Loans Linked to Builders May Cost More

An undercover investigation by the National Association of Mortgage Brokers found that new-home buyers often are forced to use their builder's affiliated lender and settlement-service provider in order to close the deal.

Posing as a buyer at five sales offices in Florida, NAMB's Marc Savitt confirmed that all of the builders violated federal real estate settlement and anti-trust rules. According to Savitt, the builders refused to provide incentives or OK the sale if the buyer opted to use an unaffiliated lender.

Savitt added that builders often offer free patios, landscaping, or a similar bonus to buyers who use their preferred lenders; however, they include the cost of the incentives in the home price.

"What they're doing here is discouraging buyers from shopping in the open market," Savitt says.

Ivy Jackson, who heads the U.S. Department of Housing and Urban Development's settlement rules office, says incentives are permitted as long as they translate into actual savings for the buyer.

Experts urge buyers to avoid builders who act illegally by mandating the use of their partner firms and to compare the offerings of affiliated lenders against those not part of the venture to determine whether the advertised savings are real.