I'm a month from closing on a new construction home and I changed my lender from a local lender that was untrustworthy and not giving a deal. I got a notice that the the builder wont approve the new lender and that they only use local lenders. Is this a violation of the RESPA law?
Builders can't force you to use a specific preferred lender. This is due to the "required use" clause in the 2008 updates to RESPA.
However, they can include terms in their contract that effectively steer you towards preferred lender(s). For instance, it's somewhat common for a builder to require you to at least be prequalified by their preferred lender. And although they may not technically be able to link incentives to your choice in lender, in practice this still often happens, although indirectly.
The builder may also put terms in your contract about changes in lender - i.e. that you must notify them X days prior to a change, or any changes must occur X days prior to closing. This protects not only the builder, but you also - construction loans are notoriously perilous and last minute changes can be very disruptive.
Based on your comment that you're closing in a month and that the house is already built, I'm a little surprised the new lender is able to react so quickly and is willing to pick up someone else's project. I'm also surprised that you're not already deep enough into this that there hasn't already been some degree of irreversible transactions made with the old lender.
Ultimately, in your situation, you need to look at your contract with the builder. If you feel the builder is imposing restrictions that are not explicitly in the contract, then push back. If you feel the builder has restrictions in the contract that are illegal, or they're not responding to your pushback, then call a lawyer.
It's been a bit since I've researched this. My understanding is that they can legally require you to be qualified by their approved lender(s), but that they cannot legally require you to use their lenders.
dwizum noted a good point about the timing and lender change provisions in your contract; the timing of your change could be problematic based on your contract. If that's the case the question becomes is it worth blowing up the deal? I'd imagine not at this stage.
A quick review didn't turn up anything to the contrary, but will see if I can find a good .gov source to cite.