders spoken of here are "production" builders... not custom builders who either have their own preferred lender, or feel quite comfortable with a buyer using a lender of their choice.

 

Comment balloon 52 commentsKaren Anne Stone • December 25 2008 04:08PM

Comments

Karen, Let me be the first to compliment you on this post. You made several points I didn't Know> Thanks again...

Posted by Paul S. Henderson, REALTOR®,CRS,, Tacoma Washington Agent/Broker & Market Authority! (RE/MAX Professionals.) over 9 years ago

Karen.  Very informative post.   Active Rain certainly is a great place to share insight and ideas.

 

Happy Holidays....

 

Alex

Posted by Meg Stewart, Appraiser-Frisco, Texas (Reliable Appraisal) over 9 years ago

Karen Anne: Welcome back!  I hope you are feeling better.  You provide some excellent information here, especially for those of us who don't sell a lot of new construction.

Posted by Lorrie Semler, REALTOR® in the Dallas area. Call/text 972-416-3417, Real Service. Real Results. Real Estate (United Real Estate) over 9 years ago

Karen Anne -- glad to see that your are back and hope all is well with you.  I have had mixed feelinsg about this issue and you have answered some of the questions I had.  Thanks for your perspective on this.  All the best in the New year!

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 9 years ago

Hi Karen Anne... Welcome back!  This, as usual, is a very well presented and factual post.  What I like most about it is that, while I knew what you wrote, I had failed to consider all of what I knew.  Thanks for making me THINK! :)

Posted by Steve Shatsky over 9 years ago

Karen Anne:  You make a lot of sense here.  But before I was a Realtor, when we were purchasing our brand new home, I opted to use an outside lender.  The rate was better and, even factoring in the incentives I would lose, it was a better deal to go outside the builder.  But what nailed it for me was the stark difference in customer service.  The builder's lender was tired of answering my questions.  Yes, that's right.  I was annoying him.  Poor baby.  He literally said to me, as he knew I was comparing him to another lender....it was no secret, "Let me know when I can stop wasting my time on you."  That's it!  He just fired himself.  The outside lender, by comparision, drove TO MY HOME, to take my application and pick up loan documentation. 

So while what you say makes sense, in my gut, I feel like relationships like these between builders and lenders creates a BAD level of service.  These lenders are handed leads, and don't have to work for them.  They have no personality, no idea what customer service is, and are spoiled rotten.  Perhaps the market has brought them back down to reality, but somehow I doubt it.

 

Posted by Chris Ann Cleland, Associate Broker, Bristow, VA (Long and Foster REALTORS®, Gainesville, VA) over 9 years ago

It's rare that my buyers do NOT go with the builder's lender.  We compare prices and the bottom line is, it doesn't pay to go outside.

Can you imagine the nightmare for a builder when 10 buyers come in with 10 different lenders.  Buyers only look at rates.  Many Internet lenders are downright dangerous to a new home transaction. 

I usually recommend that my buyer use the builder's lender and if the rate is 1/4-1/5% higher, we just negotiate that much more in incentives. 

You are absolutely right.

 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) over 9 years ago

Dear Karen Anne - I am so glad you are back. Your post is brilliant! Some time ago I would agree with the REALTORs who are favoring the freedom of choice. Considering that you know ALL the facts, the builder's lender may be a much better choice indeed. I am currently working with the developer who is offering special financing via affiliated bank and I know for sure that it's a lot of work, costs and efforts were contributed by builders in order to create this competitive opportunity for prospective buyers. Merry Christmas!

