Will your local hometown bank in Mississippi soon hang out a real estate shingle? Maybe, if a proposed rule to allow banks to engage in real estate brokerage and property management services issued by the Federal Reserve and the Treasury Department becomes effective.
The National Association of Realtors (NAR) is lobbying against the proposed rule. The banking industry strongly supports it.
“It would create an unlevel playing field that would devastate the real estate profession,” said R. Scott Brunner, executive vice president of the Mississippi Association of Realtors (MAR). “The impact on consumers would be profound.”
The Gramm-Leach-Bliley Act of 1999, the most sweeping reform of financial services regulation in more than 60 years, authorized the Federal Reserve and Treasury Department to define allowable activities for financial holding companies. The joint Dec. 26 proposal rule would increase competition, provide consumers more choices and allow banks to round out their services.
According to a survey conducted for the American Bankers Association (ABA), consumers are in favor three to one of banks entering the real estate market. Only 18% of consumers surveyed said they thought they could currently find competitive prices for real estate services.
“It’s a monopoly right now,” said McKinley W. “Mac” Deaver, executive director of the Mississippi Bankers Association. “Some of the people who are fighting this are the same people who are now offering the same financial services as banks.”
The proposal allows banks to respond to the marketplace, said Aubrey B. Patterson Jr., chairman and CEO of Tupelo-based BancorpSouth and incoming president-elect of the ABA.
“That’s what the 1999 law was all about — letting financial institutions meet the needs of the marketplace,” he said. “More competition means better deals. If the only people doing real estate are real estate brokers, then they’ll demand and get higher fees and commissions than if they are competing against a broader group that includes banks.”
Judy N. Glenn of Corinth, owner of Corinth Realty Better Homes & Gardens, past president of MAR and executive committee member of the National Association of Realtors, said the real estate industry is already very competitive.
“If banks are allowed to enter the real estate business, it will add a facet of competition, but it certainly won’t create competition that’s not already there,” Glenn said.
Banks are already allowed to participate in real estate brokerage in 27 states. Credit unions, state-chartered banks and savings institutions offer real estate services.
“We’ve talked to banks in those states and some have gotten into the real estate arena while others have not,” said Deaver. “It’s largely dependent on the marketplace and competition, which is what makes the business world go round.”
Patterson said it’s too early to tell whether or not BancorpSouth would enter the real estate arena.
“I expect at some point in the future this institution will be involved because I think all the comprehensive financial services institutions will eventually be involved,” he said.
Integrated real estate firms, such as Coldwell Banker and Century 21, already provide financial services, including brokerage, mortgage lending, title insurance and property insurance.
“Some of the insurance agents thought the sky was falling when banks got into the insurance business but it’s largely been a win-win,” Deaver said. “Many banks have partnered with insurance agencies and consumers have benefited from that. I think the same thing would happen with banks partnering with real estate firms.”
Brunner said banks and their subsidiaries have an unfair advantage — federal protection.
“Independent business people like the mom-and-pop real estate companies in Pelahatchie and Pontotoc don’t have federal protection,” he said.
“When one of my members wants to build a new office or invest in a new computer network, they go to the bank and borrow money at whatever rate the bank is offering money. When a bank wants to do those things, they go to the discount window at the Fed and pay 1%. That’s not fair.
“And what happens if a Realtor in Laurel goes to a bank to borrow money for his business or if his client goes to a bank to borrow money for a mortgage? The bank has people on staff in the same business. And yet, in order to borrow money, that Realtor is having to divulge confidential information about his business. He’s basically handing it over to his competitor. That doesn’t seem fair either.”
The proposed rule contains restrictions designed to ensure that a financial institution, when acting as a real estate broker, serves only as an intermediary between buyers and sellers. Banks will not be allowed to invest in or develop real estate that is handled by the company’s real estate brokerage services.
Brunner, who worked for AmSouth before joining MAR, said customer service would suffer if banks engaged in the real estate business.
“When people buy and sell their homes, they may want to talk to their Realtor at 10 o’clock at night or meet on a Sunday afternoon. They want quick, speedy service. The way banks are situated today, they can’t offer that kind of service.”
Brunner also said banks would have little incentive to advance homeownership except as it profits their bottom line, with little incentive to promote government programs designed to encourage homeownership, such as FHA, VA and rural housing programs.
“Banks are regulated and measured regularly to make sure all markets are served according to laws like the Consumer Reinvestment Act,” Deaver said. “Sure, there are red herrings, but every industry has a few and the banking industry is more regulated than any other.”
Tara Bradshaw, spokesperson for the Treasury Department, said more than 40,000 comments were received by May 1, the extended comment deadline. All comments must be reviewed before a final decision can be determined.
“We cannot give any time frame when that decision will be made,” Bradshaw said.
Contact MBJ contributing writer Lynne Wilbanks Jeter at email@example.com or (601) 853-3967.