FHA home loan programs have supported lenders and mortgage brokers nationwide for purchase, refinance and rehabilitation.  For several years there has been a big battle in Washington regarding the way in which new homes are financed. Basically, builders often give “incentives” if only you will use their lender. Their FHA lender, of course, is unlikely to be the world’s cheapest source of financing, thus you may get upfront benefits but may also pay extra over time. 

The Department of Housing and Urban Development has tried to stop the practice with a new rule banned the “required use” of the builder’s mortgage lender, was promptly sued by the home building industry and has now withdrawn its proposal altogether, meaning that new home buyers will continue to have the opportunity to pay more than they should for real estate financing.  It may seem improbable, but the HUD notice in the Federal Register is fascinating reading. For instance, it says that: “It is HUD’s view that, especially given the attention focused on HUD’s concerns through this rulemaking, the prior definition of ‘‘required use’’ can be used to address some deceptive referral arrangements, even though it does not achieve the enhanced consumer protections that FHA sought with respect to mortgages involving affiliated business arrangements. HUD will continue to seek consumer protections, especially as mortgage products continue to change, often becoming more complex and challenging buyers’ understanding of the costs and nature of mortgage transactions. HUD is not abandoning its goal of providing greater protections to consumers in real estate settlement transactions, but remains open to different means of achieving this goal.”

According to the FHA Mortgage Guide, HUD says that it “reiterates its commitment to fair real estate settlement practices that are not misleading, prevent abuse, offer proper disclosures to homebuyers, and promote choice and competition. HUD’s intent in revising the definition of “required use” was to clarify its interpretation of RESPA’s loan disclosure requirements with respect to transactions involving affiliated businesses in order to promote more competition among settlement service providers. After further evaluation and consideration of the concerns voiced by consumers and industry participants from various fields about the application of the revised definition of “required use,” HUD has concluded that all would benefit by HUD withdrawing the revised definition and addressing “required use” through new rulemaking.”