WASHINGTON — The Department of Housing and Urban Development is expected to announce Wednesday that it will delay implementation of a rule that has sparked outrage among lenders and home builders.
The agency has agreed to wait 90 days before implementing the rule, which would prevent builders from offering incentives to steer homebuyers to affiliated lenders. The rule, part of a Real Estate Settlement Procedures Act overhaul finalized in November, was scheduled to take effect Jan. 16.
The delay is tied to a lawsuit the National Association of Home Builders filed Dec. 22, HUD officials said. Brian Sullivan, a spokesman for the department, said its decision did not reflect uncertainty about the rule's legality.
"The fact that we've agreed to a 90-day delay is simply to allow us to get our administrative ducks in a row, so we can vigorously challenge this on the merits of the case and not on some procedural ground," Mr. Sullivan said.
Under the rule, builders would no longer be allowed to offer buyers special deals on a house contingent on the use of a specific lender. The rule drew objections from lenders and builders, who argued it would wreck partnerships and prevent qualified buyers from getting good home loans.
The ban particularly would affect builders' joint ventures with lenders like Wells Fargo & Co., JPMorgan Chase & Co., and Countrywide Financial Corp., now a unit of Bank of America Corp.
"The HUD rule prevents home builders from offering consumers the best possible deal on the purchase of a new home and limits the options available to new homebuyers as they seek out the services necessary at closing," Jerry Howard, the builder group's president, said in a press release announcing the lawsuit.
A spokeswoman for the group would not comment Tuesday on HUD's decision to delay the rule's implementation.
Mitchel Kider, the attorney for the plaintiffs in the case, said the delay was a "very positive development for the home builders."
Mr. Sullivan of HUD argued that the rule would not be as prohibitive as the builders contend.
"Nothing in this final rule prevents a builder from offering incentives or discounts to consumers," he said. "Nothing in this rule prevents a builder from suggesting a consumer consider using an affiliated or preferred lender. The only thing this rule does … is de-link these incentives — or disincentives — from the required use of affiliated settlement service providers."
The National Association of Home Builders initially filed for a preliminary injunction against the rule last month. Rather than fight that injunction, Mr. Sullivan said HUD agreed to it, so it could prepare its case for summary judgement.
Though the decision effectively leaves it up to the incoming Obama administration to decide whether to fight to preserve the rule, Mr. Sullivan said that was not the motivation for HUD's decision.
"These were legal decisions that were made in concert with the U.S. Attorney's Office," he said. "There was no political calculus in this decision."
Though HUD has not publicly announced its decision to delay implementation, it notified participants in the suit Monday.
Many in the industry were pleased with the news.
"We think this was a wise decision," said Anne Canfield, the executive director of the Consumer Mortgage Coalition. "There are a number of implementation issues with the Respa rule."
Sue Johnson, the president of the Real Estate Services Providers Council Inc., also praised the decision.
"It's a very sensible decision," she said. "The rule would have required significant restructuring of operations of home builders, and it was very odd that they only gave a 60-day implementation period in the first place. I've read the home builders' lawsuit and think that they make a very good case that there would be irreparable harm if they hadn't gotten a preliminary injunction before the Jan. 16 date."
Gina Harris, a Tampa lender who works with several different builders, said that her company, Builder's Affiliated Mortgage Services, supports the rule, though she also said delaying implementation would give HUD time to flesh out some vague provisions.
"I'm a little happy that they postponed it until they define it better," Ms. Harris said, citing uncertainties surrounding provisions about whether builders may discount closing costs. "But if they define it, and it's to protect the consumer and encourage competition, it's only going to be a good thing."
