Fannie Mae, Freddie Mac clarify real estate commission rules

Fannie Mae and Freddie Mac on Monday clarified policies regarding interested party contributions in response to legal developments concerning real estate commissions and related questions from trade groups.

At issue is a National Association of Realtors settlement that is expected to result in differences in negotiations around sellers paying the commissions of buyers' real estate agents in conjunction with multiple listing services, potentially resulting in other arrangements.

The settlement has raised concerns about how the changes affect limits the two major government-related loan buyers have on seller contributions to borrowers' closing costs, which max out in a range of 2% to 9% of a property's value, depending on what's typical for an area.

The two government-sponsored enterprises generally take a path similar to that of the Federal Housing Administration in their clarifications, noting that they won't count buyer fees toward limits on contributions so long as they are in line with the regional norm.

"If a seller or seller's real estate agent continues to pay the buyer's real estate agent in accordance with local common and customary practices, these amounts are not required to be counted toward the IPC limits for the transaction," Fannie said in a selling notice.

Freddie issued a similar statement in an industry letter, noting, "If these fees continue to be customarily paid by the property seller according to local convention, they will not be subject to financing concessions limits."

Both government-sponsored enterprises also mirrored the FHA in that they left the door open to make future changes to the policy as the Burnett et al. and Moehrl et al. cases play out.

"We will continue to monitor and assess the impact of the proposed NAR settlement and other real estate agent commission lawsuits to determine if any updates of our requirements are necessary," Freddie said. 

Fannie used similar language, noting that it will keep following the lawsuits and "evaluate the potential implications to the mortgage industry." It said that its current clarification does not constitute a formal selling-guide change.

Meanwhile, the question of how the Department of Veterans Affairs will handle potential changes to buyer real estate commissions was still outstanding at the time of this writing.

Borrowers can't directly pay buyer commissions under VA's policy for the loans it partially guarantees, and that's more likely to be a scenario in homebuying going forward given changes contemplated as a result of recent legal developments. 

In a recent letter to the department, the National Association of Realtors urged the VA to allow the commissions amid the changes to the landscape to ensure borrowers with guaranteed loans can make competitive offers for homes in a market with a supply shortage.

"Where no offer of compensation is offered from a seller, VA buyers are immediately at a disadvantage, potentially forcing them to forgo professional representation, lose a property in an already limited inventory, choose a different loan product, or exit the market," the NAR said.

The VA has been in consultation with the Department of Justice in regard to how to address the issue given a recent DoJ ruling has raised the potential for tweaks to the National Association of Realtors settlement.