Builder tactics under scrutiny

Offers defy lending laws, brokers say

State banking officials are looking into complaints that national home builders with operations in the Triangle are violating federal lending laws.

The allegations come from local independent mortgage brokers, who say the builders offer lower prices and other incentives to buyers on the condition that they take out loans through the builders' financial divisions. The offers do not stand if the buyer finances with another mortgage company.

The process has not only shut independent brokers out competitively, brokers say, but driven many buyers into loans that carry higher interest rates and fees than they could have received elsewhere.

The inquiry comes as regulators and Congress put the mortgage industry under intense scrutiny for loan practices that have led to record foreclosures across the country.

North Carolina has not been immune. In the first eight months of the year, foreclosure filings in the state rose 7.4 percent; in the Triangle, the increase was 9.5 percent, according to the Administrative Office of the Courts.

This spring, federal officials said they were investigating Atlanta-based Beazer Homes for potential fraud, including the builder's role in arranging mortgage loans.

Chorus of complaints

Mark Pearce, state deputy commissioner of banks, wouldn't name the companies the state is investigating. At least 14 national home builders -- including Centex, Pulte, Beazer and KB Home -- control 36 percent of the Triangle's $4.5 billion new-home market.

Violations of federal lending law could be violations of state lending rules, which carry penalties ranging from fines to revocation of licenses to operate in North Carolina.

"We had Realtors complaining, attorneys complaining, loan officers complaining -- and not only mortgage brokers and bankers, but anyone associated with a mortgage that's shut out of the business arrangement," said Kate Crawford, a Burlington mortgage loan officer who is the consumer protection chairwoman of the 25,000-member National Association of Mortgage Brokers.

"They're complaining [that] the borrower or buyer can't use who they want to use. The ability to have borrower choice is not there, and that's what everybody is screaming about."

Builders said they operate legally and offer a convenient alternative to other lenders.

"What ever happened to good, old-fashioned competition?" asked Doug Fenichel, a spokesman for New Jersey-based Hovnanian Enterprises, one of the Triangle's largest builders.

Financing homes is big business for builders.

Most large builders have in-house mortgage-loan divisions, or they partner with lenders to provide home loans. Centex Homes had $98 million in revenue from its financial services division for the quarter that ended Aug. 1.

Centex spokesman Eric Bruner said at least half of the company's loans were made to customers not buying a Centex home.

"We believe that robust competition and a healthy range of choices in the local mortgage markets is ultimately good for customers," Bruner said. Centex has not been contacted by the banking commission, he said.

Dan Klinger, who heads K. Hovnanian American Mortgage, said the mortgage brokers' complaints are unfair.

"Obviously there is income to be made, ... [but buyers] are getting one-stop shopping," he said.

Hovnanian, which expects to sell 442 homes in the Triangle this year, will finance about 75 percent of the sales through its mortgage company, Klinger said. Buyers who go through the loan division can get incentives ranging from free appraisals to no closing costs, "but if we weren't competitive, people would just walk down the street," he said.