THE FED CAPPED MORTGAGE COMMISSIONS IN 2010
In 2010, the Fed was desperately trying to blame the entire 2008 mortgage meltdown on mortgage brokers and loan officers – as opposed to the Fed itself (way too loose of a monetary policy) and Congress (affordable housing laws; Fannie Mae, etc.).
As a result, the Fed imposed Loan Officer Compensation rules that capped every loan officer’s comp for every loan they originated and closed.
Every one of us had to formally declare our compensation level, e.g. 1% of the loan amount, and we could never make more OR LESS than that on any loan.
The CFPB formalized it a few years later and we are still stuck with it today.
It proved to be enormously cumbersome for the entire industry and I doubt that it ever saved consumers any money because it is so cumbersome and rigid.
Interestingly, big commercial banks were exempt from this rule, as they had much more lobbying influence than independent loan officers and mortgage banks had at the time.
JUSTICE DEPARTMENT GOES AFTER NAR
This recent WSJ article discusses the Justice Department’s case against the National Association of Realtors (NAR) and other related associations.
Even though average commissions have fallen from 5.4% in 2012 to about 4.9% now, consumer advocates claim that buyers are still paying too much for homes because of the “opaque” commission structures imposed by NAR and other trade groups.
If the Justice Department succeeds in its efforts to reign in NAR, I suspect the effect on consumers will be similar to the effect that the Loan Officer rules had – about zero.
I would also like to say to agents everywhere – welcome to our world.
WHY NOW?
The question is why is the Justice Department going after NAR now – when NAR has been so successful at fending off threats for decades?
Consumer advocates claim it is rising home prices that are making this necessary, as high commissions are exacerbating affordability issues.
But, I think the answer is money, as NAR is no longer the big dog in the lobbying world.
The real estate lobby has always been one of the most powerful forces in American Government, and that is why we all enjoy so many favorable tax laws (lifetime capital gains exclusion, home interest deduction, special depreciation rules, etc.) and government-sanctioned real estate financing entities such as Fannie Mae, Freddie Mac and FHA.
Because, after all, what is good for real estate is good for the USA, right?
Well – not anymore. Big Tech has come to town.
According to this New Statesman article titled, Army of Big Tech Lobbyists Targeting Capitol Hill, tech firms of various sorts spent $436 million on lobbying in 2020, in contrast to only $84 million by NAR.
And perhaps more significantly, the tech firms can influence information flows that can help get politicians elected in a way that NAR can only dream of.
And, most important of all, many tech firms want access to that huge pool of real estate commissions for their own forays into residential real estate – separate from traditional brokerage opportunities.
WHAT HAPPENS NOW?
I have no clue what will actually happen, but I can speculate that in about 5 years overall commissions structures will be about the same whether the government is successful with its efforts or not.
This is because the tech world and other competitive pressures are already pushing down commissions and that pressure will only get worse once we see a serious slowdown in real estate sales (something we have not seen for a decade or more).
The only people who will actually benefit from this effort by the justice department are probably the lobbyists and politicians.
It is, however, comforting to know that some things never change.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
