[Senate Hearing 107-982]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-982


               IMPACT ON CONSUMERS OF BANK AND FINANCIAL
                 HOLDING COMPANIES' ENGAGEMENT IN REAL
                ESTATE BROKERAGE AND PROPERTY MANAGEMENT

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   ON

THE EXAMINATION OF BANKING AND FINANCIAL HOLDING COMPANIES' ENGAGEMENT 
            IN REAL ESTATE BROKERAGE AND PROPERTY MANAGEMENT

                               __________

                              MAY 23, 2002

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs



89-250              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut     PHIL GRAMM, Texas
TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
ZELL MILLER, Georgia                 CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware           RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan            JIM BUNNING, Kentucky
JON S. CORZINE, New Jersey           MIKE CRAPO, Idaho
DANIEL K. AKAKA, Hawaii              JOHN ENSIGN, Nevada

           Steven B. Harris, Staff Director and Chief Counsel

             Wayne A. Abernathy, Republican Staff Director

                  Martin J. Gruenberg, Senior Counsel

                  Linda Lord, Republican Chief Counsel

          Sarah Dumont, Republican Minority Professional Staff

   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator

                       George E. Whittle, Editor

                                 ______

                 Subcommittee on Financial Institutions

                  TIM JOHNSON, South Dakota, Chairman

                ROBERT F. BENNETT, Utah, Ranking Member

ZELL MILLER, Georgia                 JOHN ENSIGN, Nevada
THOMAS R. CARPER, Delaware           RICHARD C. SHELBY, Alabama
DEBBIE STABENOW, Michigan            WAYNE ALLARD, Colorado
CHRISTOPHER J. DODD, Connecticut     RICK SANTORUM, Pennsylvania
JACK REED, Rhode Island              JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   MIKE CRAPO, Idaho
JON S. CORZINE, New Jersey

             Michael Nielsen, Republican Professional Staff

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                         THURSDAY, MAY 23, 2002

                                                                   Page

Opening statement of Senator Johnson.............................     1

Opening statements, comments, or prepared statements of:
    Senator Bennett..............................................     3
    Senator Reed.................................................     4
        Prepared statement.......................................    35
    Senator Allard...............................................     4
    Senator Crapo................................................     4
    Senator Santorum.............................................     5

                               WITNESSES

Tom Murphy, President, South Dakota Association of 
  REALTORS', Sioux Falls, South Dakota, 
  REALTOR', Chell REALTORS', representing 
  the National Association of REALTORS'...............     6
    Prepared statement...........................................    35
    Response to written questions of:
        Senator Reed.............................................   105
        Senator Miller...........................................   113
James E. Smith, President, American Bankers Association, Chairman 
  and Chief Executive Officer, Citizens Union State Bank and 
  Trust Company, Clinton, Missouri...............................     8
    Prepared statement...........................................    47
    Response to written questions of:
        Senator Reed.............................................   117
        Senator Miller...........................................   119
John Taylor, President and Chief Executive Officer, National 
  Community Reinvestment Coalition, Washington, DC...............    10
    Prepared statement...........................................    65
Howard W. Hanna, III, Vice Chairman, The Real Estate Services 
  Providers Council, Inc. (RESPRO'), Principal and 
  former Chairman, The Realty Alliance, President and Chief 
  Executive Officer, Howard Hanna Real Estate Services, 
  Pittsburgh, Pennsylvania.......................................    13
    Prepared statement...........................................    76

              Additional Material Supplied for the Record

Statement of the American Homeowners Grassroots Alliance.........   121
Statement of The Financial Services Roundtable...................   123
Letter submitted to Senator Tim Johnson, by CCIM Institute, 
  Consumer Union, Institute of Real Estate Management, National 
  Association of Auctioneers, National Association of Home 
  Builders, National Community Reinvestment Coalition, National 
  Fair Housing Alliance, and National Association of Industrial 
  and Office Properties, dated May 20, 2002......................   127
Letter submitted from Martin Edwards, Jr., CCIM..................   128

                                 (iii)

 
                    IMPACT ON CONSUMERS OF BANK AND
                      FINANCIAL HOLDING COMPANIES'
                  ENGAGEMENT IN REAL ESTATE BROKERAGE
                        AND PROPERTY MANAGEMENT

                              ----------                              


                         THURSDAY, MAY 23, 2002

                               U.S. Senate,
  Committee on Banking, Housing, and Urban Affairs,
                     Subcommittee on Financial Institutions
                                                    Washington, DC.

    The Subcommittee met at 10:05 a.m. in room SD-538 of the 
Dirksen Senate Office Building, Senator Tim Johnson (Chairman 
of the Subcommittee) presiding.

            OPENING STATEMENT OF SENATOR TIM JOHNSON

    Senator Johnson. The Subcommittee on Financial Institutions 
will come to order.
    I want to thank you for joining us for today's oversight 
hearing to discuss the impact on consumers of national bank and 
financial holding companies' engagement in real estate 
brokerage and property management.
    Welcome, Ranking Member Bennett, who I am advised will be 
with us very soon, and my colleagues, and thank our 
distinguished panel of witnesses for taking the time to help 
the Financial Institutions Subcommittee consider this important 
issue.
    Over the past several months, the consumer real estate 
market has served as an anchor in stormy economic seas, and I 
have been impressed by the resilience of the marketplace. It 
has been clear for some time the critical role that 
homeownership plays in creating strong communities, strong 
families, and helping individuals achieve the American Dream. 
We have come to understand, though, the additional role that 
consumer real estate plays in our economy.
    For these reasons, it is critical that we proceed with 
caution with any changes in the real estate market. At the same 
time, however, under Gramm-Leach-Bliley, Congress did intend to 
create flexibility for the financial services industry to 
innovate. We should be mindful of the manner with which we 
proceed because the potential change provides an early test of 
the Gramm-Leach-Bliley regulatory process.
    Today, it is not our job to discuss any particular 
proposal, but, rather, to step back to discuss the general 
issue of what impact financial holding company and national 
bank affiliate entry into the real estate brokerage and 
property management businesses might have on American 
consumers. It is far too easy to lose sight of why this debate 
is important. We need to keep in mind that our objective is to 
keep America strong through a strong economy, strong 
communities, and continued opportunity for all of our citizens 
to achieve the dream of homeownership.
    With that, it is an honor to introduce our panel of 
excellent witnesses, who have clearly spent considerable time 
and energy producing some very thoughtful testimony. We 
appreciate their willingness to appear before us today, and I 
will introduce three of the four guests, and then yield to 
Senator Santorum, when he comes in shortly, to introduce Mr. 
Hanna, who hails from the State of Pennsylvania.
    First, I am pleased to introduce a fellow South Dakotan, 
Mr. Tom Murphy, of Sioux Falls. Tom, who is here today on 
behalf of the National Association of REALTORS', is 
the President of the South Dakota Association of 
REALTORS', which has been serving my home State for 
over 50 years.
    Tom is affiliated with Chell REALTORS' of Sioux 
Falls, and is a graduate of the REALTORS' Institute. 
Tom has been, and is very active at the national, State and 
local REALTOR' levels. He is a past State 
Governmental Affairs Chairman of the South Dakota Association 
of REALTORS' and is serving on the grievance 
committee of the Sioux Falls Board of REALTORS' and 
has served in numerous task forces and work groups at the State 
and local levels.
    We appreciate Tom taking time from both his job as a 
REALTOR' and the father of three to join us here 
today. Tom and his wife, Dr. Carla Murphy, of Physicians 
Laboratory of Sioux Falls, are widely recognized community 
leaders, and Tom's willingness to travel to Washington bears 
out his commitment to his community and to his colleagues.
    Next, we welcome Mr. James Smith, President of the American 
Bankers Association. Mr. Smith is Chairman and Chief Executive 
Officer of Citizens Union State Bank and Trust in Clinton, 
Missouri. Mr. Smith has a long and distinguished career in 
banking, having entered that profession in 1967. I would also 
note that there appears to be a link between baseball and 
banking. Like the distinguished Senator from Kentucky, Mr. 
Smith played professional baseball in his past life, was part 
of the New York Yankees from 1963 to 1966, and we have no doubt 
that he has been practicing his pitch for today's hearing.
    [Laughter.]
    During his service with the ABA, Mr. Smith has chaired the 
communications council, the government relations council, the 
bankers electronic network, and task force on government 
relations grassroots.
    Mr. Smith, thank you for being with us today.
    Mr. Smith. Thank you.
    Senator Johnson. Our next guest and witness is John Taylor, 
President and Chief Executive Officer of the National Community 
Reinvestment Coalition, whose stated mission is to promote 
economic justice.
    With over 820 national, regional, and local organizations, 
the NCRC has led the effort to increase low-income and minority 
access to credit and capital.
    I would like to thank you, Mr. Taylor, for your 
organization's hard work on behalf of so many Americans. Mr. 
Taylor has worked in the community development and reinvestment 
industry for over 24 years, and in 2001, ran for the U.S. 
Congress to fill a vacancy in the 9th Congressional District of 
Massachusetts.
    Mr. Taylor has been widely recognized for his commitment to 
community service and in 1996, received a presidential 
appointment to the community development financial institutions 
advisory board. He also serves on a number of boards and has 
received numerous awards and citations over the years for this 
work in economic justice efforts, including the Martin Luther 
King, Jr. Peace Award, two Congressional citations awards from 
the Congress, and many others.
    Mr. Taylor, thank you for taking time to appear with us 
today.
    Our final witness is Mr. Howard Hanna, from Pittsburgh, 
Pennsylvania. And I will defer to Senator Santorum to introduce 
Mr. Hanna.
    But before I yield, I would ask that a written statement 
prepared by the Financial Services Roundtable and the American 
Homeowners Grassroots Alliance be included in the record. And 
we will proceed from there.
    We will await Senator Santorum's arrival for the 
introduction of Mr. Hanna, and I would recognize my Ranking 
Member, Senator Bennett, for any introductory comments that he 
might choose to make.

             STATEMENT OF SENATOR ROBERT E. BENNETT

    Senator Bennett. Thank you very much, Mr. Chairman. I 
appreciate it, and I apologize for being a minute or two late.
    The Gramm-Leach-Bliley Act was a culmination of, I guess, 
20 years of effort in the Congress to try to resolve the 
question of how banks and other financial institutions would 
operate in a nondepression atmosphere.
    The Glass-Steagle was drawn up in a very different economic 
circumstance. I remember as a Member of this Subcommittee when 
Don Riegle was the Chairman, they were talking about it. When 
Al D'Amato was the Chairman, we made a number of runs at trying 
to deal with it.
    It was not until Phil Gramm became the Chairman that we 
finally got a resolution, at least momentarily, of many of the 
issues of banking and commerce.
    Now we are seeing the first test of regulations that have 
been proposed under Gramm-Leach-Bliley. I think it is very 
timely that we have the opportunity before the Congress to 
examine all the implications of what has been proposed.
    So, I congratulate you on holding the hearing. I look 
forward to hearing from the witnesses and appreciate their 
willingness to come and share with us their views and attitudes 
on this very important subject, as I say, the first real test 
of revisiting, the possibility of revisiting, Gramm-Leach-
Bliley that we have had since that landmark legislation was 
passed.
    Thank you, Mr. Chairman.
    Senator Johnson. Thank you, Senator Bennett.
    Senator Reed.

                 COMMENTS OF SENATOR JACK REED

    Senator Reed. Mr. Chairman, I just want to commend you for 
holding this hearing. It is a very important topic for both the 
banking industry and the real estate industry. And I would like 
to submit my formal statement to the record.
    Thank you, Mr. Chairman.
    Senator Johnson. Very well.
    Senator Allard.

               STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. Mr. Chairman, I would like to thank you for 
convening this hearing.
    As my colleagues know, this is an issue that I have 
followed very carefully. I appreciate the opportunity to gather 
more information.
    Last year, I introduced Senate bill 1839, the Consumer 
Choice in Real Estate Act of 2001. This bill would clarify 
Congressional intent that real estate brokerage and management 
are not financial activities and would therefore retain the 
separation of commerce and banking that we intended during the 
consideration of the Gramm-Leach-Bliley Act in 1998.
    The Gramm-Leach-Bliley Act closed the unitary thrift 
loophole that allowed a single savings and loan to be owned by 
a commercial entity. This clearly established that banking and 
commerce were not to mix.
    Congress explicitly defined several functions to be 
financial in nature or incidental to finance to clarify the 
separation. Real estate management and brokerage services were 
not defined as financial services.
    Congress already established a clear position regarding 
banks' involvement in real estate management and brokerage 
activities. My bill would reiterate that prohibition. I believe 
that we should not permit Federal regulators to preempt the 
intent of Congress.
    The real estate and banking industries have served America 
well, and I believe that the current system provides consumers 
with many important options. I know that the regulators 
received many letters during the comment period and I commend 
them for taking the time to allow all interested parties to 
comment and for their pledge to carefully review all comments.
    I believe that this hearing is a good opportunity to 
continue the dialogue on the matter of banks' involvement in 
real estate management and brokerage. I know that our witnesses 
will have very strong viewpoints and I look forward to their 
testimony.
    Thank you, Mr. Chairman.
    Senator Johnson. Thank you, Senator Allard.
    Senator Crapo.

                STATEMENT OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you very much, Mr. Chairman. I too 
appreciate your holding this hearing. In fact, I think it was 
more than a year ago that I asked the Subcommittee to hold a 
hearing, and I appreciate the fact that we are holding one, and 
it is interesting that it is still timely.
    The Treasury and Federal Reserve have seen fit to delay 
their rulemaking on this matter. I do not know whether that is 
a good thing or a bad thing. But at least it gives this 
Subcommittee time to hold this hearing and to evaluate the 
issues.
    When I served in the House, I was a part of the effort to 
review these issues. As I was elected to the Senate and on the 
Banking Committee, I was a part of the Gramm-Leach-Bliley 
effort.
    As a part of that, I feel that we should let the law work, 
but also, oversee the law to make sure that it does work. And 
if this hearing can give us, as well as the Treasury and the 
Federal Reserve, guidance on what Congress intended and what we 
think is the appropriate direction which the regulations should 
take, then so be it.
    But, for me, this is going to be an informational hearing. 
I want to hear the arguments on both sides laid out. I want to 
be able to compare those arguments to what we should achieve in 
the legislation, and then determine whether it is appropriate 
for Congress to take any further action at that point.
    So, again, I thank you for this hearing.
    Senator Johnson. Thank you, Senator.
    Senator Santorum--and I would note that we withheld 
introductions of Mr. Hanna pending your arrival. We are pleased 
to have you here.
    Senator Santorum. Thank you, Mr. Chairman.
    Senator Johnson. Any opening remarks?

               STATEMENT OF SENATOR RICK SANTORUM

    Senator Santorum. Let me apologize to my constituent for 
having his introduction being withheld. But I appreciate you 
doing so, so I would have an opportunity to introduce someone 
who has been a friend of mine for a long time, from my hometown 
of Pittsburgh, someone who has been just a great citizen of 
southwestern Pennsylvania, who owns the largest real estate 
company in southwestern Pennsylvania.
    They are tremendous corporate citizens and assets to our 
region and Howard Hanna, in particular, is someone who I have a 
tremendous amount of respect for.
    My respect has been increased in that here he is as a 
REALTOR' coming and testifying on this issue, which 
is not in conformity with many in the real estate profession. I 
asked him whether he was bringing security to this hearing.
    [Laughter.]
    But he assured me that, other than Chip Roach, he was not 
going to bring security.
    [Laughter.]
    I do commend him for his articulation on this issue. I 
think he does provide a thoughtful perspective on this very 
important issue. I want to say that Senator Crapo's remarks are 
very close to mine. I think that this is an issue that we need 
to look at.
    I have not come down firmly in stone on one side or the 
other, but I think it is important to weigh all the evidence. I 
think Mr. Hanna's perspective is a very thoughtful one and one 
that I think that this Subcommittee can benefit greatly from, 
and I appreciate his willingness to come forward and share that 
with the Subcommittee.
    Thank you, Mr. Chairman.
    Senator Johnson. Well, thank you, Senator.
    We will operate on a 10-minute clock during the course of 
this hearing. And so, we will begin testimony with the first 
witness, affording 10 minutes for each of the witnesses.
    We will withhold Subcommittee questioning until after all 
four witnesses have had an opportunity to either read or to 
summarize their comments before the Subcommittee.
    The first witness is Mr. Tom Murphy.
    Tom.

