They'll Pay Two Points by David Reed
I wouldn't have written this if it just happened once. But it happened twice in a row and from different parts of the country. I also know that I've written right here in this very column about the traps borrowers can get themselves into when it comes to using a builder's mortgage company when buying new construction so I don't want to come across that I hate builders. I don't, but I have to tell this story. Most mortgage-builder affiliated arrangements are just fine. Squeaky clean. I had a relationship with a developer a few years ago for instance. But sometimes the consumer can be easily misled by what's being quoted by the builder's mortgage company. The typical financing incentive is usually when the builder's mortgage company will pay for the buyer's title insurance policy and/or pay two discount points on behalf of the buyer. There are probably several other variations on that theme but most all will be close to that scenario. I just placed a client into a new home here in Austin who lives in California. His Realtor referred him to me to get a rate quote and I offered him my best fare. He said right off the bat that he was going to get two points from the builder and could I match that. I responded that no, I couldn't give him two points but I could certainly quote him a competitive rate. I did quote him a rate, sent him a good faith estimate and waited for him to call. The next day he called back and said that I had a good rate and that he was going to go with me even though the builders' mortgage company was going to pay two points. In fact, the builder's mortgage company had actually told him that I had a good quote. So if they saw my quote, I wanted to see theirs. I asked my client if he would fax the other mortgage company's rate quote. He did and I saw the two "points." The good faith estimate provided by the other mortgage company had the same mortgage rate that I quoted but charged two points where I didn't charge any. They also indicated a credit on that estimate of two points, giving him the same rate I had quoted but moved some points from the buyers' side to the sellers' side. In other words, there were no two points being paid. It was nothing more than a shell game. I told my client that I could do it one better and pay for three points by doing the very same thing. I'd charge him three points then credit him three points and still give him my same rate I had originally quoted. He began to laugh because he "got it" and told me that the very same thing had happened to him when he bought another new house from that same builder last summer. I looked at his old closing cost estimate and sure enough they did the very same thing on his previous transaction. A few states away in Arizona, I got an email from someone who was referred to me by a friend here in Austin. He was buying new in Tucson and the builder had some incentives if we used one of the mortgage companies they listed. The incentive was, drum roll please, two points. I asked to see the rate quote from the mortgage company, a mortgage company everyone has heard of I might add, and sure enough the very same trick had been used on his closing cost estimate. If the borrower used the builder's recommended mortgage company that mortgage company would pay two points on behalf of the borrower. The problem again was that the rate was just like any other rate and the mortgage company simply moved the points paid to the point's credit column. Is this a coincidence? Could the very same thing be happening at two different builders in different parts of the country? Could be. But probably not. My guess is that it's a trade "secret" that mortgage companies have shared with one another. Is this illegal? Of course not, nothing illegal about it. Is it shady? I think so. It's definitely misleading by making the consumer think he's getting some great deal by having the lender pay two points. To no effect I might add. If you're buying new and you're getting quotes from the builders' mortgage company don't automatically assume you're getting the best deal. There are definitely true builder incentives to use a particular mortgage company in the marketplace (I know, I used to do them) but this "pay two points" thing was nothing more than a scam. Buying new? Check your sales contract and check with other lenders. Just to be on the safe side. And next time we talk, let me tell you about my ten point mortgage loan incentive. | 