Posted by Svetlana Stolyarova, Local-n-Global Realty, Broker 216-548-4663 (Local-n-Global Realty, Cleveland and International Real Estate Solution) over 9 years ago

Karen Anne, well written post and you make some good points. However, I have a problem with the entire concept of builders, and Realtors for that matter, having financial incentives to use a certain affiliate company whether it be a lender or title company. The consumer should be free to shop around and use whoever they want. True competition allows the consumer to truly benefit and when the builder forces the buyer to use their in-house lender, the builder profits at the clients expense and that is not a win-win situation. I also agree with one of the posts above that service definitely lacks when an in-house lender gets business handed to them.  Also, most respectable lenders want deals to close on time and per the written contract. It's unfortunate that you have dealt with some unreliable outside lenders but that doesn't make the current system right for the consumer. Although we don't agree on this issue, I wish you a happy holiday and successful 2009.

Posted by Dan and Amy Schuman, Luxury Home Specialists (Howard Hanna Real Estate Services) over 9 years ago

Karen: Interesting facts here in your post many do not think about. My only questions is.. Is this the best deal for the Buyer or the Builder. Buyers should be free to choose their own lender.  I agree not all are equal.

Posted by Roland Woodworth, Q Realty - Power In Real Estate (Q Realty) over 9 years ago

Hi Karen Anne!  It's good to have you back!  I've seen both ways and I always try to negotiate out the rate to the best possible for the client, keeping in mind the two year return--if the builders rates are a bit higher, let the price reflect that difference.  If they won't budge, then see if going with another lender and losing incentives is really going to be worth it at the 24 month mark.  The builders lenders NEVER allow the package offered to fall by the wayside before Closing and a Closing is most certainly guaranteed by their lenders too.  GREAT post and congratulations on the well-deserved little gold star!

Merry ChristmasMerry Christmas

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) over 9 years ago

Thank you Karen Anne. I enjoyed your informative post. I agree with Lenn that once you put the side-by-side comparison that it is better to take the Lenders preferred by the Builder since there are tens of thousands on the line if Buyers choose to go outside.

I also agree with you that I have seen some programs disappear a few days before closing by "normal" brokers under non-builder transactions but that doesn't necessarily mean that it had to do with the building or buying pre-existing. I think it's timing especially with our recent subprime magic disappering scenes. These would be the  typically 2nd loans that I deal with.

I want to add 1 thing though:
When you take out builder's incentives to use their prefered lender programs, the cost to originate the loans from my mortgage broker in my experience always seem to be a better deal, hands down when compared to loans of the preferred lender. Only after we had to tie all the monies associated with the preferred lender that they come out ahead. So, I think this is where the unfairness comes in.

Also, when I helped 4 building clients negotiate a better closing costs, it took 4 contracts worth around $1million before the prefered lender took out the loan origination fee. My mortgage broker doesnt charge that to begin with.

What's your take on this? 

 

Posted by Loreena and Michael Yeo, Real Estate Agents (3:16 team REALTY ~ Locally-owned Frisco TX Real Estate Co.) over 9 years ago

Well, I enjoyed your perspective on this.  I've had many transactions close with the builder's mortgage company--i.e. Centex and their lending company. 

Posted by Diane Bell, Hilton Head Real Estate, Bluffton (Charter 1 Real Estate, Hilton Head, Bluffton, SC) over 9 years ago

I have several time been able to get the same builder incentives but NOT use there preferred lender. Just negotiate it. Especially in today's market.

Posted by Chip Jefferson (Gibbs Realty and Auction Company) over 9 years ago

Chris Ann:  You sound pretty angry, and I have to agree with your response to having had such poor customer service.  In you area... Prince William County... I do not know if your home was build by a production builder, or not.  If it were me hearing that remark about wasting time on you... I would have been furious.

I would have immediately called my builder salesperson, then the lender's office manager, and then the head of the builder's sales and marketing team.

These are not just a bunch of easy loan or closing leads.  This whole program on the builder's part is put together to build sales... and to do that... every buyer has to be happy with the entire builder team.  I am guessing that if that loan officer's boss knew of his smart-ass remarks, he would either have gotten a severe tongue-lashing, or perhaps even fired.

The builders in DFW not only WANT you to be happy, and thus refer people to them, they NEED you to be happy.  This builds relationships and encourages referrals.  So... bottom line... your smarty-pants loan officer was a dummie !

