Preferred Lenders Recommended By Builders On Home Purchase

This BLOG On Preferred Lenders Recommended By Builders On Home Purchase Was UPDATED And PUBLISHED On February 27th, 2020

Who are the preferred lenders recommended by builders when buying a home

Many home builders have preferred lenders recommended by builders.

  • Preferred lenders recommended by builders are mortgage companies who either have a business referral network with the home builder or the builder may have an interest in the mortgage company
  • Nothing is illegal or against the law to recommend a lender to a home buyer
  • But many home builders are crossing the line by pushing and steering their prospective home buyers to go with preferred lenders recommended by builders
  • Homebuyers should not be coerced to go with a particular lender
  • Homebuilders cannot offer special deals to home buyers if and only if they go with a particular mortgage lender

In this article, we will discuss and cover Preferred Lenders Recommended By Builders On Home Purchase.

Homebuilders Steering Buyers To Preferred Lenders

Homebuilders can, however, recommend a particular mortgage company:

  • Whatever incentive they offer a home buyer by going with a particular lender, they need to offer it to the home buyer with whichever lender they choose
  • If they only offer the home buyer certain incentives if they only go with preferred lenders recommended by builders and not the lender of the home buyer’s choice, they are in violation of the Consumer Financial Protection Agency, CFPB, Anti-Steering laws and can get into big trouble
  • The CFPB does not mess around
  • They are one of the most powerful regulatory agencies when it comes to consumer protection and when it comes to mortgage regulations

The CFPB does not just warn home builders of anti-steering law violations but will assess hundreds of thousands if not millions of dollars in fines.

CFPB And Anti-Steering Laws

What are CFPB and anti-audit regulations

Anti-Steering mortgage rules and regulations were created to protect borrowers.

  • Real Estate companies, home builders, and mortgage companies cannot steer borrowers to certain mortgage programs or certain mortgage companies for their benefits
  • Companies need to disclose to home buyers and borrowers that they can shop for the best rate and terms and need to disclose their mortgage rates and terms as well as other loan options they have
  • A loan originator cannot offer one applicant a certain mortgage rate and term for a particular loan program and another borrower a more favorable mortgage rate and term for the exact loan program
  • This is a serious mortgage loan regulation violation

The Consumer Protection Financial Bureau takes this extremely seriously.

How Home Builders Violated Preferred Lenders Recommended By Builder

Even though it is against the law, many home builders today are violating anti-steering laws and are getting away with it.

  • Home builders that are offering a builder’s concession towards upgrades and a builder’s concession towards closing costs as long as they go with the home builder’s preferred lender are in total violation of anti-steering laws and mortgage regulations
  • Home builders cannot steer home buyers to go with a particular lender and if the buyer does not go with the home builder’s lender of choice, then the builder incentives will not be offered

A recent case scenario, I had pre-approved a borrower a while ago for the FHA Back To Work Mortgage Loan Program.

Case Scenario Of Preferred Lenders Recommended By Builders

What is the scenario of the case of preferred lenders recommended by constructors

My borrower went shopping for a home and decided to purchase a home with a national homebuilder and decided to go with the home builder’s preferred lender:

  • This is because they offered him a $5,000 builder’s credit if they went with the home builder
  • But the $5,000 builder’s credit was not available if he went with me or any other lender
  • Unfortunately, the preferred lender could not do the loan and the borrower got denied for the mortgage loan
  • Since the home broke ground and the borrower got a last minute denial, the home builder told the home buyer if he got another lender that can do his mortgage loan, that they will make an exception and honor the $5,000 builder credit
  • The home buyer came back to me and I ended up closing the mortgage loan
  • This is a typical case study where many home builders are violating anti-steering laws
  • Getting kick backs from lenders are totally illegal
  • Mortgage companies giving kickbacks to home builders can not only lose their mortgage licenses but can get fined millions and get charged criminally

Unfortunately, the CFPB does not have the manpower to be cracking down on these builders.

3 Comments
  1. Lm says

    Gustan,

    I am a Mortgage Lender in Texas where the builder advised my client if they go with our lender they will only contribute 1% towards closing costs as opposed to their preferred lender where they will contribute up to 6%. Their lenders are financing the construction financing. Any sugesstions? Recommendations?

    1. Gustan Cho, NMLS 873293 says

      Many of my loan officers, including myself, lost many clients by home builders offering kickbacks to home buyers if they went with the preferred lender of the home builder. Unfortunately, the CFPB does not have enough manpower to go after them. I would tell the builder about what they are doing is totally against the law and they are committing mortgage fraud. I would notify the CFPB as well as the state mortgage regulators.

  2. Gustan Cho, NMLS 873293 says

    That is so illegal for builders to do that. That is steering the home buyer to a specific lender which is a major violation of every mortgage regulations out there. The CFPB will have a field day. The CFPB already started cracking down on this time of practice in Florida and I would file a complaint against them. The builder is getting kickbacks and kickbacks are MAJOR RESPA violations. Thanks for sharing. Cannot believe the nerve of builders. Blatant.

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