I attended the Legal Counsel Seminar at the National Association of REALTORS® convention in Orlando in November. One of the speakers there was Marcel Bryar, deputy general counsel and vice president at Fannie Mae. He spoke about Fannie Mae’s efforts to prevent foreclosures, handle short sales better, and handle foreclosures better. One thing he mentioned was that Fannie Mae is approaching MLSs to obtain listing data from them.
MLS data is my life, so his comments naturally piqued my interest. Here is what I think he was saying, and some thoughts about how MLSs should consider it. (I cannot promise what I say here accurately captures what he said, but you can follow up with him if you want to be sure.)
Clearly, Fannie is struggling to deal with a vast number of troubled loans, especially on the following questions: Should it approve a short sale? How should it price an REO? What kind of workout should it offer a distressed owner? The only way to make these decisions confidently is to have high-quality valuation advice. Fannie regularly seeks valuation advice in the form of appraisals and broker price opinions (BPOs).
But Fannie wants MLS data in order to support systems on its end that analyze and confirm that valuations it’s getting from brokers and appraisers are in the right ball-park. It also wants to use the data for financial modeling, i.e., to make and test projections about what is and will be happening to real estate markets in coming months. It’s asking MLSs to license data to it. Mr. Bryar even shared a proposed contract for the licensing. I expect that Fannie prefers MLS data to merely using public records data for two reasons: (1) MLS data has a lot more rich feature data in it than tax records usually do; and (2) MLS sales reporting is faster than public record sales reporting. (And in some states, there is no public record sales reporting.)
It makes immense sense for Fannie to want to use the best data there is about housing market activity to confirm valuations and to plan its business activities. Does it make sense for MLSs to help? I think there are pros and cons, and if an MLS does work with Fannie, I’d suggest modifying Fannie’s contract to protect broker and MLS interests better.
First, the pros. I think a lack of checks and balances on the professionals in real estate transactions is part of the reason we are here. There’s plenty of blame to go around for the housing bust, but it did not help that Fannie and others had no independent way of checking the valuations on which it relied in a fast-moving market. Providing a tool for it to do so going forward might be (1) civic-minded, in that it might increase Fannie’s chance of success and survival without increasing the taxpayer’s bill for on-going bailouts; (2) smart for the brokerage community, in that it should generally result in Fannie giving more credence to properly prepared BPOs and appraisals; and (3) good for the MLSs, who may be able to call on Fannie for assistance in return down the road. In theory, I think Fannie’s strongest argument is that anything MLS can do to help liquidity return to the real estate market is good for MLS’s broker participants.
On the other hand, MLSs providing data to Fannie have to consider some potential downsides:
1. As a broker, would you want Fannie to tell you it disagrees with your BPO based on its calculations on data from your MLS?
2. How do we know whether Fannie will use the data in ways that actually deliver positive results to the market?
3. Do you trust Fannie Mae to use data only in the ways permitted?
4. Are there any potential unintended consequences here?
It seems to me that reasonable MLSs could decide either way.
But if an MLS does sign with Fannie Mae, I’d suggest revisions to a number of the provisions in Fannie’s proposed contract:
1. Limiting the scope of the license.
2. Stating use limitations more explicitly.
3. Cleaning up a couple problems in the “confidentiality” provisions.
4. Having it be terminable at will (with maybe a 60-day out).
5. Kicking out the clause where MLS indemnifies Fannie (as MLSs don’t create their own data, they really are not in a good position to warrant it against claims of infringement).
6. Changing the limitations on liability (which are mutual, but in the context of this type of transaction, they favor Fannie).
In fairness, I think Mr. Bryar said that Fannie would consider modifications to its agreement or using MLS’s standard license agreement, if it has one.
One other note: NAR policy says that your MLS cannot transmit your listings to anyone for a non-core use without listing broker permission. I wonder whether NAR would consider this a core use of MLS data. If not, the MLS probably has to give brokers notice that it’s sending their listings to Fannie Mae and give them the opportunity to opt out of that transmission. If many brokers were to opt out, it would affect Fannie Mae’s ability to rely on statistical algorithms run against the data it does get.
If your MLS is interested in discussing the matter, you can reach Mr. Bryar at [email protected].
What do you think? Should MLSs provide data to Fannie Mae? Why or why not?