Mar. 30: Research on negotiating commissions; MBA, FHA, FAQ, & NAR; Saturday Spotlight: First American Data & Analytics

We’ve wrapped up the first quarter of 2024 already! Did your company make some coin? Or at least not lose a big chunk of change? Capital markets departments’ primary focus is not in making a big profit, but to protect the margins (and certainly not lose any speculating on the direction of rates). Overall, asset prices are are a result of supply and demand factors, so plenty of us took note that Bloomberg’s bond indexes made the seemingly inconsequential, but very important, decision to reclassify some bonds sold by utilities to raise funds for repairs after a disaster not as corporate bonds, but rather as asset-backed securities. Collectively, the price changes that resulted from that decision will add $3 billion in costs over the life of the bonds, which will lead to higher utility bills for consumers around the country. Why? Many of the massive institutional investors that buy up those bonds are prohibited from buying up asset-backed securities, and since demand is smaller, interest is higher, and the costs get passed on to electricity customers.

Saturday Spotlight: First American Data & Analytics

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“Trusted industry-leading data sets that span 100% of U.S. housing stock.”

In 3-5 sentences, describe your company (when was it founded and why, what it does, where, recent growth and plans for near-term future growth).

At the end of 2020, First American rebranded its data division as First American Data & Analytics. The creation of this new data-dedicated division was the culmination of a multi-year effort to build a world-class, property-centric data operation that could deliver critical risk management, analytics, valuation, and marketing solutions. First American Data & Analytics provides best-in-class decisioning solutions to the mortgage, Fintech, and Proptech industries, all powered by the industry’s largest and most complete property information and ownership datasets.

Our technology-based solutions help clients reduce risk and enhance efficiencies within the mortgage, title, fraud/verification, compliance, and valuation sectors. Our solutions are used in more than half of all U.S. mortgage transactions. To give a sense of scale, we curate and maintain the nation’s largest dataset of property ownership information. That’s more than 8 billion recorded property documents, with more than 5 million new property document images added each month.

Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why.

Our values of integrity, commitment, service, leadership, and teamwork influence the way in which we conduct our business and engage with the communities where we live and work. Our team contributes time, money, and energy to local charities such as the Big Brothers Big Sisters of Orange County and the American Heart Association.

What does your company do to help elevate your employees’ growth? Describe any mentoring programs, outside classes or training, in-house training. How does the company help people develop?

We take pride in nurturing leadership and fostering employee development. We believe that cultivating strong leaders inspires innovation, propelling us forward in the digital transformation of our industry. We have numerous internal mentor and career development opportunities throughout the company including First American’s Women in Leadership, SPARK, and our Emerging Leaders programs. We believe in developing the Leadership for Tomorrow.

Things you are most proud of that don’t have to do with sales.

We have been recognized as one of Fortune’s 100 Best Workplaces for eight consecutive years. We’ve also been named one of the Best Workplaces for Women and one of the Best Workplaces in Financial Services & Insurance. Additionally, First American earned a score of 100 on the Human Rights Campaign Foundation’s 2022 Corporate Equality Index (CEI) for LGBTQ+ workplace equality.

Interesting fact about First American you wouldn’t necessarily know.

First American Data & Analytics takes March Madness very seriously and holds a division-wide tournament each year. Our employees really get into the competitive spirit. Last year, one of our employees placed second by running the data on the teams and brackets against his statistical modeling method. Now that’s using your brains to boost your bottom line.

(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)

 

Negotiating real estate commissions’ perspective

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A recent LendingTree survey found that nearly two-thirds of homebuyers or sellers who asked their real estate agent for a lower commission fee were successful. While just 31 percent of homebuyers or sellers have attempted to negotiate real estate agent commission fees when buying or selling, 64 percent of those who asked successfully reduced theirs. Additionally, 36 percent say they weren’t aware negotiating was an option but would have tried if they were. Overall, 84 percent of Americans believe real estate agents should be flexible with their commission.

Among homebuyers or sellers, 48 percent admit they don’t know what percent commission their agent received in their last transaction. 44 percent of those who do know say their agent received between 3.00 percent to 4.99 percent in their last transaction, while 30 percent say it was 5.00 percent or higher. 64 percent of Americans believe a real estate agent is at least somewhat necessary when buying or selling. However, 44 percent say they would attempt a real estate transaction without an agent. When asked if they think online tools and services have made agents less necessary in transactions, 64 percent agreed. 11 percent of Americans said the buyer should be responsible for the entire commission and 20 percent said the seller. Over a third (35 percent) of homebuyers or sellers say they’ve been asked to pay the other party’s real estate agent fees in a transaction, more commonly the buyer than the seller.