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

Paul:  I am really very glad you found this helpful.  I really enjoy sharing what I know.  Thanks for your comments.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

Meg & Alex:   I am glad you found my information sharing worthwhile.  Yes, Active Rain is a great place to share.  Merry Christmas.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

Lorrie:  I am glad you found my post worthwhile.  And yes, the production builder sales world can be a different animal at times.  Take care, and Merry Christmas.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

Joan:  The production builder world is just not very active in many parts of the world, so a lot of what I have said may not apply for many... because they do not have to deal with it.  Yes, I am out of the hospital, but still not everything is working right.  So... meds and tests continue, and then maybe another trip back into the hospital in a month or two.  It all depends.  Thank you for your kind thoughts.  Merry Christmas.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

Steve:  Many things can take on a new "light" when seen from a new perspective.  So... I am glad my post moved around some of the ideas in your head, and helped you create new ones.  Take care... Happy Holidays.  :)

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

I think that this is an excellent post.  Having worked with a builder's lender selling out a project, I know how releived we all were when the buyer decided to go with that lender because it always got done on schedule and often times the lender would make concessions to our buyers that the general public would never get.  Why?  Simple, the builder had aa 10M construction loan out and it got paid on everytime we had a closing.  Lso, the shear numbers of loans that we closed meant that the lender would win on some and not on others and overall it ws a win-win for everyone especially the buyers.

Posted by Gayle Balaban, E. TN Waterfront Real Estate (The Best Spot Realty/Waterfront Real Estate/Ooltewah Real E) over 9 years ago

Lenn:  I should not be surprised that all of these conclusions have long been a part of your "knowledge base."  You are very sharp, and I admire you for it.  When a Realtor does NOT respond emotionally when deciding on using the builder's lender... things usually seem to go a lot smoother.  It really can be total mayhem when ten Realtors show up with ten different lenders... and if one of them is an internet lender... total chaos may be soon to follow.  Thank you so much for your kind comments.  Take care... Merry Christmas.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

Svetlana:  Yes, I was released from the hospital yesterday afternoon.  They sent me home with a lot of medication... and feel from their tests that they can monitor and control my rapid heart rate (Atrial Fibrulation) and my less-than-efficient heart with medication.  Time will tell.  Thanks so much for your concern.

On the subject of the financing being arranged by the developer... the choice of using their lender may be CRITICAL to any buyer trying to purchase.  For a Realtor or a buyer to come into that situation and try and use an outside lender... is just inviting disaster.  What you are working on sounds very complicated, but something some know-it-all Realtor (remember, I am a Realtor, too) or buyer can foul up very easily.  Continued good luck on your project.

Just choosing another lender just so you can show your "freedom" to do so... can at times be just the thing that makes a deal go crash !  Take care... Merry Christmas.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

The builders usually make it enticing to the buyers to use their lenders.  Your post has given me some interesting perspectives and something to chew on.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 9 years ago

It still comes down to IMO that it should be the buyers choice, there are just usually some incentives if they use a builders lender... it's not forced on them. 

Posted by Tammy Lankford,, Broker GA Lake Sinclair/Eatonton/Milledgeville (Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668) over 9 years ago

Dan and Amy:  Sorry, but I could not disagree with you more.  Freedom ?  Yes... the freedom to watch your sale blow up.  How wonderful to be free.  First of all... the case of a builder receiving incentives is FINE.  The builder is the OWNER.  As far as the Realtor receiving incentives for using a certain lender... that is nonsense, and should not be allowed.  That is actually the buyer's Realtor working against the buyer... and doing something that benefits the Realtor.

The freedom you speak of only works when all the rules are the same.  If the builder receives a financial incentive for using their own lender, that is not just a cherry on their cake... but a PART of the whole deal the builder makes, and is figured into the builder's profit picture.  Sure, you buyer can go wherever they want, but if in doing so, they create an extra costs to the builder... there is no way the builder will eat that costs.

