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Good question. I would think so, since you are an interested party. But, what your firm does is really nobody's business, so this could go either way. I'd be curious to know too. :)
I don't do rebates because, frankly, I think it's a gray area. The DOJ says it's okay, but when I read Fannie Mae guidelines, it's not okay. I look terrible in orange and until I get a straight answer, I figure it's best to steer clear. :)
Lender rating
Since January 2009
Thanks Andrew. I did just that. I sent an email because I want it in writing, so we'll see if they respond.
Didn't I just read somewhere about RedFin or something like that? (not popular up in these parts, but they give money back after closing- same as what you are describing.) How do they do it then? There has to be a way, I mean they ADVERTISE what they do- which I think is give back a portion of their commission??? It sounds a little sketchy, but still. If they do it, why not you?
I'd be interested in hearing the response. I have had a few through the years and we didn't allow the borrower to get the cash back and either counted it as part of the seller's concession (not my choice) or made the borrower make a principal reduction on the loan.
If they get back to me, I will definitely post their response. Thanks Jennifer.
Lender rating
Since January 2009
Fannie Mae sent out a memo clarifying what was accptable and what wasn't.
It gets into Interested Party Contributions (IPC). The RE Brokers are certainly IPC's. Fannie Mae clearly states that Concessions outside of the financing concessions should reduce the Sales price by the amount of the concession.
This is when it gets Muddy. They list a bunch of IPC that would reduce the sales price they make no mention of broker rebates (Zip and Redfin come to mind), but they state that ultimately the lender is responsible for identifying if they exist. The fact that they do not identify the RE Broker Rebate is essentially condoning it. But leaving it up to the lenders to police it and if the lenders choose not to allow it. Puts the lenders in a tough spot to tell Realtors that they essentially won't do business with them because the lender interprets the guideline different than the lender down the street.
That's the problem - some people interpret it differently than others. That's why Fannie Mae needs to say yes or no regarding commission rebates. It would clear the air and let the LOs breathe a little easier that they aren't doing something they shouldn't be doing.
It's a simple question; they should clarify it IMO.
Lender rating
Since January 2009
Agreed
I personally spoke with representatives at Fannie Mae and they didn't seem too concerned about cash back commission rebates, inasmuch as they are protected by the USDOJ as a means of price competition amongst real estate brokers. How could any guidelines preclude them?
These rebates should be disclosed to the lender and recorded on the HUD-1. You will have to educate most lenders during the transaction so they understand what a commission rebate really represents.
Lender rating
Since January 2009
Stephen-don't take this the wrong way but I don't see how a realtor paying cash back to a buyer can be viewed as anything but an interested third party contribution. The realtor is involved in the transaction and the rebate is an incentive to close.
JMHO
Boy, I really think it needs to be disclosed on the HUD. The rebate is due to the real estate transaction going through. The lender is loaning money based on acceptable concessions to the borrower based on the transaction. If 6% seller or interested party (which the RE broker is, through the seller) concessions are allowed and the RE Broker gives back 3%, disclose it on the HUD and you are fine, everyone knows about it. If you do it "outside" closing, even if it is not more than the 6%, I think you are asking for trouble. It could be viewed as some sort of kick-back. Bottom line if you are trying to hide the rebate from anyone involved in the deal, someone involved in the deal may have a problem with it..
Lender rating
Since July 2009
Stephen
Just came across this recently. My understanding per two underwriters was that the concession can only be applied to the buyers closing costs with no cash outside of escrow.
Best Regards
We all know this happens every day. I like CW policy about this, we have a form signed in the app package asking about any items like this, and then another one at closing. I haven't run into one for over a year so I don't know what the current stance is but I would say at the very least it should be included as part of the sales concessions number and in my opinion it should be knocked off the sales price....
Hi Andrew - Thank you for the reply; my only response would be that a rebate of commission is construed differently because of the odd mechanics of the transaction. The USDOJ has clearly articulated this in many writings -- including this one to The Honorable John A. Fritchey in Illinois. The Illinois legislature was in the process of banning cash back rebates until they had a better understanding of what a rebate really represents.
I have research this subject extensively and I now have a clear understanding of the issue.
Respectfully,
I agree with Marci, orange does not look good on the complection. I like staying on the conservative side of the fence and unless it is disclosed on the HUD I would have no part in it. My saying has always been I will not do 5 to 15 for no one. Prison is hard on the social life.
I have had several experiences in short sale transactions where both the listing/buyers agent had agreed to reduce their contracted fee to offset/absorb extension fees imposed by the shortsale lender for not closing on time. Would anyone here view that as a rebate? My view is better them then me reducing my fee. Their fault anyway for delivering me a ratified contract with a 15 day commitment to close.
Ken, the difference with your scenario is that does not relate to the borrower. They are not rebating the commission check to him....
How does paying closing costs not benefit the borrower? That's an entirely different animal....
Scenario: The seller is paying $5,000 toward the buyer's closing costs and the buyer's agent is offering a $3,000 rebate. The lender sees all this money and will use it up for their closing costs, upfront fees, discount points, etc... The lender is using the rebate to their advantage and that is not the purpose of a rebate. In this case, the $3,000 rebate would best be used as a rebate check after closing (POC item) -- unless the buyer feels that it is beneficial to buy the interest rate down with that money.
I have also seen agents (hot air ballons) hand borrowers personal checks right outside of closing. When I confronted the agent, they just told me their office wouldnt allow a credit so they were giving it to them outside of close.
FYI-with FHA not allowed. also, rebates from realtors will vary by state. for example, it is not allowed in NJ
Hi Vincent, I called HUD/RESPA (FHA) on this too; they told me that cash rebates are acceptable.
Once again, these rebates represent a reimbursement of an overpayment of fees. Although the seller pays the commission at closing, the buyer bears some of the burden through the sales price; a rebate is therefore a reimbursement.
Zip Reality disclaimer:
"This rebate program is only available where permitted under state and federal law and when not otherwise prohibited by the buyer's lender(s)."
In that case I believe the $5000 in closing costs is a concession and should be applied as such. The whole issue is the rebate. IMO the rebate should never touch the borrower's hands. There are several schools of thought and it can be argued forever. One school of thought is that it could be used as down payment or to be used as part of their closing costs and the other (typically the old school underwriters) say that the sales price should be reduced by the amount of the rebate. I have spoken to several originators that think the rebate is fine to go right to be borrower.
I'm with the old school underwriters...keeps me out of trouble...
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RE Broker Cash Rebates at Closing
Marci Reinheimer, "MarciR"
Real Estate Agent
Contributions: 1950
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I'd like a mortgage broker's take on Fannie Mae guidelines since I don't do loans. I take cash at closing is cash at closing and not disclosing it is a huge no-no.
Does a buyer have to disclose to the lender if I am giving a commission rebate (cash) at closing?
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