                    STATEMENT OF TOM MURPHY

         PRESIDENT, ASSOCIATION OF REALTORS'

                   SIOUX FALLS, SOUTH DAKOTA

              REALTOR, CHELL REALTORS'

                          REPRESENTING

        THE NATIONAL ASSOCIATION OF REALTORS'

    Mr. Murphy. Good morning, Chairman Johnson, Senator 
Bennett, and Members of the Subcommittee. My name is Tom 
Murphy. I am a REALTOR' with Chell 
REALTORS', a small residential real estate firm in 
Sioux Falls, South Dakota. I am also President of the South 
Dakota Association of REALTORS'. Our State 
Association membership of over 1,400 REALTORS' are 
engaged in helping people buy, sell, and manage real estate 
every day.
    I am here on behalf of the National Association of 
REALTORS', which represents more than 800,000 
members engaged in all aspects of commercial and residential 
real estate. I want to thank you for the opportunity to testify 
today on this critical issue.
    It is important for all of us to take a good look at how 
the economy and consumers would fare if banks are allowed into 
the real estate business. That is one reason why I am glad we 
have the views of consumer groups represented on this panel.
    Mr. Chairman, you and your Subcommittee Members are to be 
commended for examining all perspectives on this proposed 
regulation--those of the little guy, as well as those of the 
big guy.
    As I mentioned, my business is a small, one-office real 
estate firm, just like nearly 80 percent of REALTOR' 
firms. My colleague from Pennsylvania here represents a large 
regional, multioffice firm. Obviously, we come here today to 
present different perspectives of this Nation's dynamic and 
diverse real estate market.
    The fact that some of our members can differ on an issue, 
while respecting and supporting each other on most, is a great 
example of the vitality of the National Association of 
REALTORS'. It is a sign of the hearty competition of 
the real estate business today.
    My comments today represent the overwhelming majority of 
NAR's members. Ninety-six percent of our members support the 
position of the National Association of REALTORS' to 
oppose this rule. Eighty-two percent of large broker/owners 
support this position, while 81 percent of our members believe 
we should be doing even more to stop the banks from unfairly 
entering our business.
    We firmly believe that redefining real estate brokerage, 
leasing, and property management as financial in nature is 
totally unacceptable because it mixes banking and commerce. If 
the Nation's most aggressive megabanks are allowed to add real 
estate to their long list of approved activities, you can be 
sure that consumer choices in real estate services will shrink.
    The Nation's bankers, who petitioned the Federal Reserve 
and Treasury for this proposed rule, should not gain by 
regulation what they failed to gain by legislation. In 1999, 
Congress clearly went on record supporting the separation of 
banking and commerce.
    Oddly enough, the American Bankers Association strongly 
supported an amendment you offered, Mr. Chairman, during the 
Gramm-Leach-Bliley debate to bar unitary thrift holding 
companies from engaging in commercial activities like real 
estate brokerage. It now appears that members of the ABA would 
like to corner the market on commercial businesses like real 
estate brokerage, leasing, and management.
    Currently, we have a balanced marketplace for commerce, 
banking, and financial services. Let me direct your attention 
to the two charts enclosed in my statement.
    The first chart shows how the commercial and banking 
industries compete in the ``financial services'' arena. 
REALTORS'do not engage in banking. They do not take 
deposits or run ATM's.
    Again, REALTORS' are not engaged in banking. 
Banks do not sell real estate. Banking and commerce are 
separate. It is that simple. Otherwise, why shouldn't banks 
sell cars or appliances?
    The second chart shows that in the arena where banks and 
REALTORS' do compete on mortgage originations, banks 
are already the winners. REALTOR'-affiliated 
mortgage lending companies only originate about 5 percent of 
mortgages, while the large banks handle 44 percent.
    Today's competition occurs in the financial services arena 
where it belongs. Consumers benefit from this arrangement 
because the direct competition for financial services between 
commercial companies and banks results in greater consumer 
choice and consumer service. When banks say they want ``one-
stop shopping,'' what they are really saying is they want 
``one-bank shopping.''
    The reality is that the entry of Federally chartered banks 
into the real estate brokerage business would tilt this 
balanced marketplace toward the Nation's megabanks. It would 
pit Government subsidized banking companies against privately 
funded real estate enterprises. It would put taxpayer money at 
risk.
    Mr. Chairman, the National Association of 
REALTORS' believes this issue is just too big to be 
decided by the regulators. The decision belongs with the 
Nation's lawmakers. That is why we have called on Congress to 
enact The Community Choice in Real Estate Act, S. 1839, and 
H.R. 3424, a companion bill in the House, to clarify 
Congressional intent.
    REALTORS' from all over the country have sent 
more than 100,000 letters to their Congressional 
representatives urging support for this bill. We have sent more 
than 40,000 letters to the Federal Reserve and the Treasury 
expressing our opposition to the proposed regulation. And we 
have sent more than 50,000 letters to President Bush urging his 
support.
    So far, H.R. 3424 has generated tremendous support in the 
House, with more than 230 cosponsors. So far, a dozen Senators 
have cosponsored S. 1839. Last month, Treasury Secretary 
O'Neill announced that he plans to postpone making a decision 
on this issue until next year. The ball is back in your court. 
It is time for Congress to resolve this issue.
    Mr. Chairman, REALTORS' are not alone on this 
issue. A diverse group of trade associations and consumer 
groups stand with us on this one.
    Passage of the Community Choice in Real Estate Act will set 
the record straight. At the same time, it will ensure more 
balanced competition and more consumer choice.
    This legislation will help to keep local entrepreneurs and 
businesses operating in our communities. It will help to keep 
some of our best community leaders and volunteers in place.
    REALTORS' are more than business people. We are 
community leaders. Look in countless cities and townships 
across America and you will find it is a REALTOR' 
serving as a den mother, a REALTOR' who is leading 
the city-wide cleanup, a REALTOR' who is hosting the 
candidate meet-and-greet, and a REALTOR' who is 
coaching Little League. REALTORS' are linked to 
their communities in more ways than simply through their 
businesses. REALTORS' have a stake in the same 
neighborhoods where their clients live or want to live.
    Finally, this proposal just doesn't make sense. Banks have 
it backward. Real estate brokerage is not incidental to a 
financial activity. It is the mortgage that is, in fact, 
incidental to buying 
a home. Twenty percent of all the homes in America involve no 
lender financing at all.
    America's system of homeownership is the envy of the world. 
Homeownership is at an all-time high. Five out of six 
homebuyers and home sellers are satisfied with their real 
estate agent and they would use him or her again. Let's not 
destabilize this pillar of our economy and relationship that 
works in communities throughout America.
    Thank you.
    Senator Johnson. Thank you, Mr. Murphy.
    Mr. Smith.

                  STATEMENT OF JAMES E. SMITH

            PRESIDENT, AMERICAN BANKERS ASSOCIATION

              CHAIRMAN AND CHIEF EXECUTIVE OFFICER

          CITIZENS UNION STATE BANK AND TRUST COMPANY

                       CLINTON, MISSOURI

    Mr. Smith. I want to thank you, Mr. Chairman, for holding 
this hearing.
    I believe that bankers and REALTORS' have more 
in common on this issue than the rhetoric suggests. Many agents 
and bankers already work closely with one another. We both 
believe that customers deserve to have the best possible 
service. We both want customers to have many choices of whom to 
deal with so they can seek out that agent or company that they 
trust most. And we both believe that any financial service 
should be provided in a safe and sound manner--including 
adhering to all licensing, sales practices, and continuing 
education requirements.
    If banks could offer real estate services, consumers would 
have more choices of real estate firms when buying or selling a 
home. Real estate brokers would have more choices of potential 
employers. And real estate companies would have more choices of 
companies to partner with, providing new sources of capital and 
technology. By prohibiting bank involvement, S. 1839 results in 
fewer choices for everyone.
    As we begin our discussion, it is important to note that 
combining real estate mortgage and banking services is not a 
new or unusual activity. Real estate firms do it. Insurance 
companies do it. Securities firms do it. And well over half of 
the depository institutions in this country, including many of 
the largest banks, can do it. In fact, my community bank in 
Clinton, Missouri, already has the authority to do it. The 
packages many real estate firms offer provide valuable cost, 
convenience, and service options. This is good for consumers. 
The ABA believe that all banks should have the same opportunity 
to meet the needs of our customers.
    This issue of open and fair competition is not new--it has 
been debated in this body for years. What is new is that in 
1999, Congress enacted the Gramm-Leach-Bliley Act. In the 20 
years of debate on the Gramm-Leach-Bliley Act, Congress often 
found itself in the middle of arguments between financial 
services industries about who should do what. The result was an 
out-of-date financial system.
    In light of these marketplace realities, and the pervasive 
changes due to technology, the need for regulatory flexibility 
is vital. Congress recognized this and expressly left it to the 
Fed and the Treasury to determine what additional services 
could be offered by banks. The proposal on real estate follows 
exactly the process Congress set forth.
    It should be allowed to work, and Congress should not be 
put back in as referee for future competitive disputes. After 
so many years of effort to enact the Gramm-Leach-Bliley Act, it 
would be sad indeed to see Congress undermine its key provision 
the very first time it is used.
    Let me assure you that this issue is important to banks of 
all sizes. In fact, the ability to offer real estate services 
may be more important for smaller banks in rural areas like 
mine. In these communities, the bank is perceived as having the 
best information on properties for sale, including farmland. I 
believe, as do my fellow community bankers, that these services 
would significantly benefit our customers and our communities.
    In my small community, I am losing customers. The local 
real estate firm is offering mortgages and insurance. Since the 
customer often goes to the real estate firm first, I lose out 
on the ability to offer those products. And quite frankly, the 
customer misses out on the opportunity to have a choice. I may 
need to partner with a local firm to compete.
    Furthermore, as national chains take over local real estate 
firms, any remaining local firms may have trouble competing. 
One of them may want to partner with me. This is exactly the 
kind of scenario Gramm-Leach-Bliley was designed to take into 
account. That law knocked down the walls between financial 
players and it gave the Federal agencies flexibility to decide 
what new powers would be appropriate for banks as markets 
change. So let's look ahead, not backward.
    We want to work with REALTORS' to realize 
advantages for both our industries. We want to cooperate, not 
compete. To prosper, not pull down. To make the most of the 
skills and advantages each side brings to a common goal--
thriving in a marketplace of rapid change. Above all, we want 
to be able to partner with REALTORS' to provide 
good, honest real estate services to America's homeowners and 
homebuyers.
    I would like to add for the record, that the market 
origination number that the NAR has just provided is 1 percent. 
We would like to add for the record information that the market 
share of just three firms alone--Cendant Mortgage, GMAC, and 
Weickert Mortgage--is 10 percent in today's market, not 1 
percent as proposed.
    Thank you, Mr. Chairman.
    Senator Johnson. Thank you, Mr. Smith.
    Mr. Taylor.

                    STATEMENT OF JOHN TAYLOR

             PRESIDENT AND CHIEF EXECUTIVE OFFICER

           NATIONAL COMMUNITY REINVESTMENT COALITION

                         WASHINGTON, DC

    Mr. Taylor. Good morning, Chairman Johnson, Senator 
Bennett, and other distinguished Members of the Subcommittee 
and staff representing other Members.
    My name is John Taylor and I am President and CEO of the 
National Community Reinvestment Coalition, and I am here 
representing 820 community-based organizations and local public 
agencies who work daily to promote economic justice in America 
and to increase fair and equal access to credit, capital, and 
basic banking services to traditionally underserved populations 
in both urban and rural areas.
    Mr. Chairman, I ask that my written statement be entered 
into the record.
    Senator Johnson. It is so ordered.
    Mr. Taylor. Thank you. On behalf of NCRC, I thank you for 
the opportunity to testify before you today on this important 
issue that will impact our Nation's progress in extending the 
American Dream of homeownership to minority and low- and 
moderate-income families--banks becoming real estate brokers. 
NCRC's community organizations are at the helm of driving the 
reinvestment movement. Today, as a result of the fair lending 
laws like the Community Reinvestment Act, which turns 25 this 
year, poor neighborhoods have been empowered by bank 
partnerships with community organizations to address credit 
needs and missed market opportunities. As a result, the number 
of loans to minority and working class borrowers over the last 
decade has increased faster than the number of loans to the 
more affluent borrowers. Bank CRA commitments have grown from a 
few million dollars a year to over $50 billion annually. 
Without these loans and commitments, the economic flow of 
private capital and credit into our communities would be 
extinct and hence, certain death for disinvested neighborhoods.
    The arena of competition has dramatically shifted in the 
wake of Gramm-Leach-Bliley, in our opinion, which we believe 
actually blurred the distinction among financial industries. In 
March 2000, the Federal Reserve Board issued a list of the 
first 117 bank holding companies that elected to become 
financial holding companies to take advantage of the 
opportunities of entering into the insurance and securities 
markets. As of April 2002, over 600 bank holding companies have 
elected to become financial holding companies in order to 
diversify their businesses. Conversely, less than a dozen 
nonbank companies have converted to financial holding companies 
for the purpose of seeking a banking charter.
    NCRC supports competition in its truest sense--when parties 
act independently and offer the most favorable terms to secure 
business. But one must wonder if today's financial market 
upholds 
the true meaning of competition when it seems like Gramm-Leach-
Bliley has allowed all roads to lead back to the bank. While 
nonbank lenders own real estate companies, they have not 
utilized Gramm-Leach-Bliley to amass the market power that 
banks now enjoy after their mad rush to become financial 
holding companies. Would adding real estate to the menu of 
businesses that banks can own level the playing field between 
banks and nonbanks, or only serve to make banks more powerful 
to the detriment of real competition in the financial industry?
    NCRC maintains that the addition of real estate to the 
already dizzying array of products now offered by ``financial 
supermarkets'' will lead to an even greater consolidation of 
bank market power and result in fewer choices for consumers. 
Our worst nightmare is a consolidated financial market that 
includes real estate brokerage is: A bank offers favorable 
terms to its real estate affiliate, giving it significant 
advantage over a competing real estate business that does not 
have an affiliate; The bank with the real estate affiliate 
stops offering loans to customers of nonaffiliated real estate 
competitors; The number of product choices offered to customers 
of nonaffiliated real estate businesses decreases, resulting in 
higher cost loans for consumers.
    When considering banks in real estate, policymakers have 
not adequately addressed the negative impacts on small real 
estate businesses of further industry consolidation. And I 
think you heard Mr. Murphy allude to that. The over 375,000 
women- and minority-owned small businesses in our country have 
played a significant role in community revitalization. Many of 
these real estate entrepreneurs have established themselves in 
working class communities and dedicated their business to 
helping rebuild formerly redlined neighborhoods through 
partnerships with affordable homeownership programs.
    NCRC strongly takes the position that by allowing banks 
into the real estate business, small real estate businesses 
will be forced out of the marketplace by the monopolized 
``financial supermarkets.''
    Finally, on this point, the banking industry holds a 
special status, different from any other industry. They are the 
stewards of the American public's wealth. To encourage people 
to do business with these stewards, we taxpayers guarantee that 
investors cannot lose if they do business with these banking 
institutions.
    With FDIC insurance, we guarantee the viability of these 
institutions. Was it the intent of Congress in doing that, that 
we were ensuring that these banks would be managed safely and 
soundly and making sure that credit and capital was made 
available to consumers, or was Congress really thinking that 
banks should become real estate brokers and enter other forms 
of businesses and possibly lose the public's money and cut off 
the spigot to credit and capital?
    The next area I would like to address in regards to today's 
subject matter is the consumer protection issues. In testifying 
before you today, I must be honest to NCRC's mission of 
economic justice and state emphatically that injustice exists 
in the banking, insurance, and real estate industries. Until 
those problems are solved to protect borrowers and consumers, 
these markets should not be commingled.
    According to the Department of Housing and Urban 
Development, a report just released entitled, Black And White 
Disparities in Subprime Mortgage Refinance Lending, borrowers 
in upper-income African-American neighborhoods were 2.9 times 
more likely to refinance with a subprime lender than borrowers 
in upper-income neighborhoods overall.
    Our own research at NCRC has found similar disparities. For 
example, major subprime and manufactured home lenders made 47 
percent of the refinance loans in predominantly African-
American and Hispanic neighborhoods in the District of Columbia 
in the year 2000, a significant increase from the 39 percent of 
the loans in 1999, and 25 percent of the loans in 1994. In 
contrast, subprime and manufactured home lenders made less than 
4 percent of the loans in predominantly white neighborhoods in 
the 3 years of the study.
    The major secondary market institutions have found pricing 
inefficiencies in the subprime loans. Freddie Mac states that 
up to 30 percent of subprime borrowers which they securitized 
were in fact qualified for prime loans. Fannie Mae's Franklin 
Raines is quoted as saying almost half of the subprime loans 
they see should have received prime loans.
    The issue of insurance redlining is also a problem, but 
unlike home mortgage lending, insurance data is limited only to 
a handful of States. In California, for example, the Center for 
Economic Justice found that the average insurer wrote only 
about 5.57 percent of its private passenger automobile 
liability policies and only 6.62 percent of its homeowner 
policies in low-income and minority neighborhoods.
    As I mentioned, the real estate market is not without its 
unscrupulous actors. Property flipping involves buying a home 
at a low price and then reselling it at a fraudulently inflated 
price within a short timeframe, often after making only 
cosmetic improvements to the property. NCRC has seen the 
following practices employed in property flipping schemes: Real 
estate investors continuing buying neglected properties at 
sheriff sales and reselling homes at escalated prices to 
unsophisticated first-time homebuyers; Targeting immigrant 
communities, particularly non-English-speaking individuals; 
Colluding with property appraisers to inflate property value; 
Tricking homeowners into thinking they are dealing with 
legitimate real estate companies; and Defrauding the Government 
by steering people to FHA financing, knowing the property is 
either inflated or has been frequently flipped.
    In the year 2000, the Department of Housing and Urban 
Development's Inspector General testified about the rampant 
flipping rings the agency was combatting. One investigation 
alone uncovered over 1,200 flipped loans, totalling 
approximately $160 million. Twenty-five percent of the loans 
were in default. The IG indicated that approximately one 
hundred representatives of lending and real estate industries 
colluded on this scheme. If Congress allows banks and real 
estate firms to combine without strengthening the consumer 
protection laws, our communities are more likely to be the 
victims of these scams than beneficiaries of greater product 
choice and lower prices.
    A couple of years ago, I and several others testified 
before different committees in Congress to not undo the 70-
year-old Glass-Steagle law that allowed commercial banks to 
merge with securities firms and insurance companies. We argued 
that it would injure the banking industry and, more 
importantly, consumers' interests.
    Not even 2 full years have passed before we see the perfect 
example of why Congress of 70 years ago argued against the 
merging of the banking industry with other industries--the fear 
of scandal, self-dealing, and swindling of investors. Need more 
proof of the need for the separation of finance from other 
industries than the biggest bankruptcy and business failure in 
the history of the American economy, the Enron swindle.
    Mr. Chairman, I see that I am out of time. I just want to 
close by adding that we strongly oppose, from a consumers' 
perspective, the allowance of the banking industry into the 
real estate industry.
    Should that occur, and we hope that it wouldn't, we would 
also hope that, along with that would be some very strong 
language about the real estate industry being able to provide 
data and be obligated to not ignore the interests of working-
class and working-poor consumers and minorities and women who 
have difficulties often accessing credit and capital and 
homeownership.
    I thank you for the opportunity to comment.
    Senator Johnson. Well, thank you, Mr. Taylor.
    Mr. Hanna.

