MortgageReal EstateRegulatory

Time is ticking for the VA to change broker payment rules

Real estate professionals are expressing their concerns about the impact of commission structure changes on veterans if the VA doesn’t change its loan rules

As the August implementation deadline for the business practice changes outlined in the National Association of Realtors’ (NAR) commission lawsuit settlement agreement approaches, the window of time is shrinking for the U.S. Department of Veterans Affairs (VA) to revise its policies governing the fees that veterans cannot currently pay when using their VA loan benefit.

“One of the consequences of what the lawyers, the Department of Justice and the Biden Administration have done is they have screwed veterans, minorities and low-income Americans,” said James Dwiggins, the CEO of NextHome. “If a buyer cannot have the ability to finance representation in the loan because the seller didn’t want to offer compensation, when you have multiple offers, that buyer is going to lose every single time.”

Anthony Lamacchia, the broker-owner of Lamacchia Realty added: “Buyers agents will have to write that, as part of the offer, the buyer requests that the seller pays ‘X’ amount in buyer broker commissions, but that doesn’t leave very many options, especially when VA offers are already viewed less desirably and not as the strongest offer in a multiple-offer situation. It just adds yet another layer of difficulty to the transaction for a VA buyer.”  

Under the terms of NAR’s settlement agreement, listing brokers will not be allowed to make blanket offers of cooperative compensation to buyer’s agent on the MLS, and buyers will be required to sign a buyer representation agreement outlining how much they will pay their agent for their services. Despite these changes, the practice of cooperative compensation may still continue, but industry trade groups are concerned that some sellers will choose not to offer any compensation, which will negatively impact many homebuyers and veterans in particular.

“In this exceedingly competitive market, we are concerned that the VA’s current policies place veterans at a significant disadvantage compared to traditional buyers,” NAR wrote in a letter dated March 27 to John Bell III, the executive director of the VA’s loan guaranty service.

“In situations where no offer of compensation is offered from a seller, VA buyers are immediately at a disadvantage, potentially forcing them to forego professional representation, lose a property in an already limited inventory, choose a different loan product, or exit the market entirely.”

VA policy states that while a veteran is allowed to use a buyer broker to purchase a home using their VA loan benefit, they “may not under any circumstances, be charged a brokerage fee or commission in connection with the services of such individuals.”

In addition to the letter from NAR, the VA has also received letters from the Mortgage Bankers Association (MBA) and the Community Home Lenders of America (CHLA).

In its letter, the MBA echoed NAR’s sentiments that veteran borrowers will be disadvantaged if they lack the ability to compensate real estate agents.

“While the market’s response to the settlement remains uncertain, one thing is clear: Veteran borrowers will be significantly affected by this ruling,” the letter states.

The MBA also asked the VA that if the department must go through the rulemaking process to amend its regulations, that it should “release an Interim Final Rule to ensure that veterans seeking to use their VA benefits remain competitive throughout the comment period and rulemaking process.”

While the CHLA is also urging the VA to change its rules, it is advocating for the mortgage industry to explore other options.

“More solutions are needed to keep veterans from being nudged aside when it comes to making offers on homes they desire for their families,” Rob Zimmer, CHLA’s director of external affairs, wrote in an email.

As the industry searches for solutions, Dwiggins is advocating for more professionals to stand up and voice their concerns about the impact on veteran buyers.

“These consequences are going to get fixed by the government looking at it now and getting proactive, or a lot of people are going to get screwed, and there will be enough chatter and noise that Congress steps in and tells the department to make changes so there is an opportunity for veterans to afford the representation they want,” Dwiggins said.

If people take a stand and pressure the VA, Dwiggins believes rule changes tied to VA loans will occur.

Todd Armstrong, a veteran and a Compass agent in San Diego who heads the brokerage’s military division, is also optimistic that changes are possible.

Federal Housing Administration and Fannie Mae have clarified their policies about interested party contributions, and in talking to a lot of lenders, they believe something is going to come out of the VA soon, but the VA is not the fastest place to make changes,” Armstrong said.

As Armstrong and the Compass military division continue to push for change, he said they are focusing on reaching out to their spheres of influence — including their lender partners —to raise awareness about the issue.

“It really needs to come from the lenders,” Armstrong said. “They are the ones sending the letters to the VA really trying to get these policies changed.”

For its part, the VA said that it is continuing to work toward a solution on this matter.

“VA is working closely with the Department of Justice and the industry to determine any potential implications for Veteran borrowers related to this proposed settlement, and we are fully committed to ensuring that Veterans are neither disadvantaged nor overcharged in the homebuying process,” Terrence Hayes, the VA’s press secretary, wrote in an email.

“We will continue to monitor this very closely, and we will take steps as needed to ensure that Veterans are not adversely impacted by this settlement.”

NAR also noted that it is having ongoing conversations with the VA about the issue.

Lamacchia said he began discussing his concerns in the immediate weeks following the verdict in the Sitzer/Burnett lawsuit.

“If Michael [Ketchmark, the lead attorney for the Sitzer/Burnett plaintiffs] is even half successful on his crusade here, we are going to end up in a situation where buyers from all walks of life, but especially veterans, cannot get anyone to help them to make these financial and emotional decisions because they can’t pay them — and I think that is terrible,” Lamacchia said during a debate with Ketchmark hosted by HousingWire in January.

While he is glad conversations are occurring, and wishes a solution was as simple as Dwiggins suggests, Lamacchia believes there will be some heartache and challenges.

“I love that James is filled with optimism, but I don’t think it will be that easy,” Lamacchia said. “The government doesn’t move that quickly.”

While it remains to be seen whether the industry and the VA will come up with a solution before the Aug. 17, 2024, business practice implementation deadline, industry experts agree that consumers across the board will be hurt if the VA does not change its rules.

“It is good for everybody if VA loans can be used and are readily available — it expands the groups of potential buyers,” said Alice Jump, a partner specializing in real estate law at Reavis Page Jump LLP. “Consumers on both sides of the transaction have an interest in getting this done.”

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