An End to Builder Incentives Tied to Lenders?
If you've ever bought a new construction home from a builder in Loudoun County (or anywhere else for that matter), you've probably heard the phrase,
"Our incentives are tied to the use of (fill in the blank) mortgage company and (fill in the blank) title company. You don't have to use our lender or title company, but you'll forfeit the incentives being offered if you don't."
Builders have long been able to get away with this practice. They operated within current RESPA regulations which state that home buyers have the right to choose whichever lender and title company they wish. Since the builder is not forcing you to use their lender or title company, they weren't in violation of those regulations. And their tying the incentives to doing so didn't violate them either.
But that may be changing. The practice of tying incentives to lenders has come under fire and there are reports that there is serious talk of new RESPA regulations that will ban builders from tying incentives to the use of lenders which they have a financial stake in. (This may also spill over to the use of title companies which builders have financial stakes in)
I'm all for this. As it stands now, builder's lenders and title companies generally have higher fees and closing costs than "retail" lenders and many other title companies. But the incentives tied to use of the builder's lender and title company outweighs the higher costs associated with using them so it's still better for buyers to go with the builder's lender and title company.
If the change happens, buyers will be able to take advantage of the incentives as well as get a better deal on closing costs and fees. And it will promote more competition, which is better for consumers.
But then again…if the changes to RESPA do happen, the builders may all scale back their incentives to make up for the lost revenue from their mortgage and title companies.
There's more to come on this in the near future…I'll keep you posted.