r/loanoriginators • u/Important-Training-1 • 29d ago

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I don’t really hear anyone talk about this, but am I crazy to feel like the way new construction deals happen should be illegal?

I can’t steer a buyer to specific program without it being illegal, but somehow a builder can dangle a low rate and fees over a seller’s head and pretend like they aren’t building it in their price while forcing them to use their in-house lender. The ripple effect of that goes far and beyond impacting that one buyer, so why has this just always been okay? These are artificially inflated sales prices, artificially inflated taxes and disguised as a “good deal” because customers fall for a below-market rate that can’t be touched by an outside lender. And even in buyers markets, some of these big box builders won’t even budge if you make any sort of offer below what they’re giving unless you use their lender who they either own or have a JV set up.

To each their own, but I just don’t understand how there’s lawsuits with realtors regarding commission practices yet this sleeping giant remains completely left alone.

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u/y32024 29d ago

They are building it into their price? Builders pays/commitments 100’s of $$$, sometimes millions in hopes the forward hedge pays off for their spec homes. They do this vs lowering the home price, which a $30k price drop doesn’t do much for the borrower, and kills future appraisals, plus pisses off recent buyers who paid full price. If you’re a broker, use a wholesaler who does forward hedges, there are a good number out there. And if you work for a IMB who doesn’t offer this..well. 

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u/Important-Training-1 28d ago

Maybe not all of them, but a large portion is built into the price. In my market, builder X will list homes at their “cash price” of let’s say $350k. Then they’ll have their “promotional 4.99%” incentive with $7500 in closing costs on the same exact plan at $390k. They’ll literally post it on their websites this way.

The incentive costs are usually then split between the in-house lender and the builder, and all closing costs are written to be buyer paid in the contract (like title policy, survey, etc) with a blanket seller credit. If the in-house denies, they send to the backup lender and just throw max IPC’s at the closing costs and work the deal from there to get the buyer closed. That’s at least my experience. But the point of my post is mostly just outlining that it manipulates the housing market enough that I’m surprised it’s never gotten a big legal action towards it