               STATEMENT OF HOWARD W. HANNA, III

              VICE CHAIRMAN, REAL ESTATE SERVICES

          PROVIDERS COUNCIL, INC. (RESPRO')

                 PRINCIPAL AND FORMER CHAIRMAN

                      THE REALTY ALLIANCE

             PRESIDENT AND CHIEF EXECUTIVE OFFICER

               HOWARD HANNA REAL ESTATE SERVICES

                    PITTSBURGH, PENNSYLVANIA

    Mr. Hanna. Thank you and good morning, Mr. Chairman, and 
Members of the Subcommittee. And thank you, Senator Santorum, 
for the overly kind introduction.
    My name is Howard Hanna and I am President of Howard Hanna 
Real Estate Services, a family owned and operated real 
estate brokerage company headquartered in Pittsburgh, 
Pennsylvania, and founded by my parents in 1957.
    Howard Hanna Real Estate Service has 66 neighborhood and 
community offices, serving Pennsylvania, Ohio, West Virginia, 
and New York State. We also own a mortgage company that was 
established in 1982, Hanna Financial Services, which is 
licensed in those States, plus an additional nine States in the 
United States.
    Our firm has 1,500 sales associates and employees, of which 
1,128, as of Monday, are members of the National Association of 
REALTORS'. I am proud and honored to be a 32-year 
member of the REALTORS' Association of Metropolitan 
Pittsburgh, the Pennsylvania Association of 
REALTORS', and the National Association of 
REALTORS'.
    I currently serve as Vice Chairman of the Real Estate 
Service Providers Council--known as RESPRO'--and I 
am a member of the Realty Alliance, as well as a past Director 
and Chairman. I represent both organizations today.
    RESPRO' is a national association of 
approximately 200 residential real estate brokerage, mortgage, 
homebuilding, title, and other settlement service companies who 
promote an environment that enables providers across industry 
lines to offer one-stop shopping for homebuyers.
    The Realty Alliance is a national organization of 45 
regional residential real estate brokerage firms that provide 
us with idea sharing venues, industry forecasts and analysis, 
financial bench-
marking, and technology information.
    Mr. Chairman, I would like to ask that my written testimony 
be included in the record, and additionally, the written 
testimony from Murray Consulting, who performed a one-stop 
shopping survey that I will be discussing during my comments, 
be included in the record.
    Senator Johnson. They will be placed into the record.
    Mr. Hanna. Thank you, sir. Together in the year 2001, 
RESPRO''s real estate broker members and Realty 
Alliance members closed over 2.6 million of the total 6 million 
home sales in the United States, utilizing over 315,000 sales 
associates who also are National Association of 
REALTOR' members, and 78,000 employees in our over 
57,000 offices.
    Like the majority of the Nation's top 350 residential real 
estate brokerage firms, most RESPRO' real estate 
broker members and Realty Alliance members also offer mortgage, 
title, closing and other settlement services.
    In fact, according to a 1999 study conducted by the 
independent consulting firm of Weston Edwards & Associates, the 
top 350 real estate brokerage firms closed $22 billion in 
mortgage loans in 1998, and the realty-based and builder-based 
lending accounted for about 10 percent of the purchased money 
mortgages in that same year. Edwards also estimated that this 
amount would double within 3 years.
    In fact, senior management from four real estate brokerage 
firms that own or partially own mortgage companies, who all are 
RESPRO' and Realty Alliance members, are here with 
me today: myself from Howard Hanna Real Estate Services in 
Pittsburgh, Pennsylvania; Dick Christopher, CEO of Patterson 
Schwartz in Wilmington, Delaware; George Eastment, Executive 
Vice President of Long and Foster Real Estate in the 
Washington, DC metropolitan area; and Chip Roach, Vice Chairman 
of Prudential Fox and Roach REALTORS' in 
Philadelphia, Pennsylvania.
    We believe that the combined purchase money mortgage 
originations of our four mortgage companies equaled 
approximately 3 percent of all purchase money mortgage in the 
country in 2001. So the 5 percent that NAR referred to in its 
testimony, we have some question about.
    Edwards also found in his study that 72 percent of the 
Nation's 350 largest real estate brokerage firms offered 
mortgage services in 1998, that 45 percent of those firms 
offered title insurance, closing, or escrow services, and that 
36 percent offered personal insurance.
    Mr. Chairman, RESPRO' and Realty Alliance favor 
the American free enterprise system and open competition. Any 
bank should be able to compete with us in providing homebuyers 
with one-stop shopping programs. All available evidence shows 
that the homebuyers prefer one-stop shopping and that realty-
based one-stop-shopping programs offer those homebuyers 
potential benefits.
    The most recent consumer survey in this area was performed 
in March of this year by Harris Interactive, the parent of the 
Harris Poll. Harris surveyed over 2,000 recent and future 
homebuyers and found that 82 percent of the homebuyers prefer 
using a one-stop-shopping service for their home purchase. The 
survey also found that 64 percent of the homebuyers who 
recently used a realty-based one-stop-shopping program had a 
much better overall home-purchase experience.
    Other studies, some of which are described in my written 
statement, have found that the services offered through realty-
based one-stop-shopping programs are not only competitive, but 
are even lower in cost in many cases, than those offered by 
independent firms.
    RESPRO' and Realty Alliance do not believe the 
entry of financial holding companies and national banks would 
change the potential customer benefits of realty-based one-
stop-shopping programs.
    Over the last two decades, a number of financial 
conglomerates have entered the residential real estate 
brokerage business--Sears Roebuck, Metropolitan Life, Merrill 
Lynch, GMAC, Prudential Insurance Company, Cendant Corporation, 
and Warren Buffet's Berkshire Hathaway, which now owns the 
number two largest residential real estate brokerage company in 
the country.
    On the surface, these companies appeared to have 
significant competitive advantages over traditional real estate 
brokerage companies, such as national distribution outlets, 
consumer marketing lists that made it easy to reach everyone, 
valuable data about buying habits, and name recognition. In 
fact, Sears even had access to Federally insured deposits 
through its affiliate, Sears Savings Bank.
    Sears, Merrill Lynch, and Metropolitan Life have since left 
the real estate brokerage business, while Prudential, GMAC, 
Cendant, and Berkshire Hathaway remain good competitors. Their 
presence has not changed the basic character of the real estate 
brokerage marketplace; in fact, many of us believe that their 
entry has contributed to the development of a wider range of 
services and products and has caused traditional real estate 
brokerages, to be more efficient, more consumer-focused, than 
we ever were before.
    Federally-insured financial institutions also have entered 
residential real estate markets recently, such as Great Western 
Bank in California, Metropolitan Financial Corporation in 
Minneapolis, First Place Bank in Ohio, Empire Savings Bank in 
Wilmington, Delaware, and Pennsylvania, and Dollar Drydock in 
Connecticut. However, in a short period of time, most of these 
financial institutions have either sold their real estate 
brokerage businesses and entered new markets in which they feel 
that they can compete more favorably.
    Finally, I believe it is important to remember that this 
would be a two-way street, in that real estate brokerages also 
would have the ability to own banks.
    For example, my company had a close working relationship 
with a bank that was recently sold in our region. And Howard 
Hanna Real Estate Services, quite frankly, would have been very 
interested in purchasing this bank if Federal law had allowed 
it.
    Mr. Chairman, I thank you for the opportunity to testify 
and I would be glad to answer any and all questions.
    Thank you very much.
    Senator Johnson. Thank you, Mr. Hanna, and thank you, 
members of the panel.
    The Subcommittee will abide by a 10-minute question rule. 
That doesn't mean that it is mandatory that you consume 10 
minutes each on questioning, but we will try to place some 
limits to make sure that everyone has an opportunity to ask 
their questions.
    Let me begin by asking, with particular reference to Mr. 
Murphy and Mr. Taylor, I am sympathetic to the desire to 
maintain a variety of small independent businesses throughout 
our country. In my home State of South Dakota, we rely on small 
businesses to serve our small communities, and while large 
corporations play an important role in the economy, market 
economics do not always provide incentives to serve those small 
towns. But there have been concerns raised that bank entry into 
real estate brokerage could spell the demise of small local 
REALTORS'.
    And yet, it seems that some of the largest corporate 
conglomerates are real estate brokerages with lending and 
insurance affiliates which operate today under existing 
authority. Would you elaborate a bit more on why bank entry 
into real estate brokerage is different than broker entry into 
the mortgage and insurance business?
    Either one of the two of you can choose to elaborate a bit 
on that.
    Mr. Murphy. Thank you, Mr. Chairman. First of all, in a 
State like South Dakota, it would be no different than any 
other State.
    What we have is a situation where, in a community where 
there is 10 or 20 real estate firms, if one banking institution 
starts its own real estate firm, the other two will follow in 
line.
    With that, automatically, the smaller businessman cannot 
compete. They do not have the dollars to compete with the 
advertising. They cannot afford to lose the money or spend the 
money that is really stockholders' money.
    When that deteriorates, we have fewer people in the 
business because if you are not working for the bank, we need 
people to keep generated into our industry. You have put a 
chokehold on that because if you cannot work for a bank, you 
cannot get started, then, into this business.
    Now that is in a small State. So we will say in 10 of 12 
communities in South Dakota, instead of having 150 real estate 
firms, you would be down to about 25, maybe 20. And with that, 
you would lose a minimum of 25 percent of the ages that we 
would look at. And with that also, these people are not going 
to have jobs in their area. They are all independent 
contractors. They are all small businessmen. They are being 
choked out of this.
    But if we look at it as national, if you went to a State 
like California, instead of a thousand offices, you would be 
down to 6 or 10 megabanks who control the whole market. You 
have not only controlled the number of independent contractors, 
they also have the ability to choke out all their competition.
    When that happens, it not only takes the number of 
independent contractors out of the business, but they are also 
in a situation where they can control the valuation of a 
property, because if you do not have thousands of 
REALTORS' involved in this, from many markets, the 
only comps they are going to have are within their own 
association. It is a chokehold.
    Senator Johnson. Mr. Hanna.
    Mr. Hanna. Senator, I mentioned Metropolitan Financial, 
which once owned Edina Real Estate Company in Minnesota. I 
believe they also had offices in South Dakota. I have not 
noticed that when they owned Edina Real Estate Company, they 
took a stranglehold in that market.
    Senator Johnson. Mr. Smith, since brokers receive 
compensation on a commission basis, they have a strong 
incentive to make sure that property sales go through.
    There have been instances where appraisers have been 
pressures by brokers to make sure that the appraised value met 
underwriting requirements. Is it conceivable that a bank-
affiliated broker would have an incentive to pressure the 
lender in the same way, especially if the two worked in the 
same organization?
    And would you comment just briefly on whether banks have 
appropriate internal controls to address that kind of concern? 
Could these pressures lead to substandard underwriting by 
insured depositories, especially during times when the property 
sales are slow?
    Mr. Smith. Well, we do have safeguards in place and our 
appraisers have to be registered and certified and go to school 
and have the State qualifications in order to be an appraiser 
for us. And that is required by the FDIC and our regulatory 
bodies that examine us because they do check the appraiser's 
qualifications.
    It behooves every banking organization to make loans in a 
very safe and sound manner and to pressure an appraiser to make 
an appraisal that doesn't fit the qualifications of the real 
estate would be backward in making a safe and sound loan. And 
as the CEO of a bank, I want to be sure that my collateral is 
in place in order for that loan to be repaid properly. So that 
definitely would not be something that we would want to see.
    Mr. Taylor. Mr. Chairman.
    Senator Johnson. Yes.
    Mr. Taylor. Currently, a broker has a main objective to get 
you to purchase that home. They get their fee for that. And so, 
it is 
in their interest to be able to draw upon an array of financing 
in-
stitutions that can satisfy whoever the borrower is, whoever 
the 
buyer is.
    When that person is then employed by a specific financial 
institution, I would think that it is reasonable to think, in 
addition to the compensation they get from being a broker, that 
they will also be compensated for the amount of business that 
they steer into the mortgage segment of that financial 
institution, whether that is the best deal for the borrower or 
not. And I do not think that that gives consumers more choice. 
I think it actually narrows the choices.
    Mr. Hanna. Wouldn't the same rules apply under RESPA for a 
bank's sales associates as they would for sales associates at 
Howard Hanna Company or Long & Foster today?
    The RESPA rules wouldn't change. They prohibit a mortgage 
company from giving compensation to a real estate sales 
associate for referral of a mortgage.
    Senator Johnson. Let me, in my remaining few minutes before 
we go on here, ask a question to the panel here. And this 
alludes somewhat to observations made by Mr. Hanna.
    Based on the information available through the Conference 
of State Bank Supervisors, 25 States currently allow banks to 
engage at some level in real estate brokerage and property 
management. It would appear from available data that, in spite 
of this authority, only a small number of banks have actually 
taken advantage of the authority.
    Also, it is my understanding that credit unions have had 
the authority to engage in real estate brokerage and property 
management through the credit union service organizations. Yet, 
data indicate that only two or three have engaged in any type 
of brokerage. None have engaged in property management.
    Given how few banks, thrifts, and credit unions have taken 
advantage of the existing authority, I wonder if, first, Mr. 
Taylor and Mr. Murphy would elaborate a bit on the 
justification for the REALTOR' opposition to the 
entry of financial holding company national bank affiliates 
into the business, and for the rest of you, any brief 
observation on that as well.
    Mr. Murphy.
    Mr. Murphy. Yes, Mr. Chairman. If you add up all the assets 
of these companies, it is not enough to do what one megabank 
does in a day.
    Most of these places have one licensee sitting in a lobby. 
That is not their main course of business. They are in places 
where, to provide a service for their community, they cannot 
even make a living doing this in most of those communities.
    So they are providing a service for their community that no 
one else can do for them. But at the same time, they are not in 
this to do real estate brokerage on a level that we are talking 
about here today.
    Mr. Taylor. One of my major concerns would be that a major 
subprime lender gets in the business of becoming a real estate 
broker and I think creates further challenges, particularly for 
the population that we are concerned with, low income and 
minority. I have not heard an argument yet as to why the 
merging of this kind of financial services would at all serve 
consumers better.
    Right now, we have an extremely competitive real estate 
brokerage industry. We have an extremely competitive financial 
services industry. And what is being proposed essentially 
would, in our opinion, lessen that competition and lessen the 
choices for consumers.
    And when we hear about the large real estate firms that are 
already in the mortgage industry, we have not done this, but 
perhaps we should, is take a look at, to the extent that they 
are in the mortgage industry, who are they really serving?
    Unlike financial institutions that have a CRA obligation, 
they have an obligation to make sure that the person at the 
bottom rung of the ladder working their way up to their version 
of the American Dream, has access to credit and capital.
    Real estate brokerage firms do not have that obligation, 
neither do mortgage companies. And that is why, when you take a 
look at the difference in industries and who is serving people 
of color and who is serving working-class, working-poor people, 
disproportionately, you will see banks doing a much better job 
at that, because that is who the law applies to. Then you look 
at mortgage companies and real estate firms that are 
independent, I think you will see great disparities in terms of 
who they are really serving. And that should be of concern to 
everybody on this Subcommittee.
    Senator Johnson. Any brief response?
    Mr. Smith.
    Mr. Hanna.
    Mr. Smith. I would just like to add that the banking 
industry is under the CRA and the REALTORS' are not 
under CRA.
    I think if the banks are permitted to partner with the 
local real estate firms, that both of us could do a much better 
job of providing mortgages, products, and services to the low-
income people in our communities.
    Mr. Taylor. Well, if Mr. Smith is agreeing, and I would 
agree with him that having the real estate or even insurance 
industry come into the banking industry, that they would agree 
to be obligated to produce data on who they are serving and to 
have an affirmative obligation to make sure that they are not 
ignoring the needs of underserved populations, we may 
reconsider our position on this if that is the position of the 
ABA.
    [Laughter.]
    Senator Johnson. Mr. Hanna.
    Mr. Taylor. And I am a Red Sox fan, anyway.
    [Laughter.]
