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Industry seeking clarity — and change — in FHA and VA lending 

NAR this week sent letters asking government lending agencies to allow buyers to finance agent compensation. Thursday, it started getting answers.

March 28, 2024
4 minutes

Key points:

  • The NAR commissions settlement has fueled concerns over how lower-income homebuyers will be able to pay their agents out of pocket.
  • On Thursday, the FHA affirmed that seller payment of buyer commissions would continue to be excluded from limits on seller concessions.
  • NAR said that not making these requested changes will put veterans and lower income buyers at a “significant disadvantage compared to traditional buyers.”

As the industry prepares for major rule changes in the wake of NAR's commissions settlement, there remains some uncertainty as to how exactly buyers will pay their agents if compensation is not offered by the seller — especially if the mortgage is being financed through FHA and VA programs.

Over the past week, major industry players including NAR and big brokerages have reached out to these federal agencies seeking clarity and action to help consumers. In particular, there is concern for lower-income and budget-conscious buyers who would struggle the most to pay agents out of pocket.

Currently, the FHA allows seller concessions up to 6% of the home's purchase price while the VA limits seller concessions to just 4%. Seller concessions to buyers often cover closing costs, repair credits and other transaction fees. In some cases, a seller may offer buyer agent compensation through a concession. However, VA rules currently say the seller is the only one who can pay the buyer agent.

There is concern among agents that the current limits set by the FHA won't be high enough to cover a buyer agent commission in addition to typical seller concessions. NAR has asked that seller-paid buyer agent commissions continue to be treated separately, which the FHA appears to be on board with.

A closer look at the industry asks — and an FHA answer

On Wednesday, NAR submitted letters to both agencies asking for changes that would help ensure buyers have representation while being able to compensate an agent through their loan. 

"On behalf of the National Association of Realtors' (NAR) 1.5 million members, I write to urge the Department of Veterans Affairs (VA) to revise its policies pertaining to fees veterans cannot pay when using their VA home loan benefit," NAR President Kevin Sears wrote in his letter to VA Loan Guaranty Service Executive Director John Bell.

"Realtors serve as advocates for homebuyers through the entire purchasing process, many of whom specialize in working with VA buyers. In this exceedingly competitive market, we are concerned that the VA's current policies place veterans at a significant disadvantage compared to traditional buyers," Sears added.

In the letter submitted March 27 to the heads of FHA, Fannie Mae, and Freddie Mac, NAR partnered with the Mortgage Bankers Association (MBA) to ask that FHA and other federal financing policy continue to exclude seller or listing agent payment of buyer agent commissions from limits on "interested party contributions," or IPCs.

"As you are aware, under current practice, most home sellers pay the listing agent commission, who in turn pays the commission of the agent representing the buyer. Because commissions of buyers' agents are customarily paid by the listing agent, they are excluded from caps on IPCs established by the GSEs and FHA," the letter read.

On March 28, the FHA sent out an email that seemed to agree with NAR's request, stating: "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."

Addressing a top agent concern 

During a livestream broadcast to agents and industry watchers last week, eXp Chief Strategy Officer Leo Pareja told over 48,000 viewers that the company had reached out to the FHA and VA for clarification on concessions and to ask for change allowing buyers to roll agent compensation into their loans. 

Pareja told Real Estate News that understanding changes to FHA and VA financing was one of the top concerns he had heard from agents since the NAR settlement was announced. However, Pareja also recommended that agents focus on what they can control. 

"Across the board, I think people are just trying to get as much information as possible," he told Real Estate News.

Additionally, Jason Haber, co-founder of the American Real Estate Association, an emerging trade association competitor to NAR also told Real Estate News that his organization has submitted letters to the FHA and VA offering similar guidance and seeking similar action as those mentioned in the letters from NAR.

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