Drees, others file suit over HUD ruling
by Laura Baverman Staff Reporter
Fort Mitchell-based Drees Co. and several dozen national home builders have filed a complaint against the U.S. Department of Housing and Urban Development.

They claim a rule it plans to enact this month will damage their relationships with affiliated mortgage providers and ultimately hurt their competitive advantage. It also could deny buyers savings when they purchase a home, the filing read.

The complaint was filed in the U.S. District Court’s eastern district of Virginia on Dec. 22. Other plaintiffs include the National Association of Home Builders, Columbus-based M/I Homes and Ryland Mortgage Co., which both have local operations, and Fort Worth, Texas-based D.R. Horton Inc., the nation’s largest builder.

HUD announced early in 2008 its plans to amend its Real Estate Settlement Procedures Act for the first time in 30 years. The final rule, announced in November and effective Jan. 16, aims to protect consumers from high settlement costs by requiring more disclosures. It also improves and standardizes the good-faith estimate, a list provided by a lender that details the fees expected to be associated with a loan’s closing. Moreover, the rule prohibits the ability of builders to require the use of affiliated businesses in order for consumers to earn incentives or discounts with the purchase of their home.

Banning deals with affiliates

Drees, for example, will no longer be able to waive closing costs or offer home upgrades if a buyer chooses to use its mortgage affiliate, First Equity Mortgage Inc.

Drees and M/I Homes declined to comment on the filing.

“It appears that consumers will suffer from this new HUD ruling by being forced to pay higher fees for home financing,” said Dan Dressman, president of the Northern Kentucky Home Builders Association. “The lack of available mortgage financing has been one of the major roadblocks to clearing away the excess inventory. This decision only exacerbates the problem.”

Dressman’s opinion echoes that of the plaintiffs. They say the survival of their mortgage companies is based on the ability to offer such incentives. The relationships also streamline the closing process and reduce expenses, which ultimately lowers the cost of buying a home for a consumer. The incentives also encourage competition among servicers like mortgage lenders, title agents and appraisers and give buyers more choice, the lawsuit reads.

“HUD’s new regulation … couldn’t have come at a worse time for the nation’s economy,” said Jerry Howard, president and CEO of the national builders group, in a statement. “It will keep qualified buyers out of the market and depress builder confidence.”

Buyer can be stuck in middle

Brian Fannin, director of marketing at Fischer Homes, said the Crestview Hills builder’s partnership with Victory Mortgage would be affected. The close relationship with Victory allows the builder to guarantee that closings happen in a certain time frame and that information is transferred smoothly between the two parties.

“If they are using another lender, the buyer is often stuck in the middle talking to us and them. It doesn’t happen that way at Victory,” Fannin said. “It certainly is going to change the dynamic, the ease of process for a consumer.”

The rule will require Fischer to offer the same incentives to buyers no matter which mortgage lenders they choose.

Other local builders expect the practice of offering incentives dependent on the use of mortgage companies to end rather than become universal.

“By guaranteeing a lender business, they’re getting a certain amount off,” said Julie Zicka, director of marketing for Zicka Walker Homes. “It’s just like using the same roofer for your houses. You’re getting a deal.”

While Zicka Walker does not offer incentives based on the usage of preferred vendors, Zicka believes the new rule will hurt the industry as a whole.

“We’re all struggling to get the best deals. And customers are struggling to get the best deals. Why should home builders and mortgage companies be punished any more?” she said. This e-mail address is being protected from spam bots, you need JavaScript enabled to view it | (513) 337-9431
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