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FHFA Asked to Provide Direction Amidst Commission Lawsuit Chaos
In a surprising turn of events, the real estate and mortgage industries are now seeking guidance from the Federal Housing Finance Agency (FHFA) in the wake of a recent commission lawsuit settlement. The National Association of Realtors (NAR) and the Mortgage Bankers Association (MBA) have jointly reached out to the FHFA, asking for clarification on how to proceed with interested party contributions (IPCs) in home purchase transactions.
The request comes after lawyers, who are not part of the real estate industry, successfully sued the industry for a significant amount of money. As a result, the industry has been left in a state of confusion, with the NAR and MBA turning to the FHFA, which oversees Fannie Mae and Freddie Mac, for guidance on how to move forward.
The issue at hand is that the real estate industry’s policies were built on the assumption that their practices were legal. However, the federal government, which is also a part of the industry, allowed lawyers outside of the industry to successfully sue them. Now, the industry must deal with the unintended consequences of these lawsuits.
In a letter addressed to FHFA director Sandra Thompson, Fannie Mae CEO Priscilla Almodovar, Freddie Mac CEO Michael DeVito, and Federal Housing Administration (FHA) commissioner Julia Gordon, the NAR and MBA emphasized the importance of reviewing the NAR’s commission lawsuit settlement agreement. They requested that federal officials provide guidance to ensure that these new arrangements will continue to be supported by FHA and GSE underwriting standards.
The entire mortgage industry has been asked to change its rules due to the actions of lawyers against the real estate industry. This highlights the interconnectedness of the two industries, as the rules governing mortgage lending are designed around the real estate industry’s practices, which have long been considered sound and legal.
The situation becomes even more complex when considering FHA and VA loans, which are designed to protect the rights of under-served communities. These loans limit or omit commission participation because the FHA, Fannie Mae, Freddie Mac, and the FHFA have put protections in place for under-served and minority communities, following the real estate industry’s lead of having the seller pay the commissions.
Ironically, these lawsuits do not extend to the government agencies involved, despite their role in facilitating these commissions through their guideline requirements on FHA and VA loans. As a result, under-served communities and veterans may find themselves without the legal representation they were meant to be protected by.
The Department of Justice (DOJ), another government agency, is looking into the matter. However, their position appears to be one of creating an illogical round-robin game of blind Keystone Cops, highlighting the complexities and inconsistencies within the real estate and lending industries.
As the real estate and mortgage industries navigate this new landscape, it remains to be seen how the FHFA and other government agencies will respond to the request for guidance. The unintended consequences of these lawsuits have left the industry in a state of uncertainty, and it will likely take time and collaboration between all parties involved to find a resolution that protects the interests of consumers, under-served communities, and the industry as a whole.
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