Mortgage scams coming to an end?

After year and years of abuse, it appears a big area of real estate transaction abuse may be finally coming to and end. What is that you say?  Something you probably experienced, but didn’t realize, which is known as a Marketing Service Agreement, or MSA.

MSA are agreements between various companies, more often than not, companies owned by the same people, to steer you into using the services of the other company.

For example, you buy your home using a Real Estate Agent from ABC Realty, who talks you into getting your mortgage loan from their affiliated company ABC Mortgage. Then they get you to close your home loan at their affiliated Title Company, ABC Title. Some, even go as far as even trying to get you to get your homeowners insurance from their affiliated company!  cfpb_logo

Another great example is in new construction, where the builder uses fake incentives (like free appliances) if your use the mortgage company and title company they own.

These MSA have become prevalent in the market, but have started to fall out of favor with many companies since the CFPB (Consumer Financial Protection Bureau) started going after these service agreements over their legality. Numerous companies have been slapped with large fines for their practices, so many others, seeing the writing on the wall, and just getting out of MSA’s all together.

Essentially these agreements require one company to be obligated to recommend the other, even when they know there is a better alternative for the client.

Almost always, it comes down to money. If the client believes they are required to use the company and they don’t shop, or are not allowed to shop, what sort of deal do you think the related provider is providing?  incentive2That’s correct, rare is their offering the best deal, and many times, the consumer is paying a significant premium for the related company services. Because the related provider costs more, if allowed to shop, it would usually put their own overpriced companies at a competitive disadvantage.  Therefore many companies employ tactics to scare or otherwise discourage clients from shopping.  The aforementioned builder incentive is classic. People, the builder is NOT giving away anything. The appliance allowance, or finished basement upgrade is already built into the price of the house. They only “offer” that as a great incentive for you to also use their MSA partner.

While MSA’s are not currently illegal, the CFPB has strongly stated that if you are going to be making a referral, it better be because it is the best deal from the client, and not the best deal for them.

The bottom line for a home buyer is that you should always shop for the other services.  Almost without fail, because of the nature of Marketing Service Agreements, you’ll usually get a better deal somewhere else.


Home Builder PROFITS way up – and its not from building homes!

Minneapolis, MN:  Recent reports show homes builders are making record profits – but not from building homes! What then you ask?  From providing the mortgage loans the “builder” give to people buying their homes!

Pulte Homes shows mortgage loan revenue up 70%, which is 6 times higher than their revenue from building homes. Home builder Lennar Homes shows mortgage revenue up 60%!

The reason?  The margins on the loans they force… Oops… Offer people buying their homes are fat.  Really fat.

It is a well known fact that home buyers can get significantly better mortgage loans deals when NOT using the builders in house lender, but home buyers don’t seem to care because they are blindsided by the shinny new object (the home), and fall for the tall tails the builder throw at them – items like “no closing costs”, and “appliance allowance” that are already being paid for within the cost of the home itself.  It is no “deal”.

Most new construction home buyers fail to ask, or even realize how the builder is able to give them these freebees…  and that in most cases, you could still get those items AND get a better mortgage loan with someone else, if the buyers just had a little better negotiation skills and employed a “buyer agent” real estate agent instead of simply working with the builders agent.

Many people think the days of sleezy tactics, high pressure sales, and low balling customers on interest rates and closing costs are gone because of new regulation – and they are for the most part, unless you are working with a new construction builder, in which case,  the government seems to be looking the other way.

No wonder builders are making a killing in the mortgage loan business!


Buy New Construction or Existing Homes and Foreclosures?

St Paul, MN: New construction is suffering.

The lowest NEW housing construction numbers since 1963 when the USA had 120  million LESS people have just been reported. There are many reasons for this, but the fact remains, right now is one of the best times to buy a house, and first time home buyers are missing the boat standing on the sidelines. Builders are fighting back, and we all should be concerned as new construction is a major economic backbone in this country.

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