Despite charges of improprieties against builder-owned mortgage companies -- and a federal investigation into the practices of at least one such firm -- borrowers themselves are generally satisfied with their builder-lenders
As part of its 11th annual survey of new home buyer satisfaction with their builders, J.D. Power and Associates, Westlake Village, Calif., for the first time measured the experience of purchasers who used their builders as their lenders in 17 markets of the 24 markets covered in the larger survey.
The study found that the majority of those who opt to obtain financing through their builder do so because of competitive rates. They also claimed the process was easier and more seamless, according to the global marketing information services firm.
"They are more satisfied than when they use direct lenders, and that makes sense," said Paula Sonkin, vice president of the real estate and construction industries practices at the marketing information services firm.
"When loan officers work for the builder, they can more easily coordinate the entire experience," Sonkin said. "Builders continually complain that direct lenders often drop the ball by losing important papers or missing the closing date."
J.D. Power also pointed out that builders traditionally offer price reductions or lower rates to buyers who use their in-house mortgage firm. It also said some are offering "more unusual incentives," such as waiving homeowners association fees for a limited time or providing golf club memberships.
"Some builders are pretty creative," Sonkin said, noting that one offers a "free backyard pool."
But Marc Savitt, president-elect of the National Association of Mortgage Brokers, called the survey findings "a bunch of baloney."
"There's nothing for nothing. There's no free lunch," Savitt said. "The incentives are illusionary. People don't understand that in most cases, the home buyer ends up paying for his own incentive in the form of higher rates and closing costs."
Sonkin said most new home buyers use the in-house mortgage company because of the incentives. "But they also tend to have a more satisfactory experience."
But mortgage brokers maintain the lures amount to unfair competition and are illegal kickbacks under the Real Estate Settlement and Procedures Act.
"The whole idea of requiring buyers to use in the in-house mortgage company in order to receive the incentives is to prevent buyers from shopping," said NAMB's Savitt.
"If they had shopped around, they would have found they did not get such a good deal. We have found that (buyers who use the builder-owned mortgage company) are paying rates that are 1/2 to 1 1/4 percent higher."
The NAMB has repeatedly argued that according to RESPA, incentives are legal as long their cost is recouped somewhere else in the transaction.
The 25,000 member group also complains that many builders won't give the giveaways to buyers who take their mortgage business elsewhere, claiming it is an unfair and deceptive practice under the Federal Trade Commission rules.
"If they offer to one buyer, they have to offer it to all buyers," Savitt said. "Buyers cannot be required to purchase one product or service to receive a second product or service. It's called ‘tying' and it's a prohibited practice."
The NAMB has been taking its case to the FTC and other regulators but has found little encouragement. "The problem is the lack of enforcement," said the Martinsburg, W.Va., mortgage broker.
However, several class action law suits have been filed against builders who require buyers to use their mortgage affiliates in order to receive the tantalizing free-bees, and the SEC, along with the Justice
Department, is investigating the lending practices of Atlanta-based Beazer Homes.
In its study of 50,000 buyers who had been living in their homes for from four to 18 months, J.D. Power said three factors drive satisfaction with builder mortgage originations -- the loan officer (40 percent), the closing (33 percent), and the application/approval process (27 percent).
CTX Mortgage, the financing affiliate of Centex Homes, ranked highest in 12 of the 17 markets where buyers were queried about their mortgage choices. Pulte Homes ranked highest in three markets. Perhaps not coincidentally, the two large publicly-owned builders also were rated the best overall builders, the Dallas-based Centex in 14 of the 34 markets studied and the Bloomfield Hills, Mich.-based Pulte in 11 markets.
CTX Mortgage was best in Austin, Charlotte, Dallas-Ft. Worth, Denver-Colorado Springs, California's Inland Empire, Las Vegas, Minneapolis, Phoenix, San Antonio, Tampa Bay and Washington, D.C. Pulte was tops in Houston, Orlando and Tucson.
In Atlanta, the affiliate of local builder Wieland Homes was rated best, and in Chicago, LHI Mortgage was No. 1.