If the buyer wants to "eat" whatever the cost to the builder might be... for not using the builder's lender... then go for it.  They just should not be all ticked off when the builder will only allow it if the buyer pays for whatever addition costs arise from their (the buyer or Realtor) makes that choice.

Dan and Amy... you need to be aware that nothing is free.  Everything done usually has some sort of reaction connected to it.  So... if you do one thing that seems to benefit the buyer... use an outside lender... it is not done in a vacuum.  There will be costs involved, and in making this change, the buyer needs to know that they are opening themselves up to being liable to those costs.

As far as your objections about Title Companies... that will be coming in an upcoming post.

Now... remember... this whole thing applies to production builders like the ones in DFW.  Lennar, Horton, Centex, Legacy, Meritage, Grand, First Texas, Ryland... and a myriad of others.  In DFW... these builders sell very nice free-standing homes (not townhomes or condos) from the 150's on up... to the 300's... with some higher than that.

Amy and Dan:  I wish you and your family the Merriest of Christmases... and hope you will be spending time with people you care about... and who love you in return.  Take care...

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

Roland:  Yes, buyers "can"... and maybe even "should" be free to use their own lenders... but ONLY when that choice is written into the ORIGINAl purchase agreement, and the costs to the builder of doing that are reflected in the purchase agreement... and then the contract is signed as the final agreement between buyer and builder.  What they buyer is NOT free to do... is look at a builder's "offer" as far as overall price is concerned, and assume that they can change one part of the offer... and not have any other changes made by the builder to reflect the consequences of the buyer using their own lender.  Remember... nothing is free, and every choice has consequences.  Nothing is done in a vacuum.

Is a car buyer free to have a car presented to them... agree on everything, finalize a "deal"... and then demand that new wheels be put on, leather upholstery, a whiz-bang surround sound system... and still have the buyer think they can do these things because they simply should be "free" to ?  Noper.  It goes back to Newton's laws of Physics.  For every action, there is an equal and opposite reaction.  Be prepared for it.  Take care... and have a Very Merry Christmas.  :)

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

Merry Christmas Karen,

As an outside Mortgage Banker, I can understand your loyalty to the builder's mortgage company.  They got you paid...on time.  My personal experience is I can do a better job for the client than the in-house lender.  Let me give you one example of a true experience.

Bob & Linda came to me and were going to buy a new home.  I prequalified them and at the time, my rate was 6.25%.  The builder gave them $6000. in free carpet upgrades if they went with the builders in-house mortgage company.  Those $6000 ended up costing the borrower $54.26 per month more.  Now if you figure in how long that would take to recoup, the borrower will have to live in the house 110.58 months before they break even on the deal.  That is over 9 years!  The carpet will have to be replaced by then anyway. 

Builders must get their money from the same place we do.  Because of volume, they can demand from the lending institution more yield or a fast turn.  They most often do not pass that on to the client.  In fact, they love for them as in Bob and Linda's case to do the loan with them.  That way they get more money up front on the deal.  There are many of us Mortgage Bankers out here able to close loans on time.  I have had builders hold up the mortgage process to try to make me look bad.  I usually end up copying the client and the Realtor on the emails so that I cover my back when this happens.  We seldom miss a reasonable deadline.  Your close enough, give me an opportunity to compete on one.  You will never go back to the builders mortgage company.

I think it is a good rule and will benefit the consumer in the long run. 

Posted by Tony Bolodar, TX Residential Mortgage Loan Originator, #1320876 (Priority Financial Network) over 9 years ago

I had a builder try to "bully" me into using his lender once for a purchase of my own...They said they'd only give me a $10K price reduction if I used their guy. I wasn't having it! I went to a local bank got a mortgage with far less fees, for 1.25% lower and got my lawyer to force the builder to still give me the $10K reduction.

