Issue: Should banks be allowed to sell real estate?
This Proposal Poses Significant Risks for Consumers
By Robert W. Sadler, CAE
Real estate services are commercial activities and customarily apply to a broad range of activities involved in the day-to-day management and brokering of real estate. Frequently, firms with property management operations also engage in real estate investment and development. All of these activities relate to the day-to-day operation of a commercial enterprise and any financial activity that occurs in connection with their operation is incidental to the commercial real estate activity.
The national banks argue that the rule could help simplify the fragmented home-buying process, in which consumers have to deal with real estate agents, title companies, mortgage bankers, insurance companies and others. The national banks contend that the proposal would allow them to provide “one-stop” shopping and bundle real estate brokerage services with the banks’ existing mortgage-lending and insurance functions.
In actuality, the proposal poses significant risks to consumers. Currently, homebuyers have a varied selection of mortgage products, due to a highly competitive loan system. Consumers also have a choice of REALTORS to work with them in buying or selling a home. Concentrating the home buying and selling process into financial institutions will lead to conflicts of interest, fewer competitive loans, higher rates to consumers, and the loss of a community-centered, small business orientation to home selling and buying.
In the aftermath of recent banking consolidations and the loss of local banks to big, national companies, consumers were promised significant improvements by the banking industry such as lower banking costs, streamlined services and improved customer relations. Yet, the big banks are still charging higher fees. ATM fees have increased substantially, and there are more charges now than ever related to credit cards. Additionally, personalized service has given way to automation, frustrating consumers because of their inability to obtain assistance in their important banking needs.
The rule would further add to consumers’ cost and anxiety burdens and represent another empty promise by the banking. It’s doubtful that a bank-controlled real estate broker would spend hours searching for the best mortgage product when his or her bank already has a mortgage that might not necessarily be the best offering available. Under this scenario, consumers wouldn’t have access to the independent source of information they currently enjoy through the use of an independent real estate broker. Absent all the facts, this could lead to higher costs for real estate transactions and acceptance of a mortgage product that may not be in their best interest.
Allow Banks to Compete Fairly and Equally
By James McLaughlin
Allowing banks to offer real estate brokerage and management services would provide customers added convenience and greater choice. Some real estate firms are already offering combined services: brokerage, title, mortgage and property insurance. So the combining of real estate brokerage and banking services is not a new or unusual activity. In fact, state-chartered banks in more than half the states offer real estate brokerage services today. It’s only logical that all banks be allowed to compete fairly and equally.
Consumers would also have more choices of real estate firms when buying or selling a home. Real estate brokers would have more choices of potential employers. Real estate companies would have more sources of capital for expansion or greater flexibility. Keeping banks from providing real estate services leaves consumers, real estate agents and real estate companies with fewer choices.
Scare tactics by the real estate industry would have one believe that most banks are large, like the integrated real estate firms such as Cendant Corporation’s Century 21 and Coldwell Banker, which are affiliated with more than 25 percent of the real estate agents in the country. These firms currently provide brokerage services, mortgage lending, title insurance and property insurance. Nearly 40 percent of all banks – more than 5,000 institutions – have fewer than 25 employees. These community banks are small businesses that would like the opportunity to broaden the financial products they can offer their customers and to compete with real estate firms offering mortgage loans and homeowners insurance. In many rural, underserved communities, community banks are often in the most practical position to provide real estate brokerage services.
Scare tactics by the real estate industry also include ludicrous claims that bank participation in real estate brokerage poses a safety and soundness risk that will cause bank failures. Because brokerage involves the process of putting buyers and sellers together, and not the bank putting its capital at risk in owning real estate – as the bank agencies have recognized – it creates no new risk and cannot cause bank failures.
Allowing banks to participate in real estate brokerage underscores the pro-consumer, pro-marketplace competition that Congress created with the Gramm-Leach-Bliley Act (1999). If brokers can provide financial services such as mortgages and insurance, banks should be able to compete on equal terms. Efforts by the real estate industry to undo the legislation hinder competition, choice and the intent of Congress.