My broker forwarded me an article this morning that talks about Builders and their affiliations with Mortgage Companies and Title Companies, and how those affiliations are set to change come January 16 and into 2010.
Currently, when buyers go to a Builder's community, the builder tries to say something along the lines of, "If you use my mortgage company and close at my title company, I'll give you $5000 for closing costs." The buyers always perk up.
I usually turn around and ask the builder to write into the contract that the builder's mortgage company must match or beat a good faith estimate or loan approval that my buyer gets elsewhere, from a reputable mortgage company. "Reputable" is the operative word as our position is not as strong when bringing in a GFE from some ma & pa shop who is probably going to low-ball and then say they can't do the loan at that rate.
Overall, in my almost 9 years, I've only had a couple of builders balk at the thought of putting that in the contract. Over the years, there have been a handful of times when my buyers did have to use an outside lender because the builder's lender couldn't approve the buyer. In those cases, my buyer was protected and was still able to receive the "incentive" the builder was offering.
What new legislation is trying to enforce is that Builders can no longer tie incentives to particular mortgage or title companies. They want builders to offer their incentives and allow the buyer to obtain financing and title work where they please. In Texas, the title company doesn't matter because title insurance is regulated by the state so it's the same cost from company to company, you're just looking for customer service. I understand in other parts of the country, title insurance is not regulated so that will effect those people in a great way.
Where I'm a little confused is, this legislation is coming in because of the "big" banks like Wells Fargo, Chase, and Bank of America (Countrywide) having long-standing relationships with builders. However, what if the builder owns the mortgage and title company they're trying to get the buyer to use? Probably nine times out of ten, in my market, the builder owns the mortgage company and they own the title company. Will the new rules apply to those lenders and title companies too?
Starting in January, companies are going to start tracking their business, and the new legislation is supposed to take effect in 2010. By the start date, they will know how they will be effected, and they'll have to change their marketing accordingly in order to get buyers to close where they want.
What do others think about this change in Builder relationships being tied to Buyer incentives?