FHA Addresses FAQ on Seller-Paid Commissions

This morning, the National Association of REALTORS® (NAR) announced that, along with the Mortgage Bankers Association (MBA), it sent a letter to the Federal Housing Finance Agency, Federal Housing Authority, Fannie Mae, and Freddie Mac. 

The letter requested clarification on interested party contributions (IPCs): 

“Our groups ask that you provide confirmation of the treatment of seller or listing agent-paid commissions for buyers’ agents by FHA and the GSEs as soon as possible.”

In short, the letter sought to clarify a common question that’s been coming up this week: If a seller pays the buyer agent commission, does that count toward IPC limits? This is one of many questions that is being asked by the industry, as real estate professionals seek guidance on rule changes agreed to in the pending NAR settlement.

This afternoon, the FHA sent an email addressing the question. 

FHA Addresses Questions on Real Estate Agent Commissions

In an email sent on March 28, the FHA stated that it published FAQs to address questions regarding seller-paid commissions in relation to the NAR settlement. 

Under the question, “What costs can a seller or other interested party pay on behalf of the Borrower?” the existing policy speaks directly to agent commissions:

“Payment of real estate agent commissions or fees, typically paid by the seller under local or state law, or local custom, is not considered an interested party contribution.”

The email clarifies that the FHA will “continue to monitor” for changes as developments from the settlement are made. 

Currently, the IPC limit for FHA loans is up to 6% of the sales price. According to the FHA FAQ page, IPCs can cover the following closing costs for buyers, up to the 6% limit:

• Borrower’s origination fees
• Other closing costs including any items Paid Outside Closing (POC), 
• Prepaid items
• Discount points
• Payment for permanent and temporary interest rate buydowns, and other payment supplements
• Payments of mortgage interest for fixed rate Mortgages
• Mortgage payment protection insurance
• Payment of the Upfront Mortgage Insurance Premium (UFMIP)

IPC limits are 3% for Fannie Mae and Freddie Mac loans if the borrower puts less than 10% down. At the time of this post, Fannie Mae nor Freddie Mac have not clarified if their IPC limits include agent commissions. 

Answers for July Changes

This is the second letter that NAR sent this week seeking answers for post-settlement changes expected to take place in mid-July. The first was addressed to the Department of Veterans Affairs (VA), urging revisions to current policies that prohibit veteran home buyers from directly compensating their agent representative. 

The industry seeks answers to numerous questions about what the changes outlined in the settlement agreement mean for agents. Stay tuned as we learn more. 

Editor’s Note: An earlier version of this article incorrectly stated the policy on seller-paid commissions was an update to the FAQ page. The policy remains unchanged as part of the FHA’s existing regulations. According to the FHA email, the FAQ page was published on March 28 to address questions.