Two profitable industries enriched by the housing boom -- banking and real estate -- went head to head on Capitol Hill yesterday, quarreling over how best to split the pie.
The National Association of Realtors and the American Bankers Association clashed over whether banks should be permitted to enter the real estate business, allowing them to expand from providing mortgages to actually conducting the transactions themselves. That would give them a shot at a share of the coveted 6 percent sales commissions many traditional real estate agents receive.
"No business should be immune from competition," Betsy Duke, executive vice president of Wachovia Bank and chairman of the bankers' group, said in testimony before the House Financial Services Committee. Permitting banks to get into real estate brokerage business would "invigorate" the business, she said, and give consumers "new choices and products at competitive prices."
Al Mansell, president of the National Association of Realtors, said the real estate business is already competitive and scoffed at Duke's claims that bankers would better protect consumers than real estate brokers. Mansell said that bankers are endangering consumers with risky new mortgage products, such as interest-only loans, as well as those with adjustable rates, prepayment penalties, balloon payments and high interest rates. Last week, Federal Reserve Chairman Alan Greenspan said these "exotic forms" of mortgages were raising "particular concern" for consumers and lenders.
"All the firewalls in the world won't cool off the zeal of the money-center lenders trying to sell their most profitable loans to people who should not be taking such risks," said Mansell, chief executive of Coldwell Banker Residential Brokerage in Salt Lake City. "If lenders were to become real estate brokers, nothing would stand in their way."
The debate unfolded at a hearing over a measure proposed last month by Reps. Michael G. Oxley (R-Ohio), committee chairman, and Barney Frank (D-Mass.) that would permit bank affiliates to enter the real estate business. A competing bill authored by Reps. Paul E. Kanjorski (D-Pa.) and Ken Calvert (R-Calif.), which would bar bank affiliates from entering the real estate brokerage business, has 240 co-sponsors.
At issue is 1999 federal legislation that permitted banks to enter the insurance and securities businesses, industries that had been generally off limits. Banks also wanted to enter real estate, but legislators punted the decision to federal banking regulators. About a year later, regulators announced a proposed rule that would allow banks to enter real estate brokerage and management -- and were deluged with 50,000 comments criticizing the idea, almost all from real estate agents. Each year since, the real estate industry has gotten the appropriation for the proposal blocked, so there has been no money to implement it.
At the hearing, Oxley said he had written his legislation partly out of ire over the use of the appropriations process to block regulatory action. He also noted that federal antitrust regulators have questioned other efforts taken by real estate groups to block online competition.
Duke, of the banking association, said that if banks were permitted to enter the real estate brokerage business, state laws would still protect consumers.
Mansell countered that bankers have managed to get around state consumer-protection laws, particularly laws limiting predatory lending, by getting federal regulators to issue a blanket exemption from state law for nationally chartered banks, which includes most of the nation's largest banks.
"You've got a pretty lopsided regulator," Mansell said. "You could raise the question of whether it is a regulator or a permitter."
Rep. Melvin Watt (D-N.C.) also urged the two sides to work together, noting that the debate was "exposing their own vulnerabilities."
He said, "It's hard for banks to say they will be regulated by state laws when federal regulators have preempted banks from regulating on the state level." And, he said, "it's hard for Realtors to say . . . with a straight face" that they support competition when they are also having "issues" in opposing online real estate competition.