Are you sick of conjecture about the NAR settlement?

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Tough. Some say the proposed NAR settlement, which will have to receive approval, is a total game changer for real estate agents, lenders, and borrowers. Others say the industry will adjust with hardly a blink. We’ll find out… but every lender wants to be a “thought leader” to their real estate agent partners and needs to stay up on the news.

We have the release of the actual text of the National Association of Realtors’® commission litigation settlement that was announced March 15. NAR agreed to settle a series of lawsuits by paying $418 million in damages and eliminating its rules on “cooperative” commissions.  It’s important to note the settlement must still be approved by the court (and the Department of Justice could still weigh in). If approved, which most think is likely, the changes in compensation arrangements and disclosures could go into effect by mid-July 2024.

“The MBA’s staff has reviewed the proposed settlement and prepared this summary that reviews who is covered and who is not, the prescribed changes in real estate agent compensation practices, the potential changes in how buyers, sellers and their respective agents contract and get compensated, and the possible implications for the financing transaction (we will also have a recorded webinar on the topic).  Since buyer agents are the primary referral source for most IMBs, it will be important to monitor and understand the potential implications of this litigation.

“We have discussed the litigation and its potential implications numerous times over the past several months and we continue to believe the impact on the home sales process and the mortgage industry will evolve over time. There will not be a single new way that sellers, buyers, and their agents do business… We anticipate there could many new approaches to the negotiation and payment of buyer agent commissions being tested by market participants. Some may work, some will not. Although some media (and many real estate agents) have characterized the settlement as “forcing home buyers to pay their agent out of pocket,” that is not true. As the attached MBA summary emphasizes:

“Cooperative commission is not banned: listing brokers and sellers can continue to offer compensation for buyer broker services, just not through the MLS. In addition, the settlement does not prevent sellers from offering ‘seller concessions’ through the MLS (e.g., for general buyer closing costs), so long as such concessions are not limited to or conditioned on using the concessions solely to pay the buyer’s broker.

“While these provisions may help preserve aspects of the traditional ‘seller-pay’ model, we still expect the settlement to generate new business models and buyer-seller behaviors that will require the industry to be nimble. As Bob Broeksmit notes in his recent blog post, “the real estate business is home to a lot of smart and innovative people. Inevitably, new business models will emerge. MBA’s role is not to put our finger on the scale and recommend, choose, or advocate for one model over another.”

Instead, “The MBA’s focus will be on a) helping our members adapt to these developments, and b) ensuring that buyers who want/need representation have access to it and can fairly negotiate over how much and who pays for that representation. In turn, our advocacy efforts will seek to ensure that new models do not disrupt the home financing process or make the experience more challenging for buyers and home sellers. Said another way, we will work to ensure that agency and GSE financing guidelines adapt to the changes to maintain homebuyer affordability and ensure lenders do not take on undue risks in the process. The MBA has been in discussions with NAR, the GSEs, FHFA, FHA and VA to identify the likely permutations and the best way forward and welcomes member feedback to help us track and understand how the market is evolving so we can hold market participants (and regulators/agencies, if necessary) to core principles that make sense for sellers, buyers, and lenders.”

Want some acronyms? How ‘bout FHA, FAQ, NAR, and MBA?

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The Federal Housing Administration (FHA) published Frequently Asked Questions (FAQs) that address inquiries received from stakeholders regarding payment of real estate agent commissions related to the recently announced nationwide settlement agreement proposed by the National Association of REALTORS (NAR)… how will the proposed settlement agreement will affect the treatment of seller-paid buyer real estate broker fees in transactions using FHA-insured mortgage financing?

