New Home Builder Mortgage Companies Scam Home Buyers Daily

Author:  Rob K. Blake        Published: December 28, 2007

This is another scamming retail mortgage provider: the new home builder mortgage company. These companies are subsidiary mortgage banks owned by the new home builder. They will never broker a loan.

New home builders figured out a while ago that they can make money on the house yes, but if they also offer financing for that house they can really clean up. And clean up they did. I know for a fact because I have seen builder’s rate sheets and they are usually a whole point HIGHER than the market.

My partner, Terri, worked at a new home builder mortgage company for a short time. She said they would charge a full origination point (remember, they are a retail division so they charge retail costs) then the rate would be 1 percent above market rates. You would see the 1 point origination but not be privy to the obscene profits they make by charging you that ridiculous rate.

These new home builder mortgage companies are like banks on steroids. They already have you hog-tied with the sales contract but then they throw in incentives and sales concessions to push you toward using there mortgage company. By the way since they are making 4 percent selling you the mortgage, and about 20% profit on the house. So don’t think for a second that increase your profit from 20% to 24% isn’t worth their effort. That extra 4% equates to $100’s of millions, if not billions.

Another problem my partner ran into was the new home builder appraisal process.

Since these new home builder mortgage companies were and still are generating lots of volume, they get special underwriting concessions from Fannie Mae (FNMA) and others. They get loans approved that shouldn’t be.

Also, they get special appraisal considerations allowing them to use their own employees to establish value instead of an independent fee based appraiser that mortgage brokers use. So how would you really know you are not over paying for that new house….you don’t.

The whole thing was a total scam. They were building bad product, overpricing it, and getting their own employed to rubber stamp the value.

Because of this, new home buyers are put in guaranteed deflating homes that become “underwater” almost immediately.

Terri also reported attending meeting where secondary marketing managers tried to “explain away” all the complaints the sales force was getting from clients about “high rates”. The company had the audacity to sit the loan officers down and tell them they did not make any extra profit on the rate. They said they only made money from the origination point! They lied to their own employees because they wanted them to in turn lie to the home buyers. The problem was most of the loan officers who worked for them bought it hook, line, and sinker.

They also were instructed to bully the home buyer into accepting the financing. If someone wanted to go to another lender the salespeople had to tell them they would lose their incentives.

(BTW new home builder incentives work like this: You buy an “overpriced” new home build house. You don’t know the new home builder overpriced the home, but they did. The new home builder then offers you an incentive to buy the overpriced house, but the incentive doesn’t cover the mark up. I make sure the appraisal comes back at the marked-up price. New home builder makes more than the house is worth in an open market.)

So the new home builder is always offering incentives to use their mortgage company because the house is already overpriced and they have extra to throw into the deal to make you think you are getting a bargain. Incentives are not real money. If the house was already priced fair, then you would not need to offer incentives.

Between rates a full point higher than the market, false claims of “incentive values”, iron-clad new home builder skewed contracts, and bogus appraised values, the new home builders are scamming American home buyers every day.

My advice: Never buy a new home from a new home builder. Buy an existing home in an established neighborhood, and find your own financing. Or buy a “nearly” new home from a private party.

It’s funny how that’s the same advice I’d give if you were shopping for a car. Never buy a new car from a dealer. It loses 25% of it’s value the minute you drive it off the lot. Plus with a new car, you’ll get hood-winked by the dealers financing, so you should get your own car loan.

Does that mean new home builders and their mortgage companies are as sleazy as car dealers with their “high pressure” sales tactics and bad financing?

You’d better believe it!

Good Luck!

Author: Rob K. Blake