    Mr. Smith. I would just like to respond, that I do go 
through CRA examinations every year. I would welcome my 
colleague here to come and sit through the CRA examination so 
that he could understand what we are doing in our community.
    Senator Johnson. Mr. Hanna.
    Mr. Hanna. We would recommend the distinguished gentleman 
to my right visit Howard Hanna Company because we are a very 
open shop, and we would be happy to go over those numbers with 
you.
    Mr. Taylor. I am going to take you up on those invitations.
    Senator Johnson. My time is expired.
    Senator Allard.
    Senator Allard. Thank you, Mr. Chairman.
    I am interested in trying to get the exact number of State-
chartered banks, credit unions, and thrifts who engage in real 
estate brokerage. Do we have any idea how many financial 
institutions actually engage in real estate brokerage activity, 
and how many are involved in real estate management?
    Does anybody have those facts?
    Mr. Murphy.
    Mr. Murphy. Yes, Senator Allard. Only six States have banks 
in residential real estate brokerage operations. In these 
States, 18 banks have residential real estate brokerage 
operations.
    These banks represent 0.2 percent of all banks and serve 
areas with 0.57 percent of the U.S. population. And it looks to 
me like there are about 18 banks, anyway, that are involved in 
this.
    Mr. Hanna. I believe 26 States currently allow State-
chartered banks to engage in real estate brokerage.
    Senator Allard. I picked that up in the 26 States. I was 
just wondering how many institutions in those 26.
    Mr. Murphy. I have 18 down here, Senator.
    Senator Allard. Okay. Currently, if a national bank wished 
to become involved in real estate in any of those 26 States, 
they could switch their charter, could they not?
    Mr. Smith. That is correct.
    Senator Allard. They could switch that charter.
    Mr. Smith. That is correct.
    Senator Allard. Okay. Now, if national banks are allowed to 
engage in real estate management brokerage, what percentage of 
banks do you estimate would enter the industry within 5 years?
    Mr. Smith or Mr. Murphy, do you have any suggestions?
    Mr. Smith. I can only relate that to my personal 
experience.
    I have had real estate powers since 1984. So 18 years.
    Senator Allard. And you are a State bank. Is that right?
    Mr. Smith. I am a trust company. And Missouri trust 
companies have agency powers. I have had that ability since 
1984.
    But only recently has it become apparent that I may need to 
try to partner with one of the local real estate firms in order 
to continue to offer the products and services that I would 
like to offer.
    In our community of 8,500 people, we have three or four 
real estate firms. But the largest one is a Re/Max firm. And at 
that office, a person drives to town, getting ready to move to 
town, goes in, finds a house, signs a contract to purchase the 
house. They walk into the next office of that firm, sign the 
papers to the mortgage. They walk into the next office of that 
firm and sign the papers for the title insurance.
    I never have a chance to see that customer or offer that 
customer a product unless he or she happen to walk in the door 
of my bank to open a checking account. I would submit to you 
that is a Re/Max firm, which is the second largest real estate 
firm in the United States.
    The question I would have is what are the other smaller 
real estate firms doing to compete with that? If I cannot 
compete with that, how are they going to compete with that? And 
I suggest to you that they may want to partner with the bank to 
have the capital and technology to compete with that. And 
likewise, I want to partner with them to have the ability to 
compete with those products and services.
    I would submit to you that it is very important to the 
smaller real estate firms to have that opportunity to partner 
with the bank, so they can continue to survive in that same 
marketplace.
    Senator Allard. Does anybody else on the panel want to 
comment on that question?
    Mr. Murphy.
    Mr. Murphy. Yes. Senator, the problem with the one-stop 
shopping is, in our marketplace now, we have buyer brokerage, 
we have leases and we protect each other. So if I represent the 
buyer, and he does not like me, he can fire me.
    The problem with the setup that we are talking about today 
is, if you have inducements that are keeping you with an 
organization, and we have all seen negative closings in our 
State, it is kind of hard for you to feel like you can break 
your relationship with that organization.
    With me, the way it is set up, you can break that because 
there is nothing that is bound together besides the contract. 
We do not have inducements--we cannot offer inducements that 
would keep them there for the whole term--title insurance, the 
mortgage, 
the appraisal, the closing fees. It puts the consumer at risk 
in the future.
    Senator Allard. Mr. Hanna, did you have something?
    Mr. Hanna. Are you talking about the consumer or the 
REALTOR'?
    Mr. Murphy. The consumer, sir.
    Mr. Hanna. I find that the consumer is looking for the best 
service at the lowest possible cost and wants to make the 
process simpler and easier for them to buy homes. I think that 
is what our role is as REALTORS' in the market, to 
make it simpler and easier and less expensive for people to buy 
homes.
    Senator Allard. Go ahead, Mr. Smith.
    Mr. Smith. I would just like to add that the banks are 
under the Bank Holding-Company Act is antitying provisions, 
which specifically says, we cannot force a product onto the 
customer in order to sell another product. We have to file 
disclosures in that respect. So we cannot tie those products 
together.
    Mr. Taylor. Senator Allard.
    Senator Allard. Mr. Taylor.
    Mr. Taylor. If I may. This is a piece of my testimony--it 
is short--that I did not get to, that relates. I think it gets 
to your point.
    It is a real story about someone in this city, an elderly 
couple who were victims of a real estate problem. They owned a 
house in the Mt. Pleasant neighborhood in DC, for over 43 
years. And in order to pay their medical expenses, an 
independent mortgage company convinced them to take out an 
adjustable-rate mortgage with a prepayment penalty and a loan 
payment that exceeded the couple's monthly income.
    The victims retained an independent REALTOR' to 
facilitate the short sale of their home, who quickly identified 
the appraisal conducted by the mortgage company was 
substantially inflated. It was only after the victims' 
REALTOR' requested NCRC to intervene, that the sale 
took place instead of a foreclosure.
    Now imagine if that real estate agent had been affiliated 
with that lender. They would have had no incentive to even 
catch anything or do anything other than to continue to take 
advantage of that person.
    I am not suggesting that Mr. Hanna personally, that he 
conducts business this way. But that is the kind of problem we 
have, and people act funny when there is the opportunity to 
make a buck. And let's not allow that situation to occur by 
simply making it illegal to have those kinds of incestuous 
relationships between REALTORS' and bankers.
    Mr. Hanna. The real estate agents that work for us, and 
most of the REALTORS' that I know, are pretty 
independent contractors I do not think that example you gave is 
typical of a REALTOR', whether it works for Long & 
Foster, Howard Hanna, or Mr. Murphy's firm.
    Mr. Taylor. I am just saying, if that REALTOR' 
had a relationship with the mortgage lender, in which they 
actually were their employee, because the Federal Reserve, 
without this law, allowed that to happen, why would an employee 
turn on their employer and say, hey, gee, this is an inflated 
appraisal value. This is not in the interest of the consumer. 
They'd be silent. They wouldn't do it.
    Senator Allard. Mr. Smith brings up an interesting issue on 
the antitying provisions that we have now.
    The question I have for you, Mr. Smith, is regarding the 
concern that is raised about whether homebuyers might feel 
pressure to use a bank's entire range of services. In other 
words, if you are going to get a loan from us, then you have to 
use us for real estate and everything else.
    Do current antitying provisions offer consumers sufficient 
protection against such a possibility? How are these antitying 
provisions enforced?
    Mr. Smith. Well, we have to disclose to our customers any 
arrangements we have on any products and services. We have to 
disclose that. They have to sign it to say that it was 
disclosed properly to them. And then the regulatory body that 
comes in to examine us makes sure that we have those documents 
in the file and that the customer in fact did sign that, saying 
that they are aware of any tying arrangements. That is checked. 
I can tell you explicitly and by all the regulatory bodies, 
whether it be the OCC, the FDIC, or our State banking center.
    Senator Allard. Do people even sign this provision when 
they are not granted a loan, for example?
    Mr. Smith. Yes, they sign the documents, and then the loan 
goes to the loan committee to see if the loan is going to be 
approved.
    Senator Allard. But you are a customer. You come in and you 
talk to the bank and you say, ``look, I would like to have a 
loan.'' And the bank says, ``well, where is your savings 
account?'' I have it over, some place else over here. But I 
have a checking account.
    Then the bank could say, ``well, before we give you a loan, 
we want to have the savings account moved over into our bank. 
And if you happen to have real estate, which is a concern 
raised, we would like to have you deal with our real estate 
agent to do that.''
    Now if the person who is applying for the loan says, 
``forget it, I am not going to deal with you on that,'' then do 
you ask him to sign that form that there was no antitying 
provisions? My question is, how is it enforced?
    Mr. Smith. Well, obviously, if you make the loan or you 
would sell the real estate, then you have to disclose that.
    Senator Allard. That there were no antitying.
    Mr. Smith. That there was no tying. And that is how it 
would be enforced.
    Senator Allard. Yes, sir.
    Mr. Taylor.
    Mr. Taylor. Senator, antitying can actually be waived. You 
can get exemptions from the Federal Reserve. And indeed, that 
is just what Citibank did last year. It received a favorable 
exemption from antitying prohibitions to offer incentives to 
their credit card, mortgage, or loan customers who maintained a 
combined balance in a package of products and services that 
included annuities, a homeowners life and long-term care 
insurance for insurance affiliates of Citibank.
    So the regulators currently have the ability and I could 
foresee them having the ability to create other exemptions, 
which would include real estate brokerage.
    Mr. Hanna. This all, I believe, comes under RESPA which 
prohibits real estate firms or mortgage lenders, from requiring 
the use of an affiliated product.
    Senator Allard. Thank you for your responses.
    Thank you, Mr. Chairman.
    Senator Johnson. Thank you. My Democratic colleagues 
unfortunately had to leave for a ceremony event. They have left 
questions to be submitted to the panel. And we will 
respectfully be extending those questions on to the panel 
members to respond to those at the appropriate time.
    Senator Bennett.
    Senator Bennett. Thank you, Mr. Chairman.
    We have heard a lot of dire predictions and we have heard a 
lot of rosy scenarios. I would like to stay away from 
conjecture for just a moment and go to experience.
    Mr. Smith, you say that your bank has the right to do this 
at the present time.
    Mr. Smith. That is correct.
    Senator Bennett. All right. Have you done it?
    Mr. Smith. No, I have not.
    Senator Bennett. Why not?
    Mr. Smith. Only in the last 2 or 3 years has it become a 
need in order to compete with the real estate agent, the Re/Max 
agency. Only has it become apparent in the last 2 or 3 years 
that there is need for me to get into this line of work in 
order to offer the products and the services.
    Senator Bennett. So you are telling me that the reason you 
are now contemplating it is because Re/Max is cutting into some 
of your mortgage business, not because you see this as a great 
opportunity to do any of the predatory things that concern Mr. 
Taylor.
    Is that a fair assertion?
    Mr. Smith. I think that certainly is fair. Also, and we 
have a test case here with the insurance agencies, it is very 
difficult to start something de novo. And it is very critical 
to the success of an operation to be able to partner with 
someone that has the expertise and the experience in doing this 
business.
    So in order to take my bank into this market, I am going to 
want to partner with a real estate agency in order to have the 
experience and the expertise to offer these products.
    Senator Bennett. Okay. Mr. Hanna, you have real estate 
agents that you do partner with, and you say they are pretty 
independent people.
    Mr. Hanna. Our agents, our sales associates, are 
independent contractors.
    Senator Bennett. Independent contractors.
    Mr. Hanna. Independent contractors.
    Senator Bennett. Can they take a loan some place else if 
they do not like what you are giving them?
    Mr. Hanna. They not only can, but they do 70 percent of the 
time. Our capture ratio is about 30 percent. Our mortgage 
company, our financial service company, captures about 30 to 32 
percent of our total sales.
    Senator Bennett. So you would insist that the experience 
would not produce the result that Mr. Murphy is talking about 
of driving agents out of business.
    Mr. Hanna. We have been in the mortgage business since 
1982, and as I mentioned, in the real estate business since 
1957. So we have a very long track record. We would like to 
convert more of our buyers' sales to our mortgage company, but 
we are happy with 30 percent because we are providing great 
service and great pricing to our real estate associates to 
provide to their customers.
    Senator Bennett. You are suggesting, then, that the 
relationship that these agents have with you does not produce a 
circumstance where they can use their leverage with the 
homebuyer to get a higher price for you.
    Mr. Hanna. Our sales associates are very independent and 
they are looking for long-term relationships with their client. 
So they want to make sure that they get the best terms and 
conditions in that mortgage and closing process for their 
homebuyer so they can get future referrals from that homebuyer.
    Their primary responsibility is to create a comfortable and 
happy sale for that homebuyer. And they are out looking for the 
best possible mortgage product for them.
    Hopefully, it is with Howard Hanna Financial. But we don't 
require that they use our mortgage company, and RESPA would 
prohibit us from doing so.
    Senator Bennett. So you would insist that the experience 
indicates that the consumer is better served?
    Mr. Hanna. No question in my mind that the consumer is 
better serviced.
    Senator Bennett. And so, you--well, obviously, your 
testimony here--now, Mr. Murphy, I have some experience.
    Unfortunately, I have not only bought a lot of homes. I 
have six children who have come to me for help in buying homes.
    Mr. Murphy. I have two teenagers, so, I understand the 
feeling.
    Senator Bennett. Yes. My wife and I, plus our six children, 
all of whom are married, of that group of seven, six are moving 
this year.
    Mr. Murphy. Good. I would have liked their referrals, 
Senator.
    Senator Bennett. No, the reason that I bring that up, when 
we made our first move to Salt Lake City, we came across an 
agency whom we really liked. I thought her service was 
outstanding. She shopped for the very best mortgage rate for 
us.
    Quite frankly, Mr. Smith, the experience we had with the 
bank was less than satisfactory. I remember being enormously 
frustrated with the difficulties we had with the bank.
    This was the bank that she took us to, pointed us to as 
having the lowest rate. But they were not user-friendly in the 
way that we finally got our loan.
    Mr. Murphy, my point is that this particular woman has 
changed agencies several times. She's a hot property. Maybe I 
shouldn't put it in those terms.
    [Laughter.]
    Lest this be misunderstood.
    [Laughter.]
    She is a very competent professional who is in high demand 
for what she does in the area.
    [Laughter.]
    And consequently, independent real estate agencies keep 
trying to steal her from each other. I have gone back, and my 
family has gone back to her for her services repeatedly. She 
has not only handled all of our homes, she has handled a number 
of our children's homes. I have a little trouble assuming that 
she would be driven out of business if a bank were to come in 
and be able to offer other services.
    Can you help with that one?
    Mr. Murphy. I think in any community, Senator, there is 
going to be a number of REALTORS' who have 
established themselves over the years, 10 years, myself 15, my 
partner, who the Chairman knows, over 25 years.
    Most of our business is repeat business. The problem that 
we have is we need new people in our business regularly. Even 
in a State like South Dakota, which is small, with only 1,400 
REALTORS', we need, on the average, of 150 to 200 
new agents getting into our business.
    If you have to go to work for a bank because of the options 
of being new, the banks do not need you. Smaller offices cannot 
afford to have you around. They have a desk cost, just like 
anyone else. It doesn't matter that you are an independent 
contractor. We are all independent contractors.
    But I can tell you, I have seen a poor REALTOR'. 
I have never seen a poor banker when it comes to what they can 
live on. And the new people in our business just do not 
generate the income that it takes to sustain themselves to get 
themselves established.
    Senator Bennett. Well, I am very much aware of the fact 
that many real estate agents do not earn a full-time living at 
this. It becomes almost a part-time job or an adjunct to what 
else they do.
    I have some cousins that are in that circumstance. And 
frankly, I have not used their services.
    [Laughter.]
    Mr. Murphy. You should have sent them a referral, though.
    [Laughter.]
    Senator Bennett. Yes. I am trying to see if we can get any 
evidence or experience, rather than prospective assumptions, 
that the pool of agents will shrink if the banks go into this 
business.
    Now, Mr. Smith, I was hoping could help us. But he is not 
in the business, so his vision of this is prospective as well.
    The best place I think I can look is in the examples that 
Mr. Hanna has given us, and Mr. Taylor, I would like you to 
comment on this, too.