 

“Under existing FHA policy, if sellers continue to pay buyer-side real estate agent commissions and fees as a manner of state and local law or custom, and if the commissions and fees are reasonable in amount, existing policy would not treat those payments as interested party contributions provided all other requirements are met.” Stay tuned…

This week MBA & NAR sent a letter to the FHA, VA, RHS and the GSEs on the need to provide confirmation that seller paid buyer agent commissions do not count toward Interested Party Contribution caps. FHA has responded (see attached), and we await similar guidance from the others. MBA, NAR, and others are also urging VA to expedite regulatory changes to its rule that prohibits Veterans from paying any portion of a brokerage commission when purchasing a home with a VA mortgage. These efforts are the first of what likely will be many to identify other changes that may be needed in agency guides and CFPB rules to address evolving agent compensation arrangements.

“Our groups write to you seeking confirmation at a critical point of change in the housing market, which accounts for nearly 20 percent of US gross national product. The National Association of REALTORS® has entered into a proposed settlement agreement, subject to court approval, in the Burnett et al and Moehrl et al cases. As a result of certain business practice changes in the settlement, we believe it is critically important for the GSEs and FHA to review the settlement and provide guidance to market participants that will ensure these new arrangements will continue to be supported by the Federal Housing Administration (FHA), Freddie Mac and Fannie Mae (the GSEs) underwriting standards.

“Specifically, we seek confirmation regarding the treatment of interested party contributions (IPCs) in your guidelines. IPCs include concessions from the seller to the buyer for items that are traditionally paid for by the buyer such as loan closing costs or rate buy-downs. As you are aware, under current practice, most home sellers pay the listing agent commission, who in turn pays the commission of the agent representing the buyer. Because commissions of buyers’ agents are customarily paid by the listing agent, they are excluded from caps on IPCs established by the GSEs and FHA.

“Under the settlement, cooperative commission is no longer permitted to be displayed on a Multiple Listing Service (MLS), but it is not banned – listing brokers and sellers can continue to offer compensation for buyer broker services, just not through the MLS. In addition, the settlement does not prohibit home sellers from paying buyer agent commissions. Thus, the settlement creates two clear paths for sellers and buyers to negotiate to continue the custom of listing agents or sellers paying buyer agent commissions.

“Consequently, once the settlement is in effect, we believe that FHA and GSE policy should continue to exclude seller or listing agent payment of buyer agents’ commission from IPCs. Confirming your policies and maintaining this practice will sustain the current flow of mortgage capital to home buyers without change or delay.

“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. Home buyers and sellers are dealing with historic stresses, and it is incumbent upon us all to eliminate any confusion. The certainty we seek is needed now to prevent disruptions that may cost homebuyers and sellers money and potentially their home purchases.”

Several centuries ago, the Pope decreed that all the Jews had to convert to Catholicism or leave Italy. There was a huge outcry from the Jewish community, so the Pope offered a deal. He’d have a religious debate with the leader of the Jewish community.

If the Jews won, they could stay in Italy; if the Pope won, they’d have to convert or leave.

The Jewish people met and picked an aged and wise Rabbi to represent them in the debate.

However, as the Rabbi spoke no Italian, and the Pope spoke no Hebrew, they agreed that it would be a “silent” debate.

On the chosen day, the Pope and the Rabbi sat opposite each other

The Pope raised his hand and showed three fingers.

The Rabbi looked back and raised one finger.

Next, the Pope waved his finger around his head. The Rabbi pointed to the ground where he sat.

The Pope brought out a communion wafer and a chalice of wine.

The Rabbi pulled out an apple.

With that, the Pope stood up and declared himself beaten and said that the Rabbi was too clever. The Jews could stay in Italy!

Later the cardinals met with the Pope and asked him what had happened. The Pope replied, “First I held up three fingers to represent the Trinity. He responded by holding up a single finger to remind me there is still only one God common to both our beliefs. Then, I waved my finger around my head to show him that God was all around us. He responded by pointing to the ground to show that God was also right here with us. Finally, I pulled out the wine and wafer to show that God absolves us of all our sins. He pulled out an apple to remind me of the original sin. He bested me at every move and I could not continue!”

Meanwhile, the Jewish community gathered to ask the Rabbi how he had won. “I don’t have a clue!!!” the Rabbi answered. “First, he told me that we had three days to get out of Italy, so I gave him the finger. Then he tells me that the whole country would be cleared of Jews, so I told him that we were staying right here.”

“And then what?” asked a woman.

“Who knows…” replied the Rabbi. “He took out his lunch, so I took out mine!”

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is titled, “Wholesale Channel Overview and Outlook.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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Rob Chrisman