Buyer-Broker Commissions

In connection with its guaranteed home loan program, the Department of Veterans Affairs (VA) recently adopted a temporary local variance allowing veterans to pay the commission of the real estate broker or agent assisting them (a “buyer-broker”). VA also recently urged servicers to implement a targeted foreclosure moratorium through year end, which would extend, with modifications, a previously announced moratorium.

Based on recent settlements involving how listing real estate brokers or agents may offer to split their commission with the buyer-broker, there was concern in the mortgage industry that this may result in buyers having to regularly pay the buyer-broker’s commission, contrary to the common current practice of the seller paying an amount that compensates both their broker and the buyer-broker. One concern centered on the VA guaranteed home loan program, which imposes significant limitations on what fees may be paid by the veteran. Recently, VA addressed that concern in Circular 26-24-14 by announcing a temporary local variance that will allow veterans to pay for certain buyer-broker charges.

VA advises that the local variance allows veterans to pay reasonable and customary amounts for any buyer-broker charges (including commissions and any other broker-related fees), subject to the following:

• The home the veteran is purchasing is an area where listing brokers are prohibited from setting buyer-broker compensation through multiple listing postings, or buyer-broker compensation cannot be established by or flow through the listing broker.
• Buyer-broker charges are not included in the loan amount.
• Buyer-broker charges paid or to be paid by the veteran must be considered in determining whether the veteran has sufficient liquid assets to close the loan.

While an invoice is not required to support the buyer-broker charge, the total amount paid by the veteran is to be disclosed in lines 1 through 3 of section H (“Other”) on the Closing Disclosure. Lenders will need to be mindful of the TILA/RESPA Integrated Disclosure (TRID) rule requirement to disclose charges for which there is no dedicated line in alphabetical order.

VA advises that it considers the buyer-broker representation agreement to be part of the sales contract package. As a result, VA expects lenders to upload the agreement as part of the package lenders use when requesting an appraisal. VA also expects lenders to retain the agreement in the loan file

VA notes that the temporary variance does not prevent the seller of the home from paying for the veteran’s buyer-broker charges. VA also reminds lenders that it does not treat the seller’s payment of buyer-broker charges as a seller concession.

VA advises that it “will develop a more permanent policy, through a new notice-and-comment rulemaking, as the real estate brokerage market restabilizes and new practices take hold.”

Foreclosure Moratorium

As previously reported, late last year VA issued Circular 26-23-25 announcing that it “is strongly encouraging a foreclosure moratorium on all VA-guaranteed loans through May 31, 2024.” Additionally, VA urged “servicers to cease initiating, continuing, and/or completing foreclosures on all VA-guaranteed loans during this moratorium.” One reason for the request was that VA was developing a VA Servicing Purchase (VASP) program as an option for borrowers who cannot be assisted through other home retention options, and the moratorium would provide time for the program to be developed and then implemented. We previously reported on the launch of the VASP program, as well as other VA loss mitigation efforts. Servicers were able to implement the VASP program beginning May 31, 2024, and VA expects servicers to fully implement the program not later than October 1, 2024.

In Circular 26-24-12, VA announced that it “strongly encourages servicers to implement, through December 31, 2024, a targeted foreclosure moratorium.” Pursuant to the targeted moratorium, servicers are to cease initiating, continuing, and/or completing foreclosures on VA-guaranteed loans unless one or more of the following exceptions apply:

• The loan is secured by property that is vacant or abandoned.
• The servicer has documented that the borrower desires neither to retain homeownership nor avoid foreclosure.
• The servicer has not received a monthly payment for at least 210 days, and the borrower is not responding to the servicer’s outreach attempts.
• The servicer has evaluated the borrower for all home retention options but has determined that no home retention option, including the VASP program, or alternative to foreclosure will work for the borrower.

For loans covered under the targeted moratorium, servicers are expected to continue loss mitigation efforts and offer reasonable solutions to resolve the delinquency. Additionally, VA states that “[i]n order to avoid damaging the credit records of Veterans, servicers are encouraged to avoid negative credit reporting, where permissible under applicable law, on affected loans.”

VA advises that for borrowers affected by COVID-19, servicers should offer Loan Deferments, Disaster Extend Modifications, and COVID-19 Refund Modifications, as described in Circulars 26-24-2 and 26-24-3. VA also advises that these options may be offered to a borrower, without regard to the respective Circular’s rescission date, until the servicer is able to implement the VASP program or through September 30, 2024, whichever is sooner.

VA also provides the following warning to servicers:

“Before loan termination, VA reviews the loan to help ensure that the borrower has received a reasonable opportunity to retain home ownership and avoid foreclosure. If VA identifies a servicer that is not properly servicing loans, the servicer may be subject to special audit and potential enforcement action(s). Therefore, VA reminds servicers to continue following VA’s updated guidance and instructions on how to best utilize available home retention options, including COVID-19 home retention options and VASP, as outlined in Circulars and the VA Servicer Handbook M26-4. VA also reminds servicers to consider other options in consultation with VA including for example, extended repayment plans (i.e., 9-months or longer) and COVID-19 Refund Modifications that achieve less than a 10% reduction in principal and interest payments.”

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