    As these large, presumably reputable, firms have come into 
the real estate business, have they either dried up the number 
of available agents or have they engaged in the kind of 
predatory practices that you so rightly deplore?
    Or has there been a reverse? That is, the more prestigious 
and national the firm, the less likely that firm is to engage 
in that kind of practice and the more likely they are to look 
for agents who would welcome the opportunity of an affiliate.
    I do not know. You have had some experience. We have heard 
from Mr. Hanna. Now let us hear from those of you who have had 
experience. With these large firms coming into the business, 
what has happened in the area of consumer protection and agent 
employment?
    Mr. Taylor. First of all, let me say I think that is an 
excellent question. If you do not mind, I would like to go back 
and actually do some research and see what the kind of 
performance was versus what the numbers are relative to how the 
industry is either growing or shrinking and what the 
performance of the large firms are versus the smaller firms.
    But I cannot say, I was listening to Mr. Smith. And you 
cannot help but sympathize with the fact that he's sitting here 
saying, look, my business as a small bank, I have to find other 
ways to survive. And I appreciate that.
    But I think his problem has more to do with the 
consolidation of the banking industry and then the evolution of 
the banking industry. There is still de novo bank applications 
coming in. So, obviously, people are getting into the banking 
industry, starting small, specialized banks.
    But I would say his problem is more with that and perhaps 
some of the many decisions that this Congress has made relative 
to allowing for mergers and the superconglomerates.
    Now, having said that, it is interesting to look at some of 
the large institutions and the way they have gone. The old Bank 
of America was one of the best community banks when it came to 
small business lending. They got acquired by NationsBank and 
NationsBank eliminated all of that very good small business 
lending opportunities.
    And so, you had one very large bank being acquired by 
another large bank, and there was a difference at the end of 
the day as to their performance was.
    You can look at the home mortgage disclosure data of some 
of these large institutions and you will see some doing a 
pretty decent job and others who you wonder whether they have 
just decided, and indeed, many of them have, decided to get out 
of the business of mortgage lending. So, I do not think that 
there is this one blanket statement that you can make relative 
to a large institution versus a small institution.
    Indeed, some of the minority-owned institutions might be 
doing a very excellent job, or are doing a very excellent job 
in some cities serving underserved populations. And yet, they 
are small institutions. Some of the community banks.
    I am a big believer in banks. And the reason I believe in 
banks is because there are laws, fair lending laws like CRA and 
the Fair Housing Act and others, which they are obligated to 
do.
    I think, left to their own demise, and this is just the way 
that you have to tweak the capitalist system so it works for 
everybody. But left to their own demise, they might only want 
to lend to the well-healed. And for others, we would be really 
struggling with much higher costs and much more difficult 
access to credit and capital. But we have laws against that, 
thank God.
    Well, that is not true for a lot of the other industries. 
So, again, if this were to occur, I would really hope that 
those same kinds of obligations that allow all Americans to 
build wealth, all Americans to have the opportunity.
    What I hear from your experience is, you know what, we have 
a heck of a brokerage industry and you have had a good 
experience working with an independent broker, not owned by a 
bank. And if it is not broken, why are we going to fix it, 
would be one of my conclusions.
    And the other would be, if we must go in that route to make 
sure that, in the same way that the banks are obligated to make 
sure that people are treated fairly and equitably and get 
access to credit and capital, their brokers do that same thing.
    They do not just open offices in the suburbs, but they have 
offices in rural America and inner-city America, so that people 
have access to the services.
    Mr. Smith. Senator, if I may respond?
    Senator Bennett. Let me hear from Mr. Murphy on the issue. 
You have raised a whole series of issues that we could have a 
whole series of hearings on.
    Mr. Smith. Right.
    Mr. Murphy. I liked his answer, first of all.
    Senator Bennett. Yes.
    Mr. Murphy. A large real estate firm in South Dakota, the 
largest one that I can think of, has 42 people in it. That is 
the largest. And everyone that I know of, anyway, in our 
industry in South 
Dakota is an independent contractor.
    We do not see problems with what we have right now. My 
arrangements with my loan officers, half the people that come 
to our noon monthly luncheons are the affiliates. We like the 
arrangement that we have right now. None of them wants to get 
into this business. Or at least, would come right out and say 
it, to be honest with you. They feel the same way. It is not 
broken.
    They believe that they need separation of commerce and 
finance. There is no doubt in any of their minds. They are not 
convinced that there would be separation, I think. But they are 
not going to come right out and say that, I guess.
    Senator Bennett. Mr. Smith, you were going to comment.
    I apologize for going on. But I apparently touched a nerve 
here.
    Mr. Smith. Very quickly, I would like to say something 
about the consolidation.
    My community is 8,500 people. We have five banks. Three of 
them are community banks. I would tell you that our office, as 
well as two of the other offices of the banks, are downtown.
    I would like to point out that we have a highway bypass, of 
course, around our community like a lot of small communities. 
The real estate agencies have moved out on the bypass.
    But our office is downtown. We worked very hard to maintain 
a very viable downtown where we have a town square. And in 
fact, something that you will not see very often, our bank 
offers interest-free loans to the business owners if they will 
repair and remodel their storefronts so that we can keep a very 
attractive downtown area to pull people into our community, to 
spend their money and provide jobs, et cetera.
    Senator Bennett. Thank you. Sorry to open up the floodgates 
about bank consolidation.
    Senator Johnson. Thank you, Senator Bennett. Let me just 
ask a couple real quick questions here of the panel.
    Let me branch out here. Brokerage and property management 
are two distinct activities, but they are lumped together in 
the proposed regulation as if they are linked in some manner.
    There hasn't been a lot of discussion in the testimony from 
this panel relative to property management. Would any of you 
choose to elaborate on whether these should be viewed as 
separate and distinct activities as we consider this issue?
    Any of you.
    [No response.]
    It may be that there are no strong opinions one way or 
another.
    Mr. Murphy. In South Dakota, they are all lumped under the 
same licensing program.
    Mr. Hanna. That is the way they are in most States, I 
believe. It is under real estate licensing. It is hard, I think 
in most States, to distinguish the difference. It is part of 
the real estate brokerage activity.
    Mr. Taylor. I would like the opportunity to submit a 
comment in the future on that, if I could.
    Senator Johnson. So the licensure process in most States, 
you are suggesting, would lump them together, even though, 
conceptually, it would seem that there would be a difference 
between property management and actual brokerage activities.
    Mr. Hanna. In most areas, the residential real estate 
brokerage firm is not involved in property management as we 
know it. This might not be true in some of the smaller markets, 
but typically, of commercial real estate brokerage companies, 
who are all under the same licensing law, that would be most 
responsible and part of their business model.
    Senator Johnson. Well, a follow up question probably has 
the same response, then, but let me ask.
    The focus we have had here today has been primarily in 
residential real estate and the importance of local 
REALTORS' in providing communities with that 
personalized service that they need.
    Do you see any difference between bank getting involved in 
commercial real estate transactions versus residential? Are 
there different issues that we should consider in terms of 
determining the potential impact on consumers?
    Mr. Taylor. I would hate to be the business owner who's 
trying to rent commercial property in a downtown building that 
is not managed by the major lender or lenders in that area, and 
then be going to those lenders trying to access credit and 
capital when they are obligated and have a financial interest 
in seeing to it that the other properties are leased out. I can 
see a conflict there that makes me somewhat uncomfortable.
    Senator Johnson. Anyone else care to comment on the 
difference between residential and commercial?
    Mr. Hanna. Well, certainly, commercial brokerage lending, 
in particular, does not come under RESPA laws. So, I think you 
probably have to look at that as an issue.
    Senator Johnson. Anyone else?
    [No response.]
    Mr. Smith, one area of concern is a potential for conflicts 
of interest, or the appearance of conflict of interest, if 
banks were to get into the real estate business.
    I know that there are strong antitying and privacy laws 
that provide protection against doing things, such as 
recommending inappropriate title insurance or property 
insurance products.
    But it would seem that there could be a temptation that 
could exist to steer customers to related areas of the banking 
organization, notwithstanding these restrictions.
    Could you very briefly elaborate a bit on what safeguards 
exist inside banks to ensure that this would not happen? And 
what would be the enforcement mechanism to ensure that any 
firewalls are maintained?
    Mr. Smith. Well, under the RESPA, we have to identify all 
those things that we have in the bank. And again, the customer 
has to acknowledge the fact that we have those products and 
services and has to sign off on that.
    And the regulatory bodies review those documents whenever 
they come into the bank. They look at the mortgage documents to 
make sure that we have complied with all the various provisions 
that we have to comply with.
    I sincerely apologize to Senator Bennett for having an 
unfortunate experience with a bank. Sometimes we bankers get 
very frustrated with the regulatory process that we have to 
comply with. But, again, that is ensuring that we provide to 
the customer the proper safeguards that we have to comply with.
    So that is part of the process in making sure that the 
consumer fully understands what they are signing and what the 
transaction involves.
    Senator Johnson. Mr. Taylor, are you satisfied with those 
constraints?
    Mr. Taylor. Well, actually, I wanted to raise a related 
point that I think your question raises because what is 
interesting is, if you watched over the last several years as, 
indeed, mortgages have become more affordable and interest 
rates have gone down, is you have seen the banks continuously 
lower fees and do the kinds of things that competition drives 
them to do.
    But you mentioned some of the other products that are also 
offered and that are necessary as part of the deal. Title 
insurance, for example.
    That hasn't gone down. Lawyers' fees haven't gone down. You 
look at some of those costs associated with that and I am 
wondering if--I do not know if you have picked it up in 
American Banker, but what we are looking at is, we would like 
to see more competition in those arenas because, indeed, those 
closing costs mean a lot, particularly for the populations we 
care about.
    Title insurance, you refinance or you get a home equity 
loan or anything like that, you get title insurance again. 
Well, you may not know this, sir, but the title insurance you 
originally had already covers you as the borrower, and it stays 
with you until you have sold off or until you drop dead.
    And yet, the bank hands you an additional title insurance 
policy for another $800-$900 dollars, on average, and if you 
are not savvy enough in some States to know that you are asking 
for a reissue policy, because if you ask for that, you actually 
get a discount. But, still, it is this incredibly inflated cost 
that has nothing to do with anything, except covering that new 
lender for that period of time that there are no liens on the 
property since the original title.
    I did not mean to get off on this, but the point of this is 
that, I think, in the same way with brokers, I am hoping that 
by keeping the industry separate, by keeping the competition at 
the level it is at, we have seen the broker fees go down.
    In some of these other industries where we have seemingly 
no influence, in spite of the market, in spite of the 
competition, I think there are all of five major title 
insurance companies, they have a nice little game going in 
which the consumer gets gouged.
    I like the idea of separate, competing industries that have 
to compete for the consumer dollar, rather than being just 
lumped together. That doesn't answer your question and I 
apologize for that, but it gives me the opportunity to talk 
about title insurance.
    [Laughter.]
    Senator Johnson. Mr. Murphy, last week, we were chatting a 
little bit, and I thought you raised an interesting point that 
goes to one of the more fundamental issues that this whole 
hearing is about, and the difference between transactions that 
are funda-
mentally financial in nature versus those that are commercial 
in nature.
    You shared with me an observation appropriate to our home 
State about selling cattle. You asked how real estate as an 
asset is different from selling head of cattle.
    In both cases, one has documented rights of ownership. Both 
types of transactions generally involve financing through a 
bank or other financial intermediary, and in both cases, the 
purchaser has the expectation that the asset will increase in 
value over time.
    Yet, buying and selling cattle is universally viewed as a 
commercial enterprise. Whereas, we have heard today the 
argument that buying and selling a home or investing in real 
estate is financial in nature.
    I think this is an interesting observation you have raised, 
and I wonder if you would comment a bit about, as you see it, 
the differences between transactions that are fundamentally 
financial versus those that are commercial.
    Mr. Murphy. Thank you, Senator. Well, obviously, in the 
Midwest, we look at things pretty straightforward. We raise 1.8 
million head of cattle in South Dakota, which is twice as many 
cattle or livestock as we have people in our State.
    We also had 400 million bushels of corn in our State. And 
farmers and ranchers, it wouldn't matter which operation you 
look at, they all feel the same way, everything that you can 
touch is real. That is the way they look at this issue.
    They look at real estate the same way. You could never 
convince, at least anyone that I know of in South Dakota, that 
real estate is financial in nature. It just doesn't go that 
way.
    And if you were going to go on that route, then we would 
only need four or five banks, but they'd have to be extremely 
large because on one side of the bank, you are going to have to 
have a livestock holding company and a grain elevator, and on 
the other side, you are going to have to hold farm machinery, 
boats, campers, and every car that is sold in the State of 
South Dakota, too. But maybe I could get involved in that land 
sale.
    We like separation. We like the separation in government. 
We like the idea that we have 535 people out here that can make 
a decision on whether something should be done that is in the 
best interest of the people.
    Senator Johnson. My time is expired, but Mr. Smith, just a 
brief observation on your part about financial versus 
commercial transactions.
    Mr. Smith. Well, I personally have a farm and I personally 
own cattle. But I own it. That is a product. And so, I 
personally buy and sell the cattle myself.
    So that is a product, much like hardware items, shoes, or 
clothes. That is a completely different situation than the real 
estate agents acting as a third party in the transaction of 
buying and selling a home.
    Mr. Hanna. And I will say that for 96 percent of the 
American public, the largest single asset they buy or sell is 
their own home.
    I think, as a statistic, 93 or 94 percent of the American 
families finance that purchase. So, I am not sure it is the 
same example as the cattle, but it is an example.
    Senator Johnson. My time has expired. Senator Bennett, any 
questions?
    Senator Bennett. Yes, I would like to make just a few 
observations here.
    My number-one concern here, I think of all the Members of 
the Subcommittee, is for the consumer. It is the buyer of the 
home.
    We want to structure a circumstance where the buyer of the 
home gets the best deal, gets the best service, and is 
protected, 
Mr. Taylor, from the predatory activity that you have 
described. And we have had hearings on that activity here in 
the Banking Committee.
    I am sympathetic to the idea of real estate agents liking 
the way things are. But if things can get better for the 
consumer by having a change, the way our dynamic capitalist 
economy works is that people who do not keep up with that have 
got to find something else to do, or start keeping up with 
that.
    As I say, the agent that I have described, I think she will 
thrive no matter what kind of a structure we have put here 
because she has the skills for which people will pay.
    But if there are marginal agents that the present 
circumstance is keeping in place who will get hurt, Champater 
called it, the creative destruction of capitalism? And we all 
have to go through it.
    I have certainly lost plenty of jobs in my life. I may lose 
this one for the comments I am making. I do not know.
    [Laughter.]
    But the bottom line should be, what is the best deal for 
the consumer?
    Mr. Smith, tell us why the consumer would be better off as 
the proposal that we have from the Fed and the Treasury goes 
into place.
    And Mr. Murphy, you tell us why the consumer would be 
damaged if this goes.
    Now I will warn you in advance, I do not think the 
predatory example you gave us is a legitimate example of what 
might happen because my experience is, if you have, just to 