Posted by AMBER NOBLE GARLAND - Top Real Estate Expert, Property Tax Appeal Specialist & Author, - The Agent You Can Trust To Deliver REAL Results! (Strategic Marketing Expert & Relocation Specialist Serving New Jersey and nationwide!) over 9 years ago

I disagree.  On all three levels as a consumer, Realtor, and mortgage broker.  Before I was either of the last two I was a customer within the past year looking exclusively at new homes with my wife.  I certainly understand why the builders want you to use them.

1)  They have control and want to make sure you are a legitimate and well qualified buyer.

2)  They do make money on the deal.

 

I was very suspicious about builders that required me to use only their lender.  I was a mortgage broker in the past, and I'm now one again.  I understand rates and programs.  My eventual comprimise was that I would let them bid, and would use them if they can match the rates.  Some builders wouldn't even let me do that, WHY?

Posted by Mike Henderson, HUD Home Hub - 303-949-5848 (Your complete source for buying HUD homes) over 9 years ago

Tony:  If you are interpreting my post to be "loyalty" to the builder's mortgage company... you are not fully understanding the overall point of my post.  My point is that the builder's lender's package has more to it than just rate and points.  And all of that must be considered when discussing who gets the loan.  Also... the track record of the lender in having the loan close ON or before the contract-required date.  You might get a better idea of what I am trying to say by reading my responses to comments above... that were made to this post.  Take care... and Merry Christmas... :)

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

Amber:  I am glad that worked out well for you.  Merry Christmas...

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

I don't have that much of an issue with builders wanting to use a lender they trust... but they need to be upfront about the pricing.  I have seen too many homes priced "including discounts for using the builder's preferred lender" where the price was $25,000 higher for another lender... and the builder's preferred lender's program sucked. 

Posted by Lane Bailey, Realtor & Car Guy (Century 21 Results Realty) over 9 years ago

Karen, This blog really bothered me.  Sorry, I have to say I went on the Texas Department of Savings and Loan and just looked up a few builders in house lenders JUST to see if they in deed could get better financing.  Here is what I found out:

Lennar  in house lender is owned by Carmen Tojeiro, and based out of Miami, Florida.  They are licensed in Texas as a Mortgage Banker (44015) and are regulated the same way other Mortgage Bankers are. 

Horton in house is owned by Mortgage Banker William Patte and based out of Austin, TX.  The license for them is: 44608.

Centex has an affiliated business agreement with CTX Mortgage and is licensed in Texas under Glenda Jackson.  Lic #45258.  They still claim to be able to do Sub-prime on their website! 

Meritage: Is affiliated business agreement with MTH which is an affiliation of Network Funding out of Houston, TX.  I know a lot about Network Funding as I used to own a branch office of them.  They are great but are NO different than I am EXCEPT, I do not have the affiliated business agreement with MTH and/or Meritage Homes. 

I did not go and list every builder you did above in the response to Dan & Amy but I think you get the picture.  Not one of these builders seems to have anything other than an affiliated business agreement with a lender just like me.  The difference is, I WONT PAY A BUILDER FOR THE BUSINESS.  I think that is ethically wrong.  Just like I wont pay a Realtor for business.  And, if they are paying that Builder for the business, they are passing it on to the customer, YOUR CLIENT.  

Have a Merry Christmas and Happy New Year. 

Posted by Tony Bolodar, TX Residential Mortgage Loan Originator, #1320876 (Priority Financial Network) over 9 years ago

This post is written from a volume builder's point of view, I think.   If you stop and think about the smaller, well established local builders who provide a wonderful quality product compared to the volume builders, you will see they are at a major disadvantage in that they don't have the "family lender" at their side to instantly qualify everyone who applies.  The local builder can't offer everything and the moon to a buyer to entice them into buying their product.   Plus offering thousands of dollars of false concessions to entice a buyer to buy a home if they use a particular builders' lender has never felt ethical to me.  I say this move is long overdue and it should be interesting to see how the big builders figure out a way around it.

