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NAR and MBA Send Fannie a Letter About Commissions and IPC

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The National Association of Realtors (NAR) and the Mortgage Bankers Association (MBA) have jointly contacted federal housing authorities, seeking clarification on the treatment of interested party contributions (IPCs) in home purchase transactions.

Their formal letter, directed to Sandra Thompson, Director of the Federal Housing Finance Agency (FHFA), along with Priscilla Almodovar, CEO of Fannie Mae, Michael DeVito, CEO of Freddie Mac, and Julia Gordon, Commissioner of the Federal Housing Administration (FHA), emphasizes the importance of having the GSEs review the NAR's commission lawsuit settlement agreement. 

The essence of the letter urges federal officials to provide guidance to market participants to ensure that the new arrangements align with FHA and GSE underwriting standards.

Currently, IPCs include concessions from sellers to buyers for expenses traditionally borne by buyers, such as loan closing costs or rate buy-downs. However, fees for buyer agents, typically paid by listing agents, are exempt from IPC caps.

Under current FHA policy, if sellers continue to cover buyer-side real estate agent commissions and fees in accordance with local laws or customs, and if these payments are reasonable, they are not considered interested party contributions, provided all other requirements are met.

As per the terms of NAR's settlement agreement, cooperative compensation remains permissible but cannot be facilitated through a Multiple Listing Service (MLS). Sellers or buyers can directly cover the buyer's agent's fees.

Consequently, NAR and MBA advocate for FHA and GSE policies to continue excluding seller or listing agent payments of buyer agents' commissions from IPCs once the settlement takes effect. This, they argue, will ensure uninterrupted mortgage capital flow to homebuyers. Urgency is stressed to confirm these policies, preventing disruptions that could result in financial losses for homebuyers and sellers, potentially jeopardizing their home purchases.

Furthermore, NAR has expressed concerns to the U.S. Department of Veteran Affairs (VA), urging revisions to policies prohibiting veterans from paying buyer broker commissions. Under the current VA rule, borrowers using VA loans are prohibited from paying fees or commissions to real estate agents unless determined appropriate for inclusion by the Under Secretary for Benefits as proper local variances. NAR has communicated to John Bell, Executive Director of VA's Loan Guaranty Service, that this policy places VA buyers at a disadvantage, potentially depriving them of professional representation.

Considering my own experience and research on IPCs, and my own experience working at Fannie Mae, it's clear that minimizing disturbances resulting from the NAR settlement is key and that sellers should continue to be allowed to cover the commission of the buyer’s agent. Disrupting this practice could inflate loan-to-value ratios (LTVs), creating model risk and making it more challenging for buyers to cover closing costs. My research also indicates that market concessions that are typical for the market do not significantly impact loan performance. What is concerning are atypical concessions sought out by the buyer, which can serve as a negative credit signal, suggesting the borrower's financial position is weaker than it appears on paper. But the buyer’s commission, well, is the single most typical concession in existence, so much so that it was not traditionally considered one at all.

I stand behind the efforts of NAR and MBA outlined in their letter, as it benefits not only buyers but the GSEs.

Michael Elliott
Fathom Realty - Burlington Township, NJ
Burlington, New Jersey Residential Sales

OMH what the hell are well all going to do??   I can't take it !!

Mar 30, 2024 06:18 AM
Carol Williams
Although I'm retired, I love sharing my knowledge and learning from other real estate industry professionals. - Wenatchee, WA
Retired Agent / Broker / Prop. Mgr, Wenatchee, WA

I'm not sure NAR even understand what their settlement means.

Mar 30, 2024 08:01 AM
Michael Elliott

Carol Williams  or the implications...hey who cares.

Mar 30, 2024 08:06 AM
Carol Williams

Exactly, Michael Elliott.

Mar 30, 2024 08:12 AM
Kukun's VP of Analytics Franklin Carroll

Fair enough, but Fannie Mae and Freddie Mac certainly do. Despite everything, there are seriously smart people who work there; I worked with them personally, and we were working out the implications of potential settlements as soon as the lawsuits began. 

Mar 30, 2024 11:46 AM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

I think when the dust clears that Buyer Agents will need to get 1/2 of the Commission from their Buyers 

Mar 30, 2024 09:12 AM
Kukun's VP of Analytics Franklin Carroll

I understand why you think that. But when the GSEs see this affecting affordability, they might react. When the sellers were paying all of the commission, a meaningful portion of that cost effectively was being passed onto the buyer through an increased home price. Now it must be paid by the buyer at closing. That is going to hurt affordability and distort LTVs. 

Mar 30, 2024 11:44 AM