Home Builder Woes Continue

(The past year has been very difficult for everyone or company involved in the real estate industry with the only exception being buyers, and their time is just getting under way. )

While sellers have had to adapt to price decreases, if they creatively market their property, they may be able to generate a sale with only a $10,000 loss from what they originally expected to get.

Lower mortgage originations may be down but there are refinancing and other options that will keep loan officers and companies running strong.

But home builders, on the other hand, have probably suffered in 2006 more than any other profession associated with real estate. Sales are down by more than 20 percent from 2005 in most regions across the United States and as sellers become competitive by offering incentives and buy-downs, home builders stand to lose even more sales.

As if home builders are not struggling enough just to survive, the article, "Feds Investigating Home Builder Mortgage Programs for Consumer Abuses" written by Kenneth R. Harney and published November 13, 2006 in Realty Times, provides one more burden to the backs of every U.S. home builder.

"Most American home builders don't need new problems at the moment, but they just got one: Federal regulators confirmed last week that they are aggressively investigating allegations that builders around the country are pressuring or requiring purchasers to use their mortgage financing affiliates illegally."

According to the federal Real Estate Settlement Procedures Act (RESPA), builders and realty brokers or agents are prohibited from requiring customers to use their own affiliates for mortgage or title services.

While they can recommend affiliated companies to assist home buyers with their financing needs, they must disclose their relationship and cannot force or pressure the buyer to hire one of their affiliates.

The investigation which will be carried out by the HUD (oversees RESPA) will focus on a few improper home builder practices such as:

"Present $10,000 to $30,000 'incentives' -- upgrades to kitchens, 'free' finished basements or 'free' settlement costs -- as true discounts, when in fact the incentives are built into the cost of the house."

"Require the use of an affiliated lender in order to qualify for incentives when they know their affiliates' mortgage programs carry intentionally inflated fees or interest rates to cover the incentives in whole or part."

HUD will also seek to put an end to any home builder that refuses to go to settlement when or if a buyer changes his or her mind and declines to use the builder's affiliated or mortgage company.

"In one case, a builder declared an $11,845 good faith deposit forfeited when the customer switched to an independent, nonaffiliated lender."

These are obviously illegal practices that force potential buyers to use a loans mortgages that may not offer the best rates. Signing on a mortgage that is not in the buyer's best interest could end up costing more than the new kitchen, etc. would in the long run anyways.

So how does a new home buyer avoid these stronghold tactical pressures from home builders?

"HUD recommends that buyers check out prevailing local market interest rates and fees, compare them to the builder-controlled lender's offer, and then tote up the true costs. Prudent buyers should also thoroughly study prices for comparable new houses in the market in order to spot fake 'discounts' -- where the costs of incentive packages have merely been tacked on to the sale price of the house."

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