How one bank is aiding borrowers facing new broker fees

A bank lender is promoting a product geared to support homebuyers facing new commission fees following recent National Association of Realtors changes. 

The Federal Savings Bank says consumers can borrow up to $50,000 to defray the costs of buyer agent commissions with its Smart Loan product, alongside a mortgage loan. Buyers can't use the loan for extra closing liquidity but rather to avoid spending more savings upfront, when approaching broker fees sellers traditionally paid.

The Chicago-based lender was already offering the product to borrowers, particularly veterans who were previously restricted from paying any agent commissions, said Neil Bader, executive vice president and national director of retail lending at the bank. 

"In the last six months as this became a hot topic, we realized we could repurpose the loan to satisfy some of the needs of people who have an unexpected buyer's broker fee," he said. 

NAR's new rules effective Aug. 17 eliminated the requirement for sellers to make offers of compensation to buyer brokers on Multiple Listing Services, among other changes. The updates reshuffle the traditional process in which sellers paid commission fees that were split between buyer brokers and seller brokers. Broker commissions are still negotiable, NAR emphasizes.

Housing finance players have offered numerous theories as to how consumers, Realtors and lenders will reckon with NAR's changes. With the updates less than a week old, major aftershocks are not yet apparent. 

Bader said it's too early to speak on the volume or interest in TFSB's Smart Loan Buyer's Commission product, which it recently rebranded alongside existing debt consolidation, home improvement and major purchase versions. 

The bank puts a Smart Loan on its portfolio, unlike the mortgage loan, and utilizes a separate credit pull. Borrowers need a minimum credit score of 680 and a debt-to-income ratio of 50%, while Department of Veterans Affairs borrowers meet the threshold with a 640 credit score, according to TFSB. The Smart Loan, which comes with a fixed-rate and monthly payments, doesn't have a prepayment penalty. 

The lender has a retail operation and consumer direct group which originates mostly cash-out refinances for VA and U.S. Department of Agriculture loans, said Bader. According to Home Mortgage Disclosure Act data, TFSB originated over $3.2 billion in loan volume last year. 

The broker commission product seeking to deepen the relationship between lender and consumer is representative of a shift some industry experts expect to see. The future role of buy-side agents has been questioned, as consumers are completing more of the homebuying process online. 

"This is a [change] that's going to expose the cost of an agent and sort of componentize it, and it's just gonna continue that trend of rebalancing the power," said John Paasonen, co-founder and CEO of mortgage fintech Maxwell. 

The duties of a loan officer, advising on the mortgage application, are harder to replace than those of a buyer broker, he added. Further, Paasonen suggested loan officers could begin sending real estate agents more leads, flipping their traditional dynamic. 

"If the loan officer is the primary partner in this homebuying relationship, they've got to have technology that allows them to share pricing and look at different scenarios with the consumer," he said. "The lender themselves has to retain great LO talent, great technology, and really showcase their brand."