How the NAR Settlement is Reshaping Lending Practices

Weekly Mortgage Update 05/06/24

Author

Michael Cassano
May 06, 2024

Hello everyone! Hope you enjoyed your weekend. It was quite eventful with a photo finish at the Kentucky Derby, Cinco de Mayo celebrations on a Sunday, and a tough loss for our Vegas Golden Knights in Game 7 last night. Meanwhile, last week was packed with significant updates impacting the housing and mortgage markets. Let’s jump into the details!

Read time: ~3 minutes

Rates ended DOWN compared to last week, and volatility was HIGH. Rates remain in the low-to-mid 7 range for most loan types without paying discount points. Paying discount points can get you in low 7’s.

Stable U.S. Job Market👌

The U.S. job market remained robust last week, although we saw some signs of cooling following strong performance earlier this year.

JOLTS Report on Wednesday - Job openings decreased by 325,000 to 8.488 million, marking the lowest since February 2021. Additionally, the quit rate has slowed, indicating that more people are choosing to stay put in their current roles rather than resigning—a shift from the Great Resignation trend.

ADP Report on Wednesday - The economy added 192,000 private jobs in April, a slight decrease from 208,000 in March, with expectations set at 183,000.

BLS Jobs Report on Friday - The report showed 175,000 jobs added, below the expected 240,000, with unemployment rising slightly to 3.9%.

While some may view these figures as weak, the reality is that adding 175,000 jobs and maintaining an unemployment rate under 4% is still solid. The three-month moving average has been relatively stable since October 2022, illustrating that one month's data isn’t the whole story.

Key Takeaway: Mortgage rates improved last Friday following the jobs report, which fell short of expectations. The futures market has also adjusted to more solidly anticipate two rate cuts by the end of 2024. However, my team and I remain skeptical of any rate cuts this year, believing that only consistent and significant dips in labor market performance could sway the Fed to make a move.

Powell Maintains Rates, Focuses on Inflation

As anticipated, Federal Reserve Chairman Jerome Powell held interest rates steady last Wednesday. The press conference that followed was the focal point, where Powell acknowledged the recent uptick in inflation. He stressed the need for more significant data pointing towards a stable trend around their 2% inflation target before making any rate changes. He reassured that any future adjustment would likely be a cut rather than a hike, which was positively received.

Powell also addressed whether the upcoming election might influence rate decisions, clarifying that his decisions are data-driven, aimed at preventing recession, controlling inflation, and keeping unemployment low, rather than being swayed by political considerations.

Implications of the NAR Settlement on Lending

The NAR Settlement is set to reshape the real estate landscape, but its impact extends to mortgage lending as well. Sellers can still cover buyer’s agent commissions, and these payments do not count towards the Interested Party Contributions (IPCs). While we’ve seen a slight decline in seller contributions, the importance of strong offers remains unchanged.

For us loan officers, this means we need more detailed communication with agents. I now require buyer/agent agreements for all clients and detailed information on what sellers are offering towards IPCs and agent commissions for each property of interest. This ensures I can provide the most accurate financial breakdowns and strong pre-approval letters.

Just recently, a colleague of mine encountered a situation where a client was interested in a property, but there was a discrepancy in the commission. The seller was offering only 2.5% commission to the buyer's agent, whereas the buyer’s agent agreement specified a 3.0% commission. This discrepancy meant the client would have to cover the additional 0.5%, which increased their out-of-pocket expenses by a few thousand dollars. Given that this amount is significant, especially for first-time homebuyers who are often tight on funds, they had to switch strategies and apply for down payment assistance to make the financials work.

Agents should obtain property-specific pre-approvals from lenders right away to avoid any shortfalls in funding at closing.

Key Takeaway: While the full effects of the NAR settlement are still unfolding with the July implementation deadline looming, it’s clear that this will significantly influence how agents and lenders collaborate. In this new environment, the most successful professionals will be those who enhance their communication and cooperation.

Two Ways My Team Can Help!

  1. Let’s collaborate – schedule a zoom meeting

  2. Tough deal? Let us know if we can help!

Please don’t hesitate to reach out if you need anything at all. Hope you all have a wonderful week!