Posted by Mary Ann Daniell Licensed Texas Realtor (Coldwell Banker United, Realtors - Subsidiary of NRT LLC ) over 9 years ago

Hi Karen,  I'm having a heck of a time getting the builder's lender to move ahead with a mortgage for my client's purchase.  The listing agent and her client, the developer, are pretty upset with the lender.  The first purchase in this condo complex is going to going through an outside lender, because the builder's lender couldn't perform in time.  My client has had to go to another lender after weeks of working with the builder's lender.  I just assumed that the builder's lender would be motivated to help people buy the units. 

Posted by Gail Robinson, CRS, GRI, e-PRO Fairfield County, CT (William Raveis Real Estate) over 9 years ago

Hi Karen,
I'm glad to see you back and hope that you are truly feeling yourself again!

This was a very well thought out and wonderfully writen and packed with valuable information.  I've seen several cases where the builders lender is really THE BEST DEAL - but sometimes people just don't want to use them!  Also, some agents have their "favorite lenders."  Which in itself can be a conflict of interest.

Posted by Ruthmarie Hicks (Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605) over 9 years ago

Karen Anne,

Welcome back to the land of the living bloggers! 

Mike in Tucson

Posted by Mike Jones, Mike Jones NMLS 223495 (SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) ) over 9 years ago

I always advise my clients to look at the whole lending deal - from rates, to the price the builder is tying using their preferred lender to, to service, to all the other fees associated with the loan (and if the builder is tying the price to the use of their lender, then that should be counted as a fee, or penalty for NOT using their lender), etc., and then make their own decision (in consultation with their financial advisor if they have one). 

In my opinion, just as the buyer should have an agent who represents their interests rather than the seller's, they should have a lender they feel comfortable represents their interests rather than the seller's.  Especially these days.

If that turns out, in my client's choice, to be the builder's preferred lender, that's fine with me.  If not, that's fine, too.

Posted by Tricia Jumonville, Texas REALTOR , Agent With Horse Sense (Bradfield Properties) over 9 years ago

Karen Anne, You pointed out several things I never even considered...good points!  My only issue is this:  IF it will cost the buyer more to use the Builders Lender, they should have the opportunity to work with their lender of choice.....There have been a few times when the builders lender was MUCH more expensive on the front end, thus not saving the buyer, it was actually costing them....I get a good faith from the builders lender and a couple from reputable lenders and do the math...Money wins out, if comparing apples to apples. (service, etc.)

Posted by Elizabeth Cooper-Golden, Huntsville AL MLS (Huntsville Alabama Real Estate, (@ Homes Realty Group)) over 9 years ago

Hi Karen,

You bring up some good points I was unaware of.

However, if I am representing a buyer, it is my responsibility to look out for their best interests, not the builder.

Often times this means getting better terms of financing through an "outside" lender.

Posted by Mark MacKenzie over 9 years ago

Karen Anne, I have very strong mixed emotions and thoughts about this issue. The biggest problem is that there are many cases where the borrower is not getting the best deal. Does that mean builders are shady or enter into shady non transparent deals with certain entities? No of course not, but if consumers are not given options, how do they actually know. That will always be HUD's position and I can assure you there more than likely have been  many instances where the borrower did not get the best deal. I have the same issue with realtor's using their own title company for many of the same reasons you suggested in your post (I am not pointing fingers here), but the fact remains that there are some really good vendor's out there that do a great job of providing fast and professional service and give it at a very competitive price. In these instances the consumer always wins. I will always be for that.

Bo

Posted by Bo Hussung (Bell Title /Triserv LLC) over 9 years ago

Karen Anne, there is a production builder here who offers huge incentives to use their lender. Like 13k off a home. Looks good, sounds good but when you get the GFI from them or from an outside lender, the fees on the Builders Lender is way high.

Now I am not going to mention any name in your public post, but if you want to know who I will share with you privately.

I have done this several times with different builders and it is just higher.

