VA updates policy to allow broker commissions

 The U.S. Department of Veterans Affairs officially updated its policy to remove lending restrictions on Realtor and agent commission payments in the aftermath of recent court decisions.

Tuesday's new government circular follows VA's recent announcement, made at a May industry conference, that it would seek a workaround to rules that threatened VA borrowers' ability to make winning home offers. Under its previous loan guidelines, borrowers were prohibited from paying any type of commissions to qualify for its programs. 

Settlements reached between defendants in what is commonly referred to as the Sitzer/Burnett ruling, including the National Association of Realtors, would put buyers' broker commissions as a line item up for negotiation in the purchase process.

The update aims to ensure veterans will not suffer from the effects of the class-action settlement. 

"We always want to put veterans and their families in the best possible position to buy the homes they want, and that's what this update is all about," said under secretary for benefits Joshua Jacobs in a press release. 

"Veterans using VA home loan benefits can now pay reasonable and customary amounts for certain charges — including commissions and other broker-related fees — thus ensuring that they remain competitive in the rapidly changing housing market."

The department said it would monitor the impact of the settlement on the real estate market and pursue further rulemaking based on developments. It also suggested to borrowers that they should still negotiate broker-buyer fees or asking sellers to pay fees at closing.

Various groups, ranging from mortgage trade organizations to members of Congress, welcomed the update. 

"MBA has pushed the VA to address this prohibition and we're pleased there is now a temporary measure to address it," the Mortgage Bankers Association said in a statement. 

"We now urge the VA to permanently amend its regulations to allow veteran borrowers to pay reasonable and customary fees and commissions to retain agents that will represent their interests in the transaction," it said.

Similarly, MBA's peers at the Community Home Lenders of America said it "wholeheartedly supports" the initiative. 

"CHLA recently wrote a letter calling for this action. We look forward to working with the VA and other stakeholders on ways to help veterans participate in the homebuying process," said its executive director, Scott Olson.

In a letter sent to VA prior to the announcement this week, several members of the House of Representatives urged the department to commit to making changes to its policy. Signers included the co-chairs of the recently formed bipartisan Congressional Real Estate Caucus: Reps. Tracey Mann, Mark Alford, J. Luis Correa and Brittany Pettersen. The letter received the backing of NAR. 

"VA buyers should have the same flexibility and rights as others in the real estate market. While the announcement of a temporary lift on this prohibition was welcomed, it still does not offer enough certainty for the future of veteran home buyers.

The department's update comes a few weeks after it also extended a voluntary moratorium on foreclosures, as lenders requested more time to implement a new VA post-pandemic servicing program. The moratorium expires at the end of 2024.