BAM Key Details:

  • The recent NAR settlement has prompted questions regarding the possibility of financing agent commissions into mortgage loans for home buyers.
  • Existing lending guidelines limit Interested Party Contributions (IPC), potentially leaving some buyers unable to fully cover agent commissions with closing credits.
  • The American Real Estate Association (AREA) is advocating for changes to IPC limits, urging Fannie Mae, FHA, and HUD to consider allowing buyers to finance agent representation costs into their loans to mitigate financial burdens, especially for first-time buyers.

With news of the NAR settlement, many agents have been asking the same question: can home buyers finance agent commissions into their mortgage loans? 

Currently, Interested Party Contributions (IPC), commonly known as closing credits, can be used to cover buyer agent commissions. However, there is a limit to IPCs, which means for some buyers, these credits may not fully cover commissions—especially if they are needed for other closing costs associated with buying a home. 

The American Real Estate Association (AREA), the recently established trade association founded by Mauricio Umansky and Jason Haber, sent letters this week to Fannie Mae, FHA and the U.S. Department of Housing and Urban Development (HUD) to advocate for changes in lending guidelines.

Read on for more. 

Interested Party Contributions Limits

Last week, Brian Skelly, VP Mortgage Banker, joined Byron Lazine and Haber during a live segment on the news of the NAR settlement to talk about IPC limits. 

“Once you make commissions as part of the buyer’s closing costs instead of the seller’s closing costs, then it falls under the limits, and you’ve got to worry about that, and that’s unfortunate.”

Brian Skelly

VP, Mortgage Banker, William Raveis

Currently, Fannie Mae’s IPC limits for buyers purchasing a principal residence or second home are 3% if they put 10% or less down.

Fannie Mae IPC limits

Source: Fannie Mae

This means, if a buyer is purchasing a $200,000 home with less than 10% down, they could get up to $6,000 in IPC. If they need those funds to cover other closing costs as well as agent commission—taxes, insurance, title fees, attorney fees, lender fees, etc.—there likely wouldn’t be enough to cover everything.

“The perception of ‘we’ll just roll it into the loan,’— you’re not always going to be able to do that.”

Brian Skelly

VP, Mortgage Banker, William Raveis

FHA loans allow for IPCs up to 6% of the sales price, which allows for buyers who need credits to receive more. 

You can watch the segment with Skelly starting at 41:20

AREA’s Request

In a letter to Fannie Mae AREA requested the current IPC limit be changed. 

“…we respectfully urge Fannie Mae to raise the Interested Party Contribution (IPC) limits on mortgages or allow buyers to roll the cost of their agent representation into a loan. While the upfront cost of paying for an agent is not feasible for many, by financing it via a conventional loan product, that cost can be amortized so it will have a minimal financial impact on the buyer.”

The letter noted that buyers, especially first-time buyers with limited cash reserves, may be forced to buy without professional representation if changes to lending practices are not made.

“Should buyers decide to go it alone, they are at a disadvantage if the seller has an agent. It’s very possible they will be harmed when they neglect crucial deal points or fail to take advantage of protections that an experienced agent could have provided for them.”

Haber told BAM that Fannie Mae already called him back after receiving the letter. 

“They (Fannie Mae) haven’t heard from anyone else on this issue, but readily conceded it’s important and they need to explore it.”

Jason Haber

Co-founder, American Real Estate Association

AREA’s Letter to Fannie Mae

Read the full letter to Judi Horn, Director, Single Family Collateral Risk Management at Fannie Mae below. Letters were also sent to FHA and HUD.

Dear Director Horne:

The settlement between the National Association of Realtors (NAR) and the plaintiffs in the Stizer/Burnett class-action lawsuit has sent shockwaves across the real estate industry since it was revealed on Friday, March 15th.

As a newly announced trade association that seeks to advocate on behalf of our members and the public, we took note of the settlement details. While much of the media coverage has focused on the financial terms of the deal, we are concerned about its potentially harmful implications for home buyers.

Now, more than ever, the dream of homeownership has moved out of reach for too many Americans. With a limited supply of homes, higher market prices, and increased loan costs, a great strain has been placed on buyers. This has forced some to leave the market and others to delay their purchase decision.

As a result of the Stizer/Burnett proposed settlement, there will be situations where the responsibility of paying for a buyer’s broker will fall directly on the buyer. This leaves buyers, particularly first-time buyers, with a difficult choice: proceed with an important investment decision without the guidance of a real estate professional or somehow pay out-of- pocket for essential professional services. Should buyers decide to go it alone, they are at a disadvantage if the seller has an agent. It’s very possible they will be harmed when they neglect crucial deal points or fail to take advantage of protections that an experienced agent could have provided for them.

At the American Real Estate Association, we believe this is an untenable choice.

Instead, we respectfully urge Fannie Mae to raise the Interested Party Contribution (IPC) limits on mortgages or allow buyers to roll the cost of their agent representation into a loan. While the upfront cost of paying for an agent is not feasible for many, by financing it via a conventional loan product, that cost can be amortized so it will have a minimal financial impact on the buyer.

By way of example, if a purchaser wants to acquire a $400,000 home with a 30-year fixed- rate mortgage in the amount of $320,000 (80% LTV), at a 7% interest rate, their monthly principal and interest payment would be $2,128. Should they be required to compensate their agent, their out-of-pocket expenses could climb by an additional $12,000. This extra outlay means the buyer needs to find substantially more cash to complete this transaction. However, if a buyer could utilize an IPC contribution from the lender, it would only cost an additional $64 per month to finance that expenditure.

Currently, Fannie Mae IPC guidelines for principal residences or second homes are broken up into three groups, depending upon the LTV. Each grouping limits the amount of permissible contribution a borrower can receive. In light of the news of last week, we urge Fannie Mae to reconstruct the tables to provide for IPC coverage for buyer broker fees. While it’s understandable that the lower LTV mortgages have higher IPCs, many first-time buyers and those who require higher LTVs often benefit the most from having an experienced real estate agent by their side. Yet, those who need guidance the most will not be able to afford that counsel.

We thank you for considering our request and sincerely hope Fannie Mae can take immediate and decisive action to help bring needed relief to home buyers everywhere by raising the IPCs or by finding alternate ways to ameliorate the added financial burden now placed on home buyers. This, we believe, will empower more Americans to receive expert advice for the biggest financial transaction of their lives.

We would welcome the opportunity to speak with Fannie Mae about this urgent issue. If you would be amenable to a meeting or conference call, please let us know. I can be reached via email at Jason@americanREA.org or at 212-203-9561. Thank you for your consideration of this critical policy matter.

Sincerely,

Jason Haber

American Real Estate Association

Co-Founder