Glad your better. :)

Posted by Missy Caulk, Savvy Realtor - Ann Arbor Real Estate (Missy Caulk TEAM) over 9 years ago

Karen an excellent post.  I try to advise my buyer's that they may find better incentives with the builder's lender and should agressively compare the terms of any lender they are looking at using. Having workied with many spec-builders they do have a better ability to defer costs not through some "kick back" relationship as mentioned in the comments above, but through the fact that they have often already paid for title searches and appraisals and other costs associated with procuring a loan in the process of building the house. The Bank will not need to recharge the full fee to the buyer for these items, but simpley review and update them. Also, taking the loan out of the construction phase and converting it into a permanent product with the current lender allows for additional savings versus re-inventing the wheel with a new product from a new lender.

Posted by Cat Zwicker, CRS, Down to Earth Service; Out of this World Results! (Desert Sky Real Estate, LLC) over 9 years ago

Karen: You state,"if it ain't broke, don't fix it." Well, it was broke! For years many home builders and real estate agents fool consumers into thinking they would get a better deal if they used an "in-house" or preferred mortgage lender affiliated with a builder. As it turns out, many of those transactions ended in foreclosure, because of fraud! Moreover, HUD-under RESPA specifically states, a builder or RE agent may offer a discount or incentive provided it's not made up elsewhere in the transaction. The problem was, these discounts and incentives were added back into the deal. The typical transaction went like this: Buyer contracts to purchase a new home. Builder offers a competitve interest rate, closing cost assistance and perhaps an upgraded kitchen, etc. if the buyer uses the builder's lender. The buyer goes for the deal, but the rate isn't locked in, because the house will take months to complete. Fast forward to 30 days before closing. The buyer is notified the rate has gone up (even if rates haven't). Buyer shops rates with other lenders and finds everyone has better rates. Buyer informs builder they're using another lender. Builder tells buyer, if you do, you'll lose incentives and you'll need to pay for upgrades. If you don't pay up, builder sell house to someone else and keeps your deposit. HUD has received complaints for years from all over the country. HUD investigated this issue and responded to this nationwide problem. The new ruling doesn't stop builders or anyone from offering an incentive or discount. It prohibits the required use of any settlement service provider to get that incentive. Most people who complain about this ruling were benefiting from this practice. This ruling returns the marketplace to one of competition, which benefits everyone. If the one stop shop or in-house companies are that good, they shouldn't have a problem competing.

Finally, the old excuse that loans are more likely to close on time with the in-house company is completely false. I have been working on this issue for almost 5 years and was partly responsible for its inclusion in the ruling.

The days of buying business are over effective January 16, 2009

 

Posted by Marc Savitt (The Mortgage Center) over 9 years ago

Thanks for the post. My clients usually end up going with the builder's lender, but they often get angry when the builder tells them they "Have to" go with that particular lender. I think the best approach is one builder I work with says that they strongly suggest that they call the builder's lender and compare and tells them why (incentives, etc...) 3 out of the last 3 have gone with the builder's lender for this particular one after comparing.

Posted by Kristi DeFazio, Colorado Springs Rea lEstate 719-459-5468 (RE/MAX Advantage) over 9 years ago

Thanks for the post. My clients usually end up going with the builder's lender, but they often get angry when the builder tells them they "Have to" go with that particular lender. I think the best approach is one builder I work with says that they strongly suggest that they call the builder's lender and compare and tells them why (incentives, etc...) 3 out of the last 3 have gone with the builder's lender for this particular one after comparing.

Posted by Kristi DeFazio, Colorado Springs Rea lEstate 719-459-5468 (RE/MAX Advantage) over 9 years ago

Karen Anne,

Thanks for the informative post, that I am sure took you some time!  I completely disagreed with the whole process until I read your "side" of things.   Before I read your profile, I could tell you were either a builder yourself, owned a company, was involved with a company, and I would even take it further to guess that you were involved either with manufactured building, or even owner involved building!  Really though, that doesnt matter!  You have created another side of things for me to see, and I am very willing to accept other people's perspectives!  Texas, on top of everything else, has sooooo many lending rules, it surprises me that there isnt one against this! LOL

We have one of the largest home builders in the country here in Wisconsin, and they are fortunate, because THEY GET incentives from their FUNDER!  In other words, they get special pricing, pmi costs, etc..etc..from the people FUNDING THEIR LOAN!  When you start factoring in an "upgrade" to appliances that is free.....( is it really?? )  It can be a large difference over time, when you are talking about .25%-.375% difference in the rate.

