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Two States Target Builder Affiliations With Lenders
So-called “consumer protection” legislation under consideration in both Texas and Illinois would seriously undermine competition that is beneficial for home buyers when they line up mortgage financing for their purchases, according to the Texas Association of Builders and the Home Builders Association of Illinois.
Similar in their substance and impact, HB 822 in Texas and HB 1061 in Illinois would prohibit builders from offering incentives for consumers to select a particular mortgage lender on the assumption that this presents a deceptive business practice for which safeguards are needed.
The home builders groups have lobbied against the legislation, arguing that affiliations between home builders and mortgage lenders have been shown to increase competition in the settlement service marketplace and to give home buyers more financing options and lower costs, without compromising the quality of their title services.
The builders point out that there are already laws in place to allow for healthy competition in home financing while providing safeguards for consumers.
“The practice of offering incentives is expressly allowed and regulated by the federal Real Estate Settlement Procedures Act (RESPA), which also provides that a builder cannot charge more for the home on the back end,” said Eric Menyuk, assistant general counsel for California-based Ryland Group.
Additionally, federal and state laws protect buyers from the abuses cited by proponents of the Illinois and Texas legislation.
Survey data suggest that many home buyers prefer a “one-stop shopping” approach to home buying. A survey conducted by Harris Interactive in March of 2002 among recent and future home buyers found that 82% of those polled responded favorably when asked if they would consider using a one-stop shopping service for their home purchase.
More than 90% of the home buyers who indicated that they had not used one-stop shopping said that they believed they would have had a better overall home purchasing experience if they had.
NAHB is in the early stages of designing a survey to assess the affiliated business activities of home builders across the country.
For more information, e-mail Alex Strong in NAHB’s State & Local Government Affairs department, or call him at 800-368-5242 x8279.
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