How Mortgage Companies Will Embrace Dual Compensation
The National Association of Realtors (NAR) legal settlement, which requires the association to abolish the rule mandating seller-side agents make an offer of compensation to buyer brokers, goes into effect on August 17. While the ramifications of this have broad implications for America’s housing and mortgage industry, one significant change will be the number of loan officers (LOs) who will also become licensed real estate agents.
This concept of having LOs who are also real estate agents, also known as dual compensation, is now a concept gaining momentum across the industry. In 2022, the Federal Housing Agency (FHA) sent out a mortgagee letter which changed its conflict-of-interest rule. The update now permits loan originators to have dual employment, including working as a real estate sales agent. The letter also states that “[p]articipants that have a direct impact on the mortgage approval decision” are prohibited from having multiple roles or sources of compensation. This includes underwriters, appraisers, inspectors and engineers.
The primary change of the settlement is that seller agents are no longer required to offer compensation for buyer agents. Additionally, NAR and affiliates will no longer be able to display information about agent compensation on the multiple listing services (MLSs) they own. While some have speculated that this will prevent NAR and affiliates from making compensation through mechanisms outside the MLS, there will be opportunities for sellers to offer buyer credits or voluntary buyer agent compensation when clearly outlined in buyer agency agreements.
The entirety of the implications of the NAR settlement remain largely unknown – there will be changes to long-standing practices and likely confusion for home buyers who may be forced to make substantial cash payments to their agent at closing if their seller does not agree to finance. Moreover, buyer agents will no longer be compensated in a uniform manner and other players, such as law firms, may become involved in the loan origination process to capitalize on these uncertainties.
What is certain is a complete transformation of the buyer-broker relationship. In response to this transformation, some mortgage lenders are preparing their businesses to become one-stop-shops in the home buying experience by offering a dual compensation model. This model offers transparency to the borrower and creates an overall seamless process for borrowers who chose to work with one person as both their realtor and their loan officer. This model is attractive to Companies and LOs as it can build loyalty between the lender and real estate agent. The model may also be attractive in lieu of other more costly relationships such as desk rentals or marketing service agreements. The model can be beneficial for a real estate agent or broker who does a smaller volume of business or their business is largely buyer representation allowing them to earn more while creating a holistic process for their buyer.
Atlantic Bay Mortgage Group has been proactive in implementing our new Home Loan Advisor (HLA) Realtor Program which embraces the dual compensation model. Under our HLA Program, part-time licensed mortgage loan originators are employed by Atlantic Bay while simultaneously remaining employed as a full-time realtor or broker. HLA employees work as part of the Sales team and are tasked with sourcing the borrower’s purchase business, taking the
initial loan application, and serving as a resource to the borrower through their home loan journey by helping gather and submit loan origination items to ensure a timely close of the loan. At their core, HLAs work one-on-one with borrowers to assist them through the often-confusing home loan process.
This new way of doing business in the housing industry is sure to promote transparency and competition. For buyers, this increased transparency will come primarily from their LO who will have the opportunity to leverage their vast expertise and set their buyers up for success. It will be more important than ever for mortgage companies to promote a clear brand identity and reputation. For companies that have been doing this for some time, the NAR settlement presents an opportunity to leverage this commitment.
Additionally, with real estate commissions decreasing, the additional, and often costly, fees associated with buying and selling homes will decrease. The negotiation of the roughly 6% fee, typically paid by the seller and baked into the list price, could have a big impact for consumers, especially first-time borrowers.
In the coming months, as the new reality from the NAR settlement begins to emerge, mortgage companies will evolve with the times as they always do. How they embrace this new opportunity could make a significant difference in their future success.
Amanda Tucker, CRCM, CAMS, CICA is Chief Risk and Compliance Officer at Atlantic Bay Mortgage Group.