FHA issues Guidance on Seller-Paid Commissions
By Stephen McCoy, VP of Legal Services & Regulatory Affairs
Since the announcement of the recent NAR settlement, questions have swirled regarding the impact of the settlement on buyer’s ability to obtain loans through agencies such as Fannie Mae, Freddie Mac, the FHA, VA, and others. In response, NAR contacted these agencies seeking clarification and urged them to update their policies to accommodate the changing environment better.
Under current VA policies, VA buyers are prohibited from compensating their real estate broker directly. In situations where no offer of compensation is made, this clearly puts VA buyers at a disadvantage. Our veteran buyers may be forced to forego professional representation, forced to choose a less advantageous loan product, or miss out on a property entirely. Clearly the program was not designed to disadvantage our veterans, but the effect of existing policy and the changing marketplace creates a major disadvantage. NAR sent the VA a letter 4849.pdf (narfocus.com) shortly after the settlement agreement was made public and are awaiting a response. Industry leaders and NAR are hopeful that the VA is willing to update their existing policies.
Recently, the FHA published guidance in light of the number of inquiries they received from various stakeholders, specifically examining how the settlement agreement impacts the payment of agent commissions. These questions focused on how the proposed settlement agreement will affect the treatment of seller-paid buyer broker fees in transactions with FHA buyers.
It is important to note that the mere fact that the buyer pays their own broker would not preclude a buyer from obtaining financing through the FHA. However, several questions have been posed to the FHA about whether a seller-paid buyer brokerage fee would count against what are known as Buyer’s “Interested Party Contributions.” Learn more here: Interested Party Contributions (IPCs) | Fannie Mae. Simply stated, Fannie Mae, Freddie Mac, and the FHA specify limits on how much a seller or broker can contribute to the buyer for services normally paid for by the buyer.
According to FHA’s press release: “Under existing FHA policy, if sellers continue to pay buyer-side real estate agent commissions and fees as a manner of state and local law or custom, and if the commissions and fees are reasonable in amount, existing policy would not treat those payments as interested party contributions provided all other requirements are met.” This could allow for payments by sellers towards a buyer broker fee, and not count against the IPC caps, allowing other concessions or rate buydowns if these conditions are met.
NAR has published a helpful article with frequently asked questions which can be found here: NAR Settlement Financing FAQs
