Who Are Preferred Lenders Recommended By Builders

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 mortgage 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. A home buyers should not be coerced to go with a particular mortgage lender and home builders cannot offer special deals to home buyers if and only if they go with a particular mortgage lender. Home builders can, however, recommend a particular mortgage lender and whatever incentive they offer a home buyer by going with a particular mortgage lender, they need to offer it to the home buyer with whichever mortgage 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 mortgage 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 and 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

Anti-Steering mortgage rules and regulations were created to protect mortgage loan borrowers. Real Estate companies, home builders, and mortgage companies cannot steer mortgage loan borrowers to certain mortgage programs or certain mortgage companies for their benefits. Companies need to disclose to home buyers and mortgage loan borrowers that they can shop for the best rate and terms and need to disclose their mortgage rates and terms as well as other mortgage loan options they have. A mortgage loan originator cannot offer one mortgage loan applicant a certain mortgage rate and term for a particular mortgage loan program and another mortgage loan borrower a more favorable mortgage rate and term for the exact mortgage loan program. This is a serious mortgage loan regulation violation and 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 mortgage lender are in total violation of anti-steering laws and mortgage regulations. Home builders cannot steer home buyers to go with a particular mortgage lender and if the home buyer does not go with the home builder’s mortgage lender of choice, then the home builder incentives will not be offered. A recent case scenario, I had pre-approved a mortgage loan borrower a while ago for the FHA Back To Work Mortgage Loan Program. My borrower went shopping for a home and decided to purchase a home with a national home builder and decided to go with the home builder’s preferred mortgage lender 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 mortgage lender. Unfortunately, the preferred mortgage lender could not do the mortgage loan and the borrower got denied for the mortgage loan. Since the home broke ground and the mortgage borrower got a last minute denial, the home builder told the home buyer if he got another mortgage 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 mortgage 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.

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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?

    • 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.