pick some names, Welles Fargo or Bank of America, you will have 
a higher level of ethical procedure than you would have in the 
independent mortgage lender whom you talked about who doesn't 
want anybody looking at him.
    Whereas, the CEO of a very large national company will say, 
our reputation is our corporate crown jewels and we will not 
jeopardize our reputation for this kind of market.
    Now, obviously, I was wrong in that assumption as far as 
Arthur Anderson is concerned, but, generally that is the case.
    Mr. Taylor. Or J.P. Morgan or Merrill Lynch.
    Senator Bennett. Well, J.P. Morgan has an interesting 
history.
    But, generally, you do get a higher level of ethical 
behavior when you are dealing with a company that has a higher 
reputation than if you have a company that is kind of a fly-by-
night outfit put together in the local community.
    Mr. Taylor. So are you going to limit this to those high-
end, big companies? Is that what you are talking about?
    Senator Bennett. It is going to be limited to Federally 
chartered banks.
    Okay, Mr. Smith, and then Mr. Taylor.
    Mr. Smith. Senator Bennett, I alluded to the fact that in 
my community we have a Re/Max agency, and there are other real 
estate agents in town. And I think if you eliminate banks from 
having the opportunity to partner with those other real estate 
agents, maybe the mom-and-pop real estate agent, you will be 
eliminating choices for that consumer.
    If that small real estate agency, the mom-and-pop agency, 
doesn't have the capital or the technology to compete with the 
Re/Maxes of the world, they may look to a bank to partner in 
order to have the capital, in order to have the technology to 
stay in business.
    And I think keeping those people in business will obviously 
provide more choices for people wanting to purchase houses. And 
I think the banking industry can bring the capital and the 
technology resources to the table and partner with those real 
estate agencies in order to continue to provide the products 
and services to the community, which would mean many more 
options for the consumer.
    Mr. Taylor. Senator Bennett, I agree. I think, for the most 
part, large financial institutions really do care about their 
reputation.
    In fact, in some ways, that probably influences them as 
much as some of the fair-lending laws that reputation risks.
    So, I do not believe that there isn't some truth to that. 
Of course, this law wouldn't limit it to those institutions. In 
fact, some of the institutions that are subprime lenders and, 
indeed, do predatory lending, would also have access to being 
able to offer these brokered services.
    But one thing we should look at is, as these institutions 
have become bigger and bigger, what is interesting for the 
consumer is that the fees have gone up--ATM fees, check-cashing 
fees, basic banking fees.
    The Federal Reserve just did a study on this, looking at 
some of the largest institutions and what has happened to the 
consumer as they have gotten bigger and bigger and their 
reputations have grown and so on, is that the consumer is 
paying more and more for basic financial services.
    I know that my colleague, Mr. Hanna, talks about how RESPA 
would limit any steering toward a particular financing 
institution by a broker. But the truth is, if you are directly 
affiliated with a financial institution in such a way that that 
financial institution is steering mortgages or prospective 
borrowers to you because of the nature of their business and 
their customers say, ``you know, I think it is time to 
refinance or to buy a house or whatever--well, here, call your 
friend.'' What did you call the professional? A hot prospect.
    Senator Bennett. Never mind.
    [Laughter.]
    Mr. Taylor. But, in other words, that person, if I were 
she, if that bank was feeding me a line of business regularly, 
I would go out of my way to make sure that whatever opportunity 
I had to make sure that the people who were coming to me 
looking for houses, that I exposed them to that financial 
institution in a very positive way.
    I think that that will limit consumer choice. And again, I 
think the bottom line is, is the consumer being ill-served by 
the brokerage industry?
    I do not think so. I, like you, this year I have refinanced 
and paid that second title insurance fee. By the way, we will 
talk about that at another hearing.
    Senator Bennett. I agree with you about title insurance. 
Let's make the record very clear on that one.
    Mr. Taylor. But I was happy to deal with an independent 
broker who was able to bring me to a lot of different 
institutions and a lot of different products and gave me the 
best deal, and it really worked well.
    So that would be my comment, sir.
    Senator Bennett. Thank you.
    Anyone else? Any comment on what is best for the consumer?
    Mr. Hanna. Somehow, this conversation has gone that we will 
not have independent brokers any more. If you look at the 
example of GMAC, they have all independent brokers and they 
have been in the business for a number of years. GMAC is, I 
consider it a 
financial institution that owns real estate companies.
    And clearly, they are an example of someone in the 
business, a conglomerate financial group that has independent 
REALTORS' and they have a mortgage company also, and 
if they had their figures here, they have those same great 
independent REALTORS' who are making recommendations 
to the best mortgage products and the best other closing 
products possible in the marketplace.
    The financial conglomerates and State-chartered banks that 
have entered the real estate business over the years have not 
converted the sales force of independent contractors into 
salaried employees.
    I haven't seen this trend that Mr. Taylor alluded to, or 
Mr. 
Murphy. If banks come into the business and hire salaried 
people right off the get-go and change the industry model, they 
will not be in the business very long.
    Mr. Murphy. The problem with that is that GMAC, they are 
not banks. There is the difference.
    Mr. Hanna. Metropolitan Financial Corporation, which owned 
Edina Real Estate in the Minneapolis-St. Paul area for years 
before it merged into First Bank System, was a Federally 
insured sav-
ings and loan. It kept Edina's sales force of independent 
contrac-
tors intact.
    Senator Bennett. Mr. Chairman, my time is up and we will 
leave the hearing and allow these four to continue their 
debate.
    [Laughter.]
    Mr. Murphy. Which we will continue.
    Senator Johnson. Thank you, Senator Bennett.
    I want to thank the members of the panel. I think this has 
been a very constructive, very positive contribution to the 
issues that we are wrestling with here in the Banking 
Committee, and I thank you for your contribution.
    With that, the hearing is adjourned.
    Mr. Hanna. Thank you, Mr. Chairman.
    Mr. Murphy. Thank you.
    Mr. Taylor. Thank you.
    Mr. Smith. Thank you, Mr. Chairman.
    [Whereupon, at 11:50 a.m., the hearing was adjourned.]
    [Prepared statements, response to written questions, and 
additional material supplied for the record follow:]
                  PREPARED STATEMENT SENATOR JACK REED
    Thank you Mr. Chairman, and I appreciate the timeliness of the 
hearing, coming so closely after the National Association of 
REALTORS' engaged in some Capitol Hill visits last week.
    This is certainly an issue eliciting a lot of comment and 
excitement, and I am glad we have the opportunity this morning to delve 
further into the details of what this regulation would mean for the 
banking and real estate industries, and most importantly, for the 
consumer.
    Both sides in this issue continue to make compelling arguments,and 
I look forward to a further enlightening discussion this morning. 
Certainly the National Association of REALTORS' should be 
commended for their efforts in this debate, and I want to congratulate 
them for garnering so many cosponsors for their legislation in the 
House. Now I understand that their focus has shifted to the Senate.
    As a Member of the Conference Subcommittee on the Gramm-Leach-
Bliley Act a few years ago, I recall the many discussions we had in the 
context of banking and commerce. Obviously there are many varied views 
on the subject, and I made my position clear with regard to the unitary 
thrift ``loophole,'' for which I believed there were enough safeguards 
in place to allow for limited mixing of banking and commercial 
activities.
    The situation before us at this hearing presents a much more 
nuanced part of that argument, and I am certainly mindful of the effect 
it could have on my constituents that are part of the real estate 
industry, as well as consumers in general.
    Mr. Chairman, thank you again for the opportunity to have this open 
and frank discussion on such a relevant and important issue.
                               ----------
                    PREPARED STATEMENT OF TOM MURPHY
  President, Association of REALTORS', Sioux Falls, South 
                                 Dakota
            REALTOR', Chell REALTORS'
     representing The National Association of REALTORS'
                              May 23, 2002
    Chairman Johnson, Senator Bennett, and Members of the Subcommittee, 
my name is Tom Murphy. I am a REALTOR' with Chell 
REALTORS'--a small residential real estate firm in Sioux 
Falls, South Dakota. I am also President of the South Dakota 
Association of REALTORS'. Our State association membership 
of over 1,400 REALTORS' are engaged in helping people buy, 
sell, and manage real estate every day.
    I am here on behalf of the National Association of 
REALTORS', which represents more than 800,000 members 
engaged in all aspects of commercial and residential real estate. I 
want to thank you for the opportunity to testify today on this critical 
issue.
    It is important for all of us to take a good look at how the 
economy and consumers would fare if banks are allowed into the real 
estate business. That is one reason why I am glad we have the views of 
consumer groups represented on this panel.
    Mr. Chairman, you and your Subcommittee Members are to be commended 
for examining all perspectives on this proposed regulation--those of 
the little guy, as well as those of the big guy.
    As I mentioned, my business is a small, one-office real estate 
firm, just like nearly 80 percent of REALTOR' firms. My 
colleague from Pennsylvania here represents a large regional, 
multioffice firm. Obviously, we come here today to present different 
perspectives of this Nation's dynamic and diverse real estate market.
    The fact that some of our members can differ on an issue, while 
respecting and supporting each other on most, is a great example of the 
vitality of the National Association of REALTORS'. It is a 
sign of the hearty competition of the real estate business today.
    My comments today represent the overwhelming majority of NAR's 
members. Ninety-six percent of our members support the position of the 
National Association of REALTORS' to oppose this rule. 
Eighty-two percent of large broker/owners support this position, while 
81 percent of our members believe we should be doing even more to stop 
the banks from unfairly entering our business.
    We firmly believe that redefining real estate brokerage, leasing, 
and property management as financial in nature is totally unacceptable 
because it mixes banking and commerce. If the Nation's most aggressive 
megabanks are allowed to add real estate to their long list of approved 
activities, you can be sure that consumer choices in real estate 
services will shrink.
    The Nation's bankers, who petitioned the Federal Reserve and 
Treasury for this proposed rule, should not gain by regulation what 
they failed to gain by legislation. In 1999, Congress clearly went on 
record supporting the separation of banking and commerce.
    Oddly enough, the American Bankers Association strongly supported 
an amendment you offered, Mr. Chairman, during the Gramm-Leach-Bliley 
debate to bar unitary thrift holding companies from engaging in 
commercial activities like real estate brokerage. It now appears that 
members of the ABA would like to corner the market on commercial 
businesses like real estate brokerage, leasing, and management.
    Currently, we have a balanced marketplace for commerce, banking and 
financial services. Let me direct your attention to the two charts I 
have enclosed.
    The first chart shows how the commercial and banking industries 
compete in the ``financial services'' arena. REALTORS' do 
not engage in banking. They do not take deposits or run ATM's.
    Again, REALTORS' are not engaged in banking. Banks do 
not sell real estate. Banking and commerce are separate. It is that 
simple. Otherwise, why shouldn't banks sell cars or appliances?
    The second chart shows that in the arena where banks and 
REALTORS' do compete on mortgage originations, banks are 
already the winners. REALTOR'-affiliated mortgage lending 
companies only originate about 5 percent of mortgages, while the large 
banks handle 44 percent.
    Today's competition occurs in the financial services arena where it 
belongs. Consumers benefit from this arrangement because the direct 
competition for financial services between commercial companies and 
banks results in greater consumer choice and customer service. When 
banks say they want ``one-stop shopping'' what they are really saying 
is they want ``one-bank shopping.''
    The reality is that the entry of Federally chartered banks into the 
real estate brokerage business would tilt this balanced marketplace 
toward the Nation's mega-
banks. It would pit Government subsidized banking companies against 
privately funded real estate enterprises. It would put taxpayer money 
at risk.
    Mr. Chairman, the National Association of REALTORS' 
believes this issue is just too big to be decided by the regulators. 
The decision belongs with the Nation's lawmakers. That is why we have 
called on Congress to enact The Community Choice in Real Estate Act, S. 
1839, and H.R. 3424, a companion bill in the House, to clarify 
Congressional intent.
    REALTORS' from all over the country have sent more than 
100,000 letters to their Congressional representatives urging support 
for this bill. We have sent more than 40,000 letters to the Federal 
Reserve and the Treasury expressing our opposition to the proposed 
regulation. And we have sent more than 50,000 letters to President Bush 
urging his support.
    So far, H.R. 3424 has generated tremendous support in the House, 
with more than 230 cosponsors. So far, a dozen Senators have 
cosponsored S. 1839. Last month, Treasury Secretary O'Neill announced 
that he plans to postpone making a decision on this issue until next 
year. The ball is back in your court. It is time for Congress to 
resolve this issue.
    Mr. Chairman, REALTORS' are not alone on this issue. A 
diverse group of trade associations and consumer groups stand with us 
on this one.
    Passage of The Community Choice in Real Estate Act will set the 
record straight. At the same time, it will ensure more balanced 
competition and more consumer choice.
    This legislation will help to keep local entrepreneurs and 
businesses operating in our communities. It will help to keep some of 
our best community leaders and volunteers in place.
    REALTORS' are more than business people. We are 
community leaders. Look in countless cities and townships across 
America and you will find it is a REALTOR' serving as a den 
mother; a REALTOR' who is leading the city-wide clean up; a 
REALTOR' who is hosting the candidate meet-and-greet; and a 
REALTOR' who is coaching Little League. REALTORS' 
are linked to their communities in more ways than simply through their 
businesses. REALTORS' have a stake in the same neighborhoods 
where their clients live or want to live.
    Finally, this proposal just does not make sense. Banks have it 
backwards. Real estate brokerage is not incidental to a financial 
activity. It is the mortgage that is, in fact, incidental to buying a 
home. Twenty percent of all the homes sold in America involve no lender 
financing at all.
    America's system of homeownership is the envy of the world. 
Homeownership is at an all time high. Five out of six homebuyers and 
home sellers are satisfied with their real estate agent and they would 
use him or her again. Let us not destabilize this pillar of our economy 
and relationship that works in communities throughout America.
    Well over a year ago, the Federal Reserve and the Treasury 
Department issued a proposed rule that would allow financial holding 
companies (FHC's) and financial subsidiaries of national banks to 
engage in real estate brokerage, leasing, and property management 
activities. The National Association of REALTORS' (NAR) 
strongly opposed this regulation on the grounds that real estate 
brokerage and property management are neither financial activities, nor 
are they incidental to finance, and approval of the proposed rule would 
thus effect a mixing of banking and commerce. This regulation would not 
only result in negative market and consumer consequences. An 
affirmative decision by the Federal Reserve and Treasury on this 
proposal would also violate Congressional intent, evident in several 
key banking laws which make it very clear that Congress specifically 
intended to maintain the separation of banking and commerce.
    Congress adopted the Gramm-Leach-Bliley Act in 1999, which 
established a legal and regulatory framework for financial subsidiaries 
of banks and financial holding companies to engage in designated 
financial activities under the new law. The Act created a new entity, 
the financial holding company that would compete in the financial 
services area offering services that were prohibited to bank holding 
companies. By distinguishing the permissible activities of bank holding 
companies from financial holding companies, the Act also reaffirmed the 
longstanding national policy that separated banking from commerce 
because of the unique powers and advantages granted to banking 
institutions by their Federal charters.
    NAR-supported legislation was introduced in both the U.S. House of 
Representatives and the U.S. Senate (H.R. 3424 and S. 1839) that will 
clarify Congressional 
intent that real estate brokerage and management are not incidental or 
complimentary to a financial activity. The proposed legislation, The 
Community Choice in Real Estate Act, will maintain the status quo 
regarding FHC's ability to expand into real estate brokerage and 
property management activities through regulation. The Community Choice 
in Real Estate Act returns the issue back to its proper forum--the U.S. 
Congress.
    The National Association of REALTORS'-supported 
legislation and its position on this issue is based primarily on two 
strong beliefs:

f The Congress, not the Board of Governors of the Federal Reserve or 
    the Secretary of the Treasury, is the proper judge of what is 
    commerce and what is banking or financial services. The 535 elected 
    Congressional representatives, not the seven Federal Reserve Board 
    Governors or the Secretary of the Treasury, should be responsible 
    for any changes in current law that would result in a dramatic 
    restructuring of the real estate industry. Real estate brokerage 
    and property man-
    agement are clearly commercial activities. This view was central 
    throughout the 25-year debate on the Glass-Steagall Act and the 
    passage of the Gramm-Leach-Bliley Act of 1999, and clearly is 
    reflected in historical and present Congressional intent.
f Permitting financial holding companies and national bank subsidiaries 
    to enter the real estate brokerage and management industry would 
    have wide-ranging, adverse market effects. Industry concentration 
    would increase, competition would decline, and consumer choice 
    would be limited with no real benefits from economies of scale or 
    scope. The unprecedented expansion of banking powers into the real 
    estate brokerage/management industry would clearly expose the 
    financial holding companies' and their banking subsidiaries' 
    inherent conflicts of interest in selling financial services 
    (banking products) rather than serving customers in the brokering 
    of real estate property.

    NAR's position was eloquently stated by Congressman Jim Leach of 
Iowa, the sponsor of the Gramm-Leach-Bliley Act:

          The movement to go beyond the integration of financial 
        services and eliminate the traditional legal barriers between 
        commerce and banking is simply a bridge we should not cross. It 
        is a course fraught with risk and devoid of benefit and one for 
        which there is no justification.
          Such a step would open the door to a vast restructuring of 
        the American economy and an abandonment of the traditional role 
        of banks as impartial providers of credit, while exposing the 
        taxpayer to liabilities on a scale far exceeding the savings 
        and loan bailout. At issue with financial services 
        modernization is increased competition. At issue with mixing 
        commerce and banking is economic conglomeration, the 
        concentration of ownership of corporate America.

    Financial holding companies, their representative associations and 
other groups, including some large real estate brokerage companies, 
argue against the National Association of REALTORS' 
position. They claim that the Association is being ``protectionist,'' 
and that the entry of banks into real estate would encourage more open 
competition in the real estate marketplace. On the contrary, the 
National Association of REALTORS' position promotes open and 
fair competition. Indeed, its members would welcome FHC's as 
competitors if FHC's truly competed in a free market without the 
advantages of their bank subsidiaries' Federal charters and without 
creating the risks outlined by Chairman Leach.
    Currently we have a balanced marketplace for commerce, banking, and 
financial services. Real estate brokerage firms do not engage in 
banking. Financial holding companies do not engage in commercial 
activities, such as real estate brokerage and property management. 
Banking and commerce are separate. The arena of financial services 
allows competition from both financial holding companies and commercial 
firms. Both real estate brokerages and financial holding companies 
(banks) have diversified their business lines into financial services 
that have served as a buffer between commerce and banking activities. 
This was the intent of Congress throughout its deliberations on 
financial modernization.
    The reality is that the entry of Federally chartered banks or 
financial holding companies into the real estate brokerage business 
would tilt this balanced marketplace toward the FHC's. It would pit 
Government-subsidized banking companies (putting taxpayer money at 
risk) against privately funded real estate enterprises. Furthermore, if 
FHC's are permitted to enter the real estate business, 
REALTORS' and builders would be placed in the awkward 
position of having to go to banks which are subsidiaries of FHC's--
their direct competitors--for loans and financial services.
Why REALTORS' Support The Community Choice in Real Estate 
        Act
    The Community Choice in Real Estate Act of 2001 was introduced by 
Congressmen Ken Calvert of California and Paul Kanjorski of 
Pennsylvania. The Act, H.R. 3424 was introduced with more than 30 
original cosponsors and today has more than 225 cosponsors. The 
legislation, along with its companion bill in the Senate, S. 1839, is 
designed to address concerns expressed by both real estate 
professionals and consumers if financial holding companies and 
subsidiaries of national banks (FHC's) are permitted to engage in real 
estate brokerage and property management activities.
    In brief, The Community Choice in Real Estate Act stipulates that 
Federal regulators prohibit these financial institutions from engaging 
in real estate brokerage and management activities. More specifically, 
H.R. 3424 and S. 1839 specify that the Federal Reserve Board and the 
Secretary of the Treasury may not determine that real estate brokerage 
or real estate management activities are financial in nature, 
incidental to any financial activity, or complementary to a financial 
activity.
The Community Choice in Real Estate Act Returns the Issue to
the Proper Forum--the U.S. Congress
    The National Association of REALTORS' position on banks 
entering the real estate business aligns with both historical and 
current Congressional intent. The legislative history of banking laws 
demonstrates that real estate brokerage has been consistently 
interpreted as a commercial, not a financial activity. Although the 
Gramm-Leach-
Bliley Act of 1999 (GLB) made specific reforms in the Nation's banking 
and financial services laws, the separation of banking from commerce 
remains a tenet of national policy. While the Federal Reserve and the 
Treasury Secretary are authorized by Gramm-Leach-Bliley to expand the 
list of financial activities, Congress has clearly indicated its intent 
to maintain the separation of banking and commerce.
    Financial modernization--the term that advocates used to 
characterize the legal changes that allowed banks, securities firms, 
and insurance companies to enter each other's businesses--has been 
interpreted by some as removing all barriers to banks entering 
nonbanking businesses. But in its deliberations on the Gramm-Leach-
Bliley Act, Congress stopped short of mixing banking and commerce. The 
GLB Act was quite specific from the outset in describing what a 
financial activity may be. The current activities of banks and 
financial holding companies principally relate to financial 
instruments: loans, checking accounts, mortgages, etc. While these 
represent value between two parties (usually a bank and a depositor or 
borrower), they are not tangible goods and rarely take any physical 
form.
    Commercial activities, such as real estate brokerage and property 
management, offer to consumers something that is tangible--a house, an 
appliance, a car, for example. Although banks argue that real estate 
has financial attributes, even the Federal Reserve Board and the 
Secretary of the Treasury in the proposed real estate regulation 
observed that bank-ascribed financial attributes might not be enough to 
treat real estate as a financial asset.\1\ And while purchasing 
tangible assets, such as a car, computer, or a home, may entail the use 
of financial instruments--usually cash or loans--this does not mean 
that commerce is ``financial in nature'' or ``incidental to a financial 
activity.'' Rather, it can be argued that financial activity is 
incidental to the real estate transaction.
---------------------------------------------------------------------------
    \1\ See Federal Register, Vol. 66, No. 2, Wednesday, January 3, 
2001, p. 310.
---------------------------------------------------------------------------
    In the GLB Act, Congress enumerated those activities that it deemed 
to be financial in nature, but specifically omitted real estate 
brokerage and management. (For specifics, see 12 U.S.C. 1843 (k)(4)). 
\2\ Congress did make provisions to expand the list of financial 
activities. It devised specific criteria that such activities must 
meet, based on new technological developments to deliver financial 
products to consumers and how the marketplace itself evolved. Congress 
also authorized the Federal Reserve Board and the Treasury Department 
to agree on such new financial activities.
---------------------------------------------------------------------------
    \2\ Further evidence of Congressional intent regarding holding 
company expansion into non-financial areas can be discerned by the vote 
in the House of Representives in 1998 in which an effort to permit 
banks to engage in commerce--up to 5 percent of their annual net 
revenue and five percent of their total assets--was defeated by a vote 
of 229 to 193.
---------------------------------------------------------------------------
    However, Congress did not anticipate nor intend for that list of 
financial activities to include commercial ones. There has been no 
significant change in the relevant technology, or in the business of 
real estate brokerage or management, since enactment of the GLB Act in 
late 1999. The businesses of real estate brokerage and management 
remain, for all practical intents and purposes, the same today as they 
were on the date of enactment: the transfer of real property and such 
commercial activities related to such transactions. The very purpose of 
the regulation proposed by the Federal Reserve and the Treasury 
Department is to overturn the long-held understanding that real estate 
is commerce by redesignating it as a financial activity for purposes of 
the Gramm-Leach-Bliley Act. The proposal from the Federal Reserve and 
the Secretary of the Treasury runs counter to Congressional intent.
    The proposal to redefine real estate brokerage as a financial 
activity has met opposition from a full spectrum of consumer and 
industry groups. In support of that opposition, Congress is reasserting 
its authority in the arena by introducing The Community Choice in Real 
Estate Act. This bill amends the Bank Holding Company Act to preclude 
any such action by the Federal Reserve or Treasury, and clarifies 
Congressional intent by prohibiting banks and financial holding 
companies from entering real estate brokerage or property management. 
The bill's intent is to maintain the status quo; it does not seek to 
preclude any current activities that banks and their affiliated 
businesses are authorized to do. It reasserts Congressional intent in 
maintaining the separation of banking and commerce.
    Members of Congress overwhelmingly are signaling their support for 
retaining the commercial distinction of real estate activities and 
their intention to maintain the separation of banking and commerce. In 
fewer than five months after The Community Choice in Real Estate Act 
was introduced in Congress, more than 225 Members of the House of 
Representatives and at least 10 Members of the Senate signed on as 
cosponsors of the bills.
The Act Supports A Diversified Real Estate Services Marketplace
    During the past two decades, the financial services marketplace has 
grown substantially due, in part, to the entry of both commercial firms 
and banking companies. Commercial firms that are involved in the 
selling and/or brokering of durable goods (such as refrigerators, 
automobiles, and homes) have naturally expanded into financial services 
to facilitate the transaction by offering consumer financing that is 
complementary to their primary service--the brokering/selling of a 
tangible product. Similarly, banking companies that are involved in the 
selling of banking services (such as consumer loans and commercial and 
industrial loans) have also expanded into financial services so that 
they can capture a greater market share by offering their customers 
financial services that complement their primary service--banking.
    However, unlike a commercial firm, which risks its own capital 
funds, a bank's ability to expand its powers and diversify into 
financial activities has historically been constrained by Congressional 
oversight. Because of the ``special nature'' of banks and the many 
Federal subsidies that flow through a bank (that is, deposit insurance, 
privileged access to credit), Congress has continually repeated its 
intent to separate banking activities from commerce activities in an 
effort to avoid conflicts of interest, adverse market outcomes, and 
fairness issues that can be caused by a bank's special privileges.
    The Gramm-Leach-Bliley Act provided an opportunity for financial 
holding companies to expand their product/service lines into financial 
activities and activities that are incidental to finance. It is very 
clear that the GLB Act set the foundation for a shared competitive 
playing field for both commercial firms and banks--the financial 
services marketplace. Commercial firms that have subsidiaries involved 
in financial activities compete head on with bank-owned financial 
subsidiaries. This competition was not ``created'' by the GLB Act; it 
already existed because bank-affiliated mortgage lenders already 
existed and, in fact, dominated--and still dominate--mortgage 
originations. (In 1999, commercial banks and subsidiaries of commercial 
banks accounted for the largest market share--44 percent--of mortgage 
originations, according to the Home Mortgage Disclosure Act. The top 25 
diversified real estate brokerage firms accounted for only 0.8 percent 
of mortgage originations.) For example, the General Motors Acceptance 
Corporation (GMAC)--a financial services subsidiary of General Motors 
competes against Wells Fargo and other banks to sell financing services 
to customers purchasing a General Motors automobile. Similarly, Circuit 
City competes directly with Bank of America to sell financing services 
to customers purchasing Circuit City-electronic products.
    In the real estate marketplace, companies like John Doe, 
REALTOR', compete directly with banks, like Bank of America, 
in the financial services marketplace by providing real estate--related 
financial services--principally mortgage brokering services and title 
insurance--to customers purchasing a home that was brokered/sold by 
John Doe, REALTOR'. Both the real estate brokerage company 
and the bank offer a number of real estate related financial services 
to homebuyers and sellers.
    In the post-GLB Act marketplace, the real estate brokerage company 
does not offer banking services and banks do not offer commercial 
services--real estate brokerage and management. The separation of 
banking and commercial activities is intact. The competition is in the 
financial services arena where it belongs. Consumers benefit from this 
arrangement because the direct competition for financial services 
between commercial companies and banks results in greater consumer 
choice and customer service. Prohibitions against the encroachment of 
Federally subsidized banks into the world of commerce limit conflicts 
of interest or unfair competition.
    The ability of real estate brokerage companies to diversify their 
business lines into the financial services marketplace has produced a 
number of diversified real estate services companies to better serve 
consumers. Even the smaller and less diversified real estate brokerage 
companies now look to offer ancillary services to their homebuying and 
selling clients. Moreover, there are examples where banks and real 
estate brokerage companies have joint ventured in the financial 
services marketplace. A prominent example is Prosperity Mortgage, which 
couples Wells Fargo Bank and Long & Foster, REALTORS'.
    Diversified real estate brokerage companies compete directly 
against the large financial holding companies (banks) in the financial 
services marketplace each and every day. The competitive dynamics in 
this marketplace are no different from the competitive nature of the 
automobile and electronics marketplaces. The beneficiaries in all of 
these markets are consumers.
The Community Choice in Real Estate Act Will Benefit Consumers and
the Real Estate Industry
    The Community Choice in Real Estate Act will help to maintain a 
competitive, efficient, and balanced real estate marketplace, providing 
the consumer with choice at low cost and with no risk to the U.S. 
taxpayers. The entry of Federally insured depository lending 
institutions into the real estate brokerage business would tilt the 
competitive playing field by pitting Government subsidized financial 
holding companies and national bank subsidiaries against privately 
funded real estate enterprises. Passage of the Act will help preserve a 
fiercely competitive real estate brokerage marketplace.
    The real estate brokerage industry as it exists today has large 
numbers of independent real estate professionals and brokerages 
actively competing for prospective buyers and sellers. Competition is 
fierce, efficiencies are high, and there are relatively few barriers to 
entry. These characteristics make it highly unlikely that the proposed 
regulation would benefit either business or consumer interests.
    The residential real estate brokerage industry is a competitive 
marketplace, where more than three quarters of a million 
REALTORS' \3\ and tens of thousands of real estate 
brokerages compete for customers' business each day. The underlying 
cost structure of the industry and the relative ease of entry into the 
market serve as checks to the concentration of market power. The large 
number of industry players ensures homebuyers and sellers access to 
service providers who best meet consumers' needs at the lowest price 
possible.
---------------------------------------------------------------------------
    \3\ There are approxiamtely two million people who hold real estate 
licenses. However, not all of those are active practitioners. It should 
be noted that Realtor', REALTORS', and Realtor-
Associate' are registered collective membership marks that 
identify, and may be used only by, real estate professionals who are 
members of the National Association of REALTORS' and 
subscribe to is strict Code of Ethics.
---------------------------------------------------------------------------
    Real estate firms tend to compete actively for business in three 
different arenas. First, firms compete for the best real estate agents. 
Second, firms compete for sellers' listings and homebuyers against 
other real estate firms in their market area. Finally, real estate 
firms and agents compete against the other homebuying and selling 
options, including For Sale by Owner (FSBO's). The result of this 
three-pronged competition revenue and cost pressures that limit 
profitability for most real estate brokerages. But this competition 
also results in excellent service provided efficiently by real estate 
firms and agents for both buyers and sellers. The Community Choice in 
Real Estate Act would preserve this system.
Mixing Banking and Commerce Will Stifle Competition in the
Real Estate Industry
    Today any commercial firm can enter real estate brokerage, but 
FHC's have Government-imposed barriers to entry. National banks and 
financial holding companies have long been able to own mortgage 
companies and engage in joint ventures with real estate firms. They now 
claim that real estate brokerage and management are financial 
activities, without acknowledging their current competition in this 
area through their existing mortgage lending affiliates. Financial 
holding companies now want to directly own commercial firms in the form 
of real estate firms and compete with other commercial firms using the 
Federal subsidies available to their banking subsidiaries. This is not 
the competition that Gramm-Leach-Bliley envisioned.
    The expansion of banking powers that would permit FHC's to engage 
in real estate brokerage activities will have a detrimental effect on 
the real estate brokerage industry. The Federal banking charter 
provides Federal deposit insurance and privileged access to credit--
advantages not offered to real estate brokerage firms. Most of the 
advantages of the bank charter directly add to bank profitability that 
would flow up to the financial holding company, thus offering FHC's and 
their real estate brokerage subsidiaries a competitive advantage over 
commercial firms in the real estate industry.
    Allowing FHC's to provide brokerage, funding, and investment 
services for real estate would increase the power of these integrated 
firms. This power could be used to limit the entry of new real estate 
firms and thus limit the competition characterizing the market today in 
two distinct ways.
    First, FHC's would have the ability to fund new real estate 
brokerages with revenues from the banking side of the business, thus 
tilting the playing field toward FHC's. Financial holding companies 
would be able to use banking fees or even profits from their mortgage 
operations both to increase profitability and to subsidize their entry 
into insurance and other financial services. Few traditional real 
estate brokerages have access to outside income streams to subsidize 
the real estate brokerage business. The result could be an increase in 
industry concentration as real estate brokerages exit the industry 
unable to respond to their well-financed new competitors. The same 
dynamic would limit entry of new real estate firms.
    Second, FHC's could leverage their privileged access to capital, 
access to numerous subsidiaries, and outside income streams to engage 
in a sustained period of below-cost pricing designed to eliminate other 
firms providing the same service. This could damage any real estate 
brokerage firms that do not have the resources to defend themselves 
against a well-financed and subsidized FHC. Again, formerly viable real 
estate brokerages could be forced to dissolve--not because of an 
inability to provide efficient and quality service to consumers, but 
because below-cost pricing can unfairly eliminate the competition. The 
result could be a smaller number of firms that are less likely to 
provide the benefits that competition brings to today's real estate 
brokerage market.
Mixing Banking and Commerce Hurts Consumers
    The National Association of REALTORS' agrees with the 
message sent by the U.S. Congress: mixing commerce and banking will 
adversely affect the real estate industry. If big banks are allowed 
into the real estate business, the market could soon be dominated by a 
smattering of large banking conglomerates whose primary goal is to 
cross-sell various financial products, not to put people in homes and 
commercial properties. The end result could be fewer choices for 
consumers, higher fees and less competition.
    In the banking industry a few dominant firms control a significant 
share of the total market. FHC's' entry into the real estate brokerage 
market would likely increase concentration and introduce unfair 
competition because of their Federal subsidies. There is likely to be a 
significant decline in the number of firms and the number of small 
firms that represent a key segment of the industry. The real estate 
brokerage business could change from a localized, highly competitive 
industry to one that is dominated by nationwide Federally chartered 
firms.
    It is unclear what FHC's could bring to the market that would 
increase competition. Any additional entry will not necessarily lower 
costs. FHC's claim that consumer costs will go down, but those lower 
costs can only be realized by introducing economies of scale or scope, 
cross-subsidization, or predatory pricing. The latter two reasons are 
not permanent benefits for consumers. Only the first--economies of 
scale--enhances consumer welfare. Without an increase in efficiency, 
there would be no cost savings to pass along to consumers. But there 
are limited economies of scale in the real estate brokerage industry.
    Even if FHC's were able to reduce real estate brokerage fees 
temporarily, any savings to homebuyers would be offset by higher costs 
for bank customers. Absent economies of scale, lower real estate 
brokerage fees can only come via cross-subsidization from other 
business arenas. The higher banking fees are likely to become permanent 
features of the banking system, given barriers to entry and 
concentration of market power, while reductions in real estate 
brokerage fees could be temporary as firms exit the industry.
    The expansion of banking powers that would permit financial holding 
companies into the real estate brokerage business could also limit 
consumer choice in the selection of a real estate professional and 
other real estate-related service providers. FHC's have an inherent 
conflict of interest in selling financial services (banking products) 
rather than serving customers in the brokering of real property. The 
parental relationship between FHC's and their subsidiary real estate 
brokerage business would likely steer consumers to the FHC's' 
subsidiaries. Agents working for an FHC-owned real estate brokerage 
firm would have less incentive to find an outside loan provider or 
other real estate settlement service vendor that best fits their 
customers' needs.
    There is also the likelihood that FHC's entering the real estate 
brokerage industry would retain their real estate agents as salary-
based employees, rather than as commission-based independent 
contractors. As FHC employees, these real estate agents would focus on 
the FHC's profits, cross-selling the holding company's other services. 
This is contrary to the current real estate market where there is 
fierce competition among a large number of firms ensuring that 
consumers receive valuable, impartial advice when they most need it.
The Act Benefits Consumers and the Real Estate Industry
    In summary, passage of The Community Choice in Real Estate Act will 
ensure more competition, and thus more consumer choice. More 
competition will maintain the lowest cost real estate brokerage 
services as well as lower banking fees. Taxpayers will be protected 
from risks associated with commercial endeavors underwritten by 
Federally insured depository lending institutions. Consumers will 
continue to be served by real estate professionals whose interests are 
aligned with theirs.
    The Community Choice in Real Estate Act defines real estate 
brokerage and management as commercial activities, outside the scope of 
a Federal bank charter. The Community Choice in Real Estate Act will 
limit banking institutions to activities permitted under their current 
charters, and maintain the current environment that provides for an 
efficient and competitive real estate brokerage market that benefits 
both the real estate industry and America's consumers.
Overwhelming Industry Support for the National Association of
REALTORS' Position
    The National Association of REALTORS' represents all of 
its members and the real estate industry as a whole. In the last 14 
months, the association has spoken for its 800,000 members with one 
voice, as The Voice for Real Estate. A unified voice is crucial in 
maintaining a competitive and highly efficient real estate industry 
that serves America's property owners. It is even more vital on the 
issue of allowing financial holding companies and national bank 
subsidiaries (FHC's) to engage in real estate brokerage and property 
management activities.
    Recent research indicates that the National Association of 
REALTORS' does speak for an overwhelming majority of its 
members who oppose FHC's' entry into the real estate brokerage and 
management business. In a recent survey (February 2002), more than 9 
out of 10 REALTORS' oppose the pending Federal Reserve and 
Treasury Department rule that would allow big banking conglomerates to 
enter real estate brokerage and management. Perhaps more importantly, 
96 percent support efforts by the National Association of 
REALTORS' to prevent FHC's from entering real estate 
brokerage management.