However, if the builder is getting an "incentive", from the funder, or special pricing, THAT is what they should be legislating!  All things equal, I agree, they should go to their own lender of choosing!  However, it is no different than if a Realestate company, OWNS a mortgage company and directs business to that company!  There are some, that pay profit sharing even BASED ON THE REFERRAL system!  Wow, do they really get a better deal? 

What I WILL SAY THO>>>>is that CONSTRUCTION LENDING IS A PROFESSION!  You have to be good at it!  90% of the lender STINK at it!!!  It is my assumption that is where MANY problems come from~!  You have to do it every day to understand it, and many people are afraid of the unknown!

Respectfully, and I am subscribing to your blog btw!

Darin
One SOurce Mortgage, LLC

Lodi, Wisconsin

Darin@osmwi.com

 

Posted by Darin Osenberg (Funky Quail Vintage) over 9 years ago

I appreciate learning the 'whys' of builder's incentives.  I never understood it before.  Makes a lot of sense.

Sarah Rummage in Nashville

Posted by Sarah, John Rummage, Love Being Realtors® in the Nashville TN Area! (Benchmark Realty LLC, Nashville TN 615.516.5233) over 9 years ago

Karen Anne - You brought up several points that I had not considered before.  Like many other things I think that it works or doesn't work on an individual basis, depending on the lender.  Personally I support the buyers right to shop the loan.  If the builder's lender is competitive great, but that may not always be the case.

Posted by Pam Dent, REALTOR® - Charlottesville Virginia Homes / Horse (Gayle Harvey Real Estate, Inc.) over 9 years ago

Darin:  I can see why you might think I was either a builder, an owner, or somehow involved with a builder... probably because of two things.  One... I was sharing the "this makes sense" ness of what the builder was doing, and two... actually seemed to know what I was talking about. LOL

Well, I am a Realtor.  In the price range I work... generally from the low to high 100's... due to the reasonable prices here in Fort Worth, I sell many, many new homes.  My website is called www.NewHomeHuntersDFW.com .  I have been a Realtor for more than half my career, and currently since 1999.

I have also spent much of the time from 1983 to 1999 working for some major production builders... Gemcraft in the early 1982-1984, and then Drees for three years in the DFW market.  I worked for Winchester/Scarborough and William Berry in Centerville, Fairfox and Mannassas, Virginia between 1987 to 1993, and then back to DFW working for DR Horton for five years.  So, I know the in's and out's... and also know the claims that many make when they try and go head-to-head with builders on whether or not to use builder's in-house lenders.

Although I have never been a lender... I know quite a bit about qualifying guidelines, Freddie and Fannie, FHA, and a whole lot of other stuff regarding mortgage financing.

As far as a Real Estate company owning their own mortgage company, and then less than gently urge their agents to bring all their financing to the broker-owned mortgage company.  When that happens, there really is NO reason other that the broker getting a piece of it... for the deal to end up with the broker-owned mortgage company.  When this happens... I am FULLY against this practice.  It is in a case like this... when nothing else is hanging in the balance... that the agent, and the buyer... should be totally free to find the best lender, the best pricing, and a mortgage loan office of their choice.

I appreciate your kind comments.  Thank you for commenting on my post.  Take care...

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

Sarah:  It is such a great thing for me to hear back from even one person who read my post... and thanked me because they learned something because of the way I presented or explained it.  I am so glad this helped you understand.  For me... that makes this post a success.  Thanks so much for your kind comments.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

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