Despite charges of improprieties against builder-owned mortgage companies - and a federal investigation into the practices of at least one such firm - borrowers themselves were generally satisfied with their builder-lenders, according to new research.

As part of its 11th annual survey of new-home buyer satisfaction with their builders, J.D. Power and Associates for the first time measured the experience of purchasers who used their builders as their lenders in 17 of the 24 markets covered in the larger survey.

The study found that the majority of those who opted to obtain financing through their builder did so because of competitive rates. They also said the process was easier and more seamless, according to the global marketing information services firm based in Westlake Village (Los Angeles County).

“They are more satisfied than when they use direct lenders, and that makes sense,” said Paula Sonkin, J.D. Power’s vice president of real estate and construction industries practices. “When loan officers work for the builder, they can more easily coordinate the entire experience. Builders continually complain that direct lenders often drop the ball by losing important papers or missing the closing date.”

Marc Savitt, president-elect of the National Association of Mortgage Brokers, called the survey findings “a bunch of baloney.”

“There’s nothing for nothing. There’s no free lunch,” the Martinsburg, W.Va., broker said. “The incentives are illusionary. People don’t understand that in most cases, the home buyer ends up paying for his own incentive in the form of higher rates and closing costs.”

Sonkin said most buyers use the in-house mortgage company because of the incentives. “But they also tend to have a more satisfactory experience.” But mortgage brokers maintain the lures amount to unfair competition and are illegal kickbacks under the Real Estate Settlement and Procedures Act.

“The whole idea of requiring buyers to use the in-house mortgage company in order to receive the incentives is to prevent buyers from shopping,” Savitt said. “If they had shopped around, they would have found they did not get such a good deal. We have found that (buyers who use the builder-owned mortgage company) are paying rates that are 1/2 to 11/4 percent higher.”

The mortgage bankers have repeatedly argued that incentives are illegal if their cost is recouped elsewhere in the transaction. The 25,000-member group also complains that many builders won’t offer the giveaways to buyers who take their mortgage business elsewhere, claiming it is an unfair and deceptive practice under the Federal Trade Commission rules.

“If they offer to one buyer, they have to offer it to all buyers,” Savitt said. “Buyers cannot be required to purchase one product or service to receive a second product or service. It’s called tying and it’s a prohibited practice.”

The mortgage bankers have been taking their case to the FTC and other regulators but have found little encouragement. “The problem is the lack of enforcement,” Savitt said.

Several class-action lawsuits have been filed against builders who require buyers to use their mortgage affiliates in order to receive freebies.

In its study of 50,000 buyers who had been living in their homes for four to 18 months, J.D. Power said three factors drove satisfaction with builder mortgage originations: the loan officer (40 percent), the closing (33 percent) and the application/approval process (27 percent).

Source:

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/09/22/RESIS8M0O.DTL&hw=real+estate&sn=005&sc=551