3 Ways the NAR Settlement Will Impact Mortgage Lenders
The recent National Association of Realtors (NAR) settlement, requiring $480 million to be paid and changing rules that impact home buying and selling, has sparked discussions about the future of real estate transactions. How will this landmark decision impact the mortgage industry and the way lenders connect with and serve borrowers?
In the latest episode of the Clear to Close podcast, hosts Alan, Bryan, and Anthony delved into the NAR ruling to unpack its possible repercussions. They discussed how coming changes will impact home buyer expectations, the way real estate is transacted, and the market in general. Here are three major ways they believe the settlement will affect lenders and the mortgage industry.
1. Housing supply and demand will be influenced by new forces.
When it comes to supply and demand in the housing market, lenders will likely notice impacts after the new rules are enacted in July. Since sellers stand to make more gains in the transaction, supply could potentially increase in the market.
Meanwhile, buyers will have to negotiate fees, somewhere between 1% to 3%, depending on how much they want the agent to do. At least for first-time home buyers, this new dynamic could result in a slight drop in demand because of the added expense coming out of the buyer’s pocket.
“Still,” points out Bryan Traeger, “In most transactions, the seller also becomes the buyer. Meaning, if you’re selling your house, you’re probably buying a house—which only makes supply even better and more transactions happening because of the lower cost to transact on both sides.”
2. Loan officers will take on a bigger role in supporting home buyers.
The NAR settlement will bring a fundamental shift in the way real estate transactions are conducted. With increased transparency in borrower/agent agreements and the fee structures imposed in those agreements, home buyers may be emboldened to leverage agents in more limited capacities. This shift could lead to borrowers choosing specific components of services they require, causing a major evolution in the role of real estate agents—and in turn, loan officers.
“The mortgage industry, as we know very well, is a relationship business,” says Bryan. “When you remove the relationship aspect of the buyer’s agent, and if you create a component-centric system, that changes the relationships of the entire ecosystem of mortgage. Does the LO become the quarterback? I think the LO is going to have a higher importance, and I think that borrowers are going to need to be pre-approved well before they go and talk to an agent.”
Plus, as borrowers—especially those without home-buying experience—acclimate to the new rules, they’ll need additional support and partnership to feel confident in the process. Who better than the loan officer to offer that assistance?
“Loan officers should start coaching borrowers earlier in the transaction,” advises Anthony. “And I think they should be more consultative, with strong knowledge about loan products. For example, many first-time home buyers don’t take advantage of helpful programs. Moving forward, loan officers will have great opportunity to step up and leverage their expertise to help these folks.”
3. Creating brand recognition will become more important for lenders.
Traditionally, real estate agents have been borrowers’ first point of contact and have served as gatekeepers for home buyer business. If their work for buyers becomes more component-based, though, the nature of the borrower/agent relationship will vastly change.
“If home buyers are simply getting component work done from a Realtor—meaning, they might be doing viewings themselves, and they’re not having that early conversation of pre-approval with an agent—that person’s likely to turn to lending brands they know or that they find in online searches to get pre-approved rather than using that agent referral,” explains Alan. “And so, how well someone knows you in your local market, the relationship they have with your bank or credit union, may become more important to the mortgage business you’re driving.”
In other words, the ruling could lead to changes in the relationship between real estate agents and mortgage lenders, along with shifts in how leads are generated and managed and changes in the overall flow of the home buying process. While the full extent of these changes remains to be seen, it’s clear that the industry is poised for transformation as it adapts to new regulations and consumer demands.
Want to learn more about possible ramifications of the NAR ruling? Click here to listen to the full Clear to Close podcast episode.
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