Industry fighting bill that would allow banks to be brokers

Real Estate Weekly, April 4, 2001 by Natalie Keith

The battle lines are being drawn over a proposal in Washington that would allow banks to get into the real estate brokerage and property management business.

The real estate industry is standing firm against the proposal, saying it could jeopardize the "safety and soundness" of the nation's financial system among other reasons. But the banking industry is also lobbying hard for the regulation, saying it would help consumers.

"The industry firmly believes that real estate brokerage is a commercial activity not a financial one," said Steve Cook, a spokesman for the National Association of Realtors.

Eight of the nation's leading real estate trade and professional associations -- which represent more than one million real estate professionals -- sent a letter to Congress opposing the measure. In addition to NAR, organizations that signed the letter are the CCIM Institute, the Institute of Real Estate Management, the International Council of Shopping Centers, the National Affordable Housing Management Association, the National Association of Home Builders, the National Association of Industrial and Office Properties, the National Auctioneers Association and the National Leased Housing Association.

"Property management involves day-to-day involvement with residents and tenants to assure their needs are being met," the letter states. "This type of hands-on customer service is also one of the key elements of successful real estate brokerage."

On the other side of the fence are five banking industry associations, which have sent a letter to Congress supporting the move. The groups are the American Bankers Association, America's Community Bankers, the Consumer Bankers Association, the Independent Community Bankers of America and the Financial Services Roundtable. The groups have criticized NAR's opposition to the move.

"On behalf of the entire banking industry, we ask you to reject this NAR effort to stymie competition in the financial services marketplace," the letter continued.

At the urging of the banking industry, the Federal Reserve Board and U.S. Treasury Department is considering a proposal that would allow bank financial subsidiaries and financial service holding companies to offer real estate brokerage, management and relocation services. The proposal was issued in December and the public has until May 1 to comment on it. Hearings before a subcommittee of the House Financial Services Committee will be held April 5.

Congress has debated the modernization of the nation's banking system for about 20 years. In 1999 the Gramm-Leach-Bliley Act was passed, which allowed the banking industry to offer financial activities such as securities and insurance. The banking industry is using the legislation as a basis for the proposal currently being considered.

"In Gramm-Leach-Bliley, Congress expressly left these decisions to the Federal Reserve and Treasury in recognition of the need to permit financial service holding companies to adjust to changes in technology and the marketplace," the banking industry has stated.

The real estate industry, however, makes the opposite contention.

"This controversial regulation would circumvent congressional intent. Banks are trying to secure by regulation what they could not attain through legislation," said NAR president Richard Mendenhall.

Not surprisingly, the two sides are also clashing whether consumers would benefit from the move. The real estate industry has said the proposal "could result in severe, negative consequences for consumers."

"If the proposal becomes enacted, it is likely to accelerate the consolidation of market power by a few large companies at the expense of smaller banking and financial firms," the industry letter states. "This could result in limited consumer choice and higher prices for homebuyers and rental tenants."

The banking industry, however, said the measure would help consumers because it would make one-stop shopping and more competition possible.

"To buy a home, most consumers must receive approval for a loan, obtain title insurance, obtain property insurance and, in some cases, obtain private mortgage insurance," said Financial Services Roundtable president Steve Bartlett. "Our member companies are integrally involved in every step of the process except brokerage. The agencies should not prohibit this convenience for our customers."