DANIEL J. FORTE
‘Protectionist’ Realtors

Banking associations say the recent onslaught of a campaign by Realtors to keep them out of the brokerage industry is nonsensical, but they are, nevertheless, outfitted for a fight.

A national campaign to counter Realtor efforts by the American Bankers Association has trickled down to the local Massachusetts Bankers Association, which, in turn, has mounted its own campaign to get its members to lobby their congressmen.

The Community Choice in Real Estate Act would prevent banks from entering the real estate brokerage industry. According to banking lobbyists, the bill, backed by many real estate lobbying groups, was filed to counter the recent request for comment issued by the U.S. Treasury Department and Federal Reserve Board that proposed to extend permissible activities of financial institutions to the real estate industry.

Since then, groups such as the National Association of Realtors have spent millions of dollars on a campaign to garner support for their bill.

“The Realtors have pursued a very protectionist lobbying strategy, first from a regulatory perspective when they tried to lobby the Fed and the Treasury from moving forward on this, and when that didn’t seem to be working I think they elevated their sights [toward legislation],” said Daniel J. Forte, president of the MBA.

Forte and other banking representatives said that while the issue isn’t their foremost concern, it deserves attention because it seems to be the top item on the agenda for groups like NAR.

“They went as far, in the height of the post-Sept. 11 tragedy, [as] sending thousands of e-mails to the president as if this were a national emergency that had to [be] stopped,” he said.

As a result, the MBA and its members are trying to counter some of the arguments put forth by the real estate industry. The goal, however, is not simply to defeat the Community Choice in Real Estate Act.

“This is not banking vs. real estate, this is the advancement of the financial services industry,” said Forte.

While banking associations say they present a united front, they are quick to point out fissures in realty member organizations.

Banking associations seem to be taking their cue from the ABA. According to Fritz M. Elmendorf of the Consumer Bankers Association, his group has not launched its own campaign but worked to support the substantial efforts of the ABA.

Although there’s been quite a “hubbub” created by the lobbying efforts by NAR, ABA spokeswoman Charlotte Birch said that her association originally focused national attention on the issue. An ABA sent a letter to the Federal Reserve and the Treasury Department asking for a decision about whether real estate brokerage and management would be permissible business activities for banks under the Gramm-Leach-Bliley Financial Modernization Act began the debate, she said.

“Again, this is legislation to pre-empt regulation,” said Birch of the bill. Forte said the legislation is an attempt by the Realtors to stop a process created by the passage of GLB. That act gave the Treasury and the Fed the ability to determine whether an industry is within reasonable boundaries of the financial services industry. The very reason for that process was a recognition of the ever-changing financial landscape and that legislation can’t reflect those changes as readily as regulation.

“If the brokers can be in the lending business, why shouldn’t banks that do lending also have the ability to do one-stop shopping and be in the brokerage business,” said Forte. He added that if the bill goes forward, it would only make sense for the banking industry to attach amendments to the bill that would disallow brokerages from being in the lending industry.

‘Important’ Option

But Birch said the bill is not far enough along yet to say definitively whether that will happen.

As of Banker & Tradesman’s press deadline on Friday, the U.S. House of Representatives had 183 supporters for the bill and the Senate had eight supporters, according to Birch. However, she said it is doubtful there will be much movement on either the bill or the regulatory measure by the Treasury and Fed anytime soon. When the regulators will act is “anybody’s guess,” she said. As for Congress, the climate isn’t “conducive to quick action,” especially considering it is an election year, a time when politicians traditionally act cautiously, and time is running short for passage of budget bills and authorization bills, she said.

Ironically, though the regulatory and legislative fight is generating hundreds of thousands of letters to congressmen, more than two dozen states already allow banks to enter into the real estate brokerage business, including Massachusetts. But according to MBA spokesman Bruce Spitzer, none of its 230 member banks do so.

Forte and other banking representatives are quick to refute the most touted arguments in favor of the Community Choice bill. At the forefront of the argument is that large, powerful banks will “gobble up” small brokerages quickly. But in a July speech to a group of real estate professionals, ABA President James E. Smith advised them to not believe the hype. He said that bankers would much rather form joint ventures than start real estate brokerages de novo. Smith conceded the possibility that in some cases banks would purchase real estate firms but added, “We’re even, in some cases, going to see our banks bought by [real estate firms].”

Forte and others said that banks’ entrance into this new market will be measured and will absolutely not result in the death of “mom-and-pop” real estate firms.

The financial services industry encountered the same arguments when it wanted to enter the insurance business, and Forte said the results would be the same. Yes, banks have entered into the insurance business but most haven’t started new, competing firms. Instead they’ve partnered with or purchased existing companies, and done so gradually.

“I think the Realtors are making a mountain out of a molehill to say that every bank in the country is going to offer real estate brokerage services,” said Forte.

Birch said offering real estate services may become an important ability for financial services companies, especially for small community banks located in rural areas where often there is no local broker. “Very often it’s the local banker that’s most familiar with what properties or acreage or farm properties, for instance, that are available for sale,” she said.

Even among the larger banks, experts said there might not be an avalanche of entries into the market.

“Our members are really the big banks. I think there would likely be some activity but I don’t see it. It’s not up there with insurance or securities … I think the changes would be slow,” said CBA’s Elmendorf.

Even though there won’t be a rush into the business, Forte said it’s important to ensure the rights given to banks through GLB are not taken away.

“It’s an important arrow to have in the quiver for certain banks, based on their strategic plans, based on where they’re located geographically, but we haven’t seen a rush of banks [entering real estate] even in the states that allow it … but it’s important to have that option,” said Forte.

If the provision were yanked out of GLB, said Forte, the repercussions would extend further than the banks. It would affect the entire country’s policy with respect to blending the financial services industry and effectively circumvent the GLB Act, which was 20 years in the making.

BANKERS:
Financial Institutions Seek To Preserve Future Options

by Banker & Tradesman time to read: 5 min
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