WASHINGTON – June 4, 2010 – The U.S. Department of Housing and Urban Development (HUD) is taking a closer look at the Real Estate Settlement Procedures Act’s (RESPA) prohibition against the “required use” of affiliated settlement service providers.
It violates RESPA if a consumer is required to use a particular mortgage lender, title company or other settlement service provider that’s affiliated with another business in their mortgage transaction. However, it’s less clear whether it’s a RESPA violation if it is offered as a discount or other incentive to steer them to a lender, title company, etc.
HUD is currently trying to determine if incentives violate the “required use” requirement. As part of the process, HUD published a notice about the issue and is seeking public comment.
HUD took the step because it has received a number of consumer complaints, many of which focused on a home builder that might reduce the cost of a home (by adding free construction upgrades or by discounting the home price) if the homebuyer uses the developer or builder’s affiliated mortgage lender. In some cases, the incentives may not represent true discounts if the homebuyers ultimately pay more in total loan costs.