ALEXANDRIA, Va. (CN) – The National Association of Home Builders and a slew of mortgage companies challenged a Final Rule in which the U.S. Department of Housing and Urban Development prohibits home builders from offering “incentives” to customers who use the builders’ affiliated lenders.
The plaintiffs claim their “incentives” are not a “required use,” as defined by RESPA. “At issue in this case is what constitutes ‘required use’ in the context of an affiliated business arrangement.”
HUD published its Final Rule in the Federal Register on Nov. 17, amending “regulations pertaining to permissible affiliated business arrangement under the Real Estate Settlement Procedures Act,” according to the federal complaint.
“By redefining the term ‘required use’ within the context of affiliated business
arrangements, the Final Rule singles out homebuilders and – for the first time ever – prohibits them from offering incentives to their customers who use the builders’ affiliated mortgage lenders, title companies, or other service providers,” the complaint states. “The Final Rule, which becomes effective January 16, 2009, is contrary to law because the plain language of RESPA’s affiliated-business arrangement exemption specifically states that these types of arrangements, as long as they follow certain restrictions, are not to be prohibited.”
RESPA was enacted in 1974, partly to prevent kickbacks in the real estate industry.
Plaintiffs claim Congress amended RESPA in 1983 to allow “business arrangement between affiliated entities” so long as they are disclosed to borrowers, and the borrowers “are not required to use the affiliated business … and the affiliated business arrangement refrains from exchanging the types of kickbacks and referral fees otherwise prohibited by section 8,” according to the complaint.
And, the plaintiffs claim, HUD issued regulations in 1992 that “recognized that the providing of incentives such as the payment of closing costs and/or upgraded by homebuilders to customers was not a required use as that term was used in RESPA.”
The builders and mortgage companies want the final rule enjoined. They are represented by Michelle Hinchliffe Holmes with Weiner Brodsky Sidman of Washington, D.C.