Thursday, February 2, 2012

Fannie Mae 5% Fee Limits and Real Estate Agent’s Commission

On rare occasions, borrowers might want to pay their real estate agent’s commission in connection with the closing of a mortgage loan. Hence, the question arises—does the fee paid to the real estate agent count against the 5% fee limitation as set forth by Fannie Mae?

First of all, let’s review what the Fannie Mae 5% fee limit is about. In Fannie Mae’s 2012 Selling Guide, B2-1.4-02, it is stated that:

Fannie Mae will not purchase or securitize mortgages if the total points and fees charged to the borrower exceeds [sic] the greater of 5% of the mortgage amount or $1,000 regardless of the party paying the fee.

Points and fees counted against this limitation include:

· Origination fees,

· Underwriting fees,

· Broker fees,

· Finder’s fees,

· Charges imposed by lenders as a condition of making the loan whether they are paid to the lender or a third party [emphasis added]

Points and fees that do not have to be counted against this limitation include:

· Fees paid for actual services rendered in connection with the origination of the mortgage, such as attorneys’ fees, notary’s fees, and fees paid for property appraisals, credit reports, surveys, title examinations and extracts, flood and tax certifications, and home inspections [emphasis added];

· The cost of mortgage insurance;

· The costs of title, hazard, and flood insurance policies;

· State and local transfer taxes or fees;

· Escrow deposits for the future payment of taxes and insurance premiums.

Bona fide discount points […]

In effect, the Selling Guide has specifically stated the fees included and those excluded in determining the 5% limitation. Therefore, whether a particular fee should count against the 5% limitation depends on whether it is included in the definition of “points and fees” as defined in the Selling Guide.

With respect to real estate agent’s commission, this fee is not identified in B2-1.4-02 of the Selling Guide, nor in Fannie Mae’s subsequent clarifications. However, the language in the Selling Guide is instructive in deciding whether restate estate agent’s commission should count against the 5% limitation. As highlighted above, points and fees to count towards the 5% include “charges imposed by lenders as a condition of making the loan […]”. Generally speaking, paying a real estate a commission regarding the real property in question is not a condition of making a mortgage loan; rather, it is a fee that a property buyer would have to pay even in a cash transaction. Therefore, this fee should not count against the 5% limitation, regardless of who pays it.