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Banks won’t be getting into real estate just yet

Realtors have been given a reprieve, for now.

Last month, U.S. Treasury Secretary Paul O’Neill announced a delay in action until 2003 on a proposed rule to allow banks to engage in real estate brokerage and property management services.

The Gramm-Leach-Bliley Act of 1999 authorized the Federal Reserve and Treasury Department to define allowable activities for financial holding companies. The proposed rule would have allowed banks to enter the real estate arena.

“That’s good news and it’s not,” said R. Scott Brunner, executive vice president of the Mississippi Association of Realtors (MAR). “We won the initial battle in this fight, but because he’s put it off, we’ll have a new Congress and the situation will likely change a little bit.”

A National Association of Realtors-supported bill that would specifically prohibit banks from being engaged in real estate is still pending in Congress. More than half the House members have signed on to H.R. 3424 and about 10 senators have co-sponsored S. 1839, the Community Choice in Real Estate Act.

“With a new Congress, we’re not sure where that puts us,” said Brunner. “We don’t intend to let up the pressure. It’s a fight for survival as far as we’re concerned.”

The banking industry strongly supports increased competition in real estate.

“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.”

Baxter Strain of Tupelo-based BancorpSouth said real estate was “a line of business provided through the Gramm-Leach-Bliley Act, and to now remove banks from having that opportunity is a step backward.”

There’s a misconception that realtors shouldn’t oppose banks owning real estate companies because some realtors are in the mortgage business, said Brunner.

“That not an accurate assertion,” he said. “Comparing a bank involved in real estate to a real estate company owning a mortgage business is comparing apples to oranges. First and foremost, a mortgage bank is not a bank as its name implies. A mortgage broker, which is what some realtors are, typically facilitates the buyer finding the most suitable mortgage product for their circumstance. That mortgage brokerage scours the country for the best loan for his client. They are not a bank that accepts federally insured deposits. They are a commercial entity facilitating a commercial, not financial, transaction.

“Even if the mortgage company is lending money, it is a commercial venture. Investors have borrowed that money and are making those loans — they are certainly at risk of losing it all — and if they do, the federal government isn’t there to bail them out. They are business people conducting a business transaction. Bottom line: Our concern is that national banks that have the benefit of deposit insurance and a line of credit to the Federal Reserve discount window would be able to compete with realtors across this country who are small business people without that federal backstop. The playing field would be grossly unlevel.”

NAR has stated that it “opposes allowing large banking conglomerates to enter real estate brokerage and property management under the guise of the Gramm-Leach-Bliley Act because it will lead to higher costs to consumers, large scale consolidation in the real estate industry, and potential conflicts of interest should banks be able to steer homebuyers to their own insurance and loan products.”

“I don’t believe the BancorpSouths, Community Banks and Hancock Banks are villains in this thing,” Brunner said. “They’re not. We’re talking about Bank of America, Chase and huge mega banks that control the American Bankers Association and want to get into this business. They want to do everything they can to make that happen.

“People in Mississippi might think, why should we get involved? None of those banks are in Mississippi. But what’s going to happen when a mega bank buys one of our Mississippi banks or regional banks? My 5,000 Mississippi realtors aren’t going to be able to compete with this mega bank that bundles its products and services, doesn’t give consumers much choice, but has advantages over rank-and-file realtors who can’t borrow at the discount window at 1% and doesn’t have federal insurance protection if they go belly up. We’ll fight it as long as and hard as we can. It’s the biggest issue the real estate profession has seen in probably 30 years. We believe the survival of our small business owners, realtors, is at stake.”

Other organizations that have pledged their support for the Community Choice in Real Estate Act include the Building Owners and Managers Association, CCIM Institute, Institute of Real Estate Management, International Council of Shopping Centers, National Affordable Housing Management Association, National Association of Home Builders, National Association of Industrial and Office Properties, National Auctioneers Association, National Leased Housing Association and the National Community Reinvestment Coalition.

Rick Swagler, spokesperson for Birmingham-based AmSouth, said company execs have followed the real estate issue with interest.

“Our focus now is on the fundamentals of banking — making loans, taking deposits — because that’s our strongest suit,” he said.

Contact MBJ contributing writer Lynne W. Jeter at (800) 993-3392 or lwjeter@yahoo.com</a.

About Lynne W. Jeter

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