    The survey found widespread support among broker-owners as well as 
sales agents. Some 82 percent of large brokers support NAR's position, 
according to the survey. The survey also found that 81 percent of 
REALTORS' want NAR to be even more aggressive in its 
efforts, and majority of large brokers also want NAR to do more to stop 
FHC's from entering the real estate business.








                  PREPARED STATEMENT OF JAMES E. SMITH
                President, American Bankers Association
                  Chairman and Chief Executive Officer
     Citizens Union State Bank and Trust Company, Clinton, Missouri
                              May 23, 2002
    Mr. Chairman, I am James E. Smith, Chairman and CEO of Citizens 
Union State Bank and Trust, Clinton, Missouri and the President of the 
American Bankers Association. I am pleased to be here today on behalf 
of the American Bankers Association (ABA). ABA brings together all 
elements of the banking community to best represent the interests of 
this rapidly changing industry. Its membership--which includes 
community, regional, and money center banks and holding companies, as 
well as savings institutions, trust companies, and savings banks--makes 
ABA the largest banking trade association in the country.
    I want to thank you, Mr. Chairman, for holding this hearing. It 
allows all parties to get beyond the heated rhetoric and focus on the 
issues. In the debate over allowing banks to engage in real estate 
brokerage, we bankers have sometimes been portrayed as somehow working 
against real estate agents. We disagree with this characterization. The 
reality is that many agents and bankers already work closely with one 
another. In fact, I believe that bankers and many in the real estate 
industry are much closer aligned on the issue of real estate brokerage 
than the rhetoric suggests. We all believe that customers deserve to 
have the best possible service, regardless of what company provides it. 
We all want customers to have many choices of whom to deal with so they 
can seek out that agent or company that they trust. And we all believe 
that the provision of any financial service should be done in a safe 
and sound manner--including adhering to all licensing, qualification, 
sales practices, and continuing education requirements.
    If banking institutions offer real estate brokerage and management 
services there would be more choices available for everyone. Consumers 
would have more choices of real estate firms when buying or selling a 
home. Real estate brokers would have more choices of potential 
employers. And real estate companies would have more choices of 
companies to partner with that could provide new sources of capital and 
technology. By prohibiting bank involvement, S. 1839 would do just the 
opposite--consumers, real estate agents, and real estate companies 
would have fewer choices. We believe a competitive market is the best 
way to provide quality real estate brokerage and management services.
    As we begin our discussion, it is important to note that combining 
real estate brokerage and banking services is not a new or unusual 
activity. Real estate firms do it. Insurance companies do it. 
Securities firms do it. And well over half the Federally insured 
depository institutions in this country, including many of the largest 
banks and savings institutions, have authority to do it. In fact, my 
community bank in Missouri has the authority to do it. The ABA believes 
that all banking institutions should have the same opportunity to 
provide services that meet the needs of our customers.
    This issue of open and fair competition is not new--in fact, it has 
been debated in this legislative body for many years. However, the 
statutory context within which today's discussion will take place is 
quite different. In 1999, Congress took an historic step to modernize 
the regulation of the financial services sector by passing the Gramm-
Leach-Bliley Act (GLB Act). In the more than 15 years of debate on the 
Act, Congress often found itself in the middle of arguments between 
financial services industries about who should do what. The result was 
gridlock and an out-of-date financial system that did not reflect 
changes in consumer needs or in the use of technology.
    To be sure that the procompetitive goals of the GLB Act continued 
to be met in a dynamic marketplace, Congress established a flexible, 
yet conservative regulatory process that would permit the financial 
industry to offer new services without the need for further 
legislation. This regulatory system gives the Federal Reserve and 
Treasury the flexibility and responsibility to determine what 
activities should be approved, including considering what is necessary 
to permit financial holding companies and national bank subsidiaries to 
``compete effectively with any company seeking to provide financial 
services in the United States.'' This authority is consistent with the 
Federal Reserve's and Treasury's role to ensure efficient, safe, and 
competitive financial markets.
    The GLB Act promotes competition, safety and soundness, and enables 
Congress to avoid becoming embroiled in every competitive issue. S. 
1839 would take out the flexibility built into this new system, and put 
Congress back in as referee for future competitive disputes. Simply 
put, the bill would reverse the most important long-term provision in 
the GLB Act over the very first proposal put forth under it. Having 
worked so hard to develop a mechanism to keep our financial system up-
to-date on an ongoing basis, Congress should not reverse itself less 
than 3 years later because some group wishes to protect itself from 
competition. The system established in the GLB Act should be allowed to 
work and S. 1839 should not be enacted.
    Banking institutions should be allowed to offer real estate 
services for three key reasons:

f It's good for consumers--It means more choices, better service, 
    competitive prices, and greater convenience.
f It's only fair--Since real estate firms offer banking and insurance 
    services, it's only fair that banking institutions be allowed to 
    provide real estate services. This is what the Gramm-Leach-Bliley 
    Act is all about--promoting free and fair competition by leveling 
    the playing field.
f It's safe--All consumer protections, including all State licensing, 
    qualification, sales practices, and continuing education 
    requirements, plus strict privacy laws and antitying rules, would 
    apply to bank-affiliated real estate agents. And because brokerage 
    and management are agency activities, they pose no risk to the 
    bank.

    I will discuss these points in detail in the remainder of my 
statement. Before I do, let me assure you that the competitive issues 
we are talking about here this morning are important to banks of all 
sizes. In fact, the ability to offer real estate brokerage may be more 
important for smaller institutions. Rural communities may lack real 
estate agents or are served only by branches of brokers in other towns 
because there is insufficient business to warrant a local brokerage 
office. In such small communities, the bank is perceived as the place 
that will have the greatest amount of information on what properties 
are for sale, including farmland acreage in agricultural communities. I 
believe, as do my fellow colleagues who run small community financial 
institutions, that these services would significantly benefit our 
customers and our communities.
Competition is Good for Consumers
    The benefits of competition are well known. In a free market, 
businesses choose to offer new products if they believe they can 
provide better services at competitive prices. Obviously, not all 
banking organizations will choose to offer real estate services, but 
those that do will enter the market because they believe they can meet 
or beat the competition. Increasing the number of providers raises the 
bar for all the participants, forcing improvements in efficiency, 
pricing, and service levels--all to the benefit of homebuyers and 
sellers.
    Allowing all banking institutions to provide real estate services 
expands the choices for everyone: consumers, real estate agents, and 
real estate companies. This is not only the opinion of bankers, but 
increasingly, it is a view shared by real estate agents and 
particularly real estate companies.
More Choices for Consumers, Real Estate Agents, and Realty Companies
    If banking institutions were allowed to offer real estate brokerage 
and management services there would be more choices for everyone.

f More Choices for Consumers--More players in the real estate business 
    mean more and better products for consumers. In any competitive 
    market, new participants bring new, creative ideas to the market--
    all designed to provide better service and greater convenience, at 
    reasonable prices. In fact, businesses can only be successful in 
    new markets by providing services that meet the needs of customers. 
    Free competition among a wide variety of providers is the 
    cornerstone of our economic system.
f More Choices for Real Estate Agents--Real estate agents pride 
    themselves on being independent contractors, choosing the best 
    companies to work for. If there are more companies to choose from, 
    agents' employment opportunities will be much broader. Banks will 
    only be able to attract good agents by offering competitive 
    commissions and other incentive-based compensation packages. And 
    because the real estate business requires expertise, licensing, and 
    other requirements, banks would seek out experienced real estate 
    agents. Banks know that converting tellers to real estate agents 
    would be a poor business strategy.
f More Choices for Real Estate Companies--Forward-looking businesses 
    are always looking for opportunities to improve their franchise 
    value--strengthening, expanding, merging, or even selling their 
    business. Allowing banking institutions to engage in real estate 
    brokerage and management services gives real estate companies more 
    options for bringing additional capital and technology to the 
    table, through joint ventures, for example. Banking institutions 
    also represent potential buyers if agencies choose to sell their 
    businesses. Indeed, in some communities, partnering with the local 
    bank may be the only way for the local real estate broker to 
    compete with the growing national chains. This is why many real 
    estate firms also oppose S. 1839. It is interesting to note that 
    many insurance agencies thought that bank involvement was going to 
    hurt their business--until they realized that it provided many more 
    options than they had before. To that end, the Financial Service 
    Coordinating Council, consisting of the ABA, the American Council 
    of Life Insurers, the American Insurance Association, and the 
    Securities Industry Association, supports open competition and is 
    on record opposing S. 1839.\1\

    \1\ The letter, dated January 16, 2002, is attached to this 
testimony.
---------------------------------------------------------------------------
    S. 1839 reduces choices: consumers would have fewer choices of whom 
to do business with, agents would have fewer choices of whom to work 
for, and businesses would have fewer choices for joint marketing, fewer 
potential merger partners, and fewer potential buyers. ABA believes a 
competitive market is the best way to provide quality real estate 
brokerage and management services--simply put, more competition means 
more choices.
Many Real Estate Agents Support Open Competition
    Many agents and real estate companies are not concerned by the 
prospect of banking organizations offering real estate services. Many 
look forward to the opportunity to partner with a local bank. 
Independent agents who provide good service today know that they will 
be competitive with anyone, whether the competitor is another 
independent agent or one affiliated with a bank. The views of these 
real estate agents are often lost in the emotional rhetoric of their 
trade association. Here are a few examples of comments filed by real 
estate agents with the regulators on this proposal:

 A broker from California writes: ``Additional competition will be 
    healthy for the industry. Banks and other financial institutions 
    have learned how to meet the needs of consumers and to handle their 
    financial matters. One's home is the biggest financial asset most 
    consumers will ever deal with. If agents are so special for 
    consumers, then they have nothing to fear. Maybe we could see 
    commissions come down!''
 A real estate broker in North Carolina writes: ``I am a 38-year 
    veteran of the real estate industry and do not agree with our 
    National Association of [REALTORS'] . . . There are 
    several reasons I feel this way, primarily because our small 
    family-owned business has always faced stiff competition from large 
    real estate firms, yet we have been able to earn a good, honest 
    living. I believe that competition is the American way and if 
    you're good at what you do, you can survive whether large or 
    small.''
 Another real estate agent notes: ``I would welcome the hopefully more 
    professional business management that banks would likely bring to 
    this business. With most real estate being part-time people with 
    limited training, the real estate business is full of 
    misinformation, poor service, etc., a situation that could be 
    improved with bank involvement. Furthermore, the American consumer 
    deserves more true competition in this business. Bank-owned real 
    estate agencies may be able to lower transactions costs to 
    consumers through aggregation of services benefiting the public as 
    a whole.''
 A real estate broker in Wisconsin writes: ``I don't recall the NAR 
    [National Association of REALTORS'] concerning 
    themselves with real estate brokers having access to online 
    companies therefore cutting the independent mortgage banker and 
    local lender out of the transaction.''
 Another real estate agent writes: ``NAR predicted the doom and gloom 
    many, many years ago when franchise brokerage was in its formative 
    stages. ERA, Re/Max, Coldwell Banker et al., were all predicted to 
    end `mom and pop' real estate firms. These franchises have come; 
    many have gone or merged with others. And yet still, `mom and pop' 
    brokerage firms continue to survive because of the personal 
    attention. I welcome the competition, and I will continue to 
    survive.''

Many Real Estate Companies Also Support Open Competition and Oppose S. 
        1839
    The real estate industry, like banking and most other industries, 
is constantly changing. Larger real estate brokerage firms are 
increasing their market share every time you turn around. In 1990 there 
were 150,000 residential real estate firms. Today there are about half 
that many. The large chains are buying up more and more local firms. 
Today Cendant--which owns Century 21, Coldwell Banker, and ERA--has 23 
percent of the existing home sales market and has been aggressive in 
acquiring real estate companies. In some communities a partnership with 
the local bank may be the only way to compete with the national chains 
and maintain a local presence. The Internet is playing a bigger and 
bigger role with customers, allowing them to surf for the perfect home, 
at the perfect price, financed with the perfect mortgage loan, and 
covered under the perfect insurance policy--24 hours a day, 365 days a 
year. More and more real estate services are being combined, including 
brokerage, insurance, and mortgage services that are offered as ``one-
stop shopping'' packages, a subject I will speak to at length below.
    In this new, competitive environment, bankers and real estate 
professionals 
have much to offer to each other--and to consumers. Banks like mine 
could provide needed capital, crossmarketing opportunities, and 
technology to support the growth of local real estate firms. Real 
estate professionals could provide the personalized services and 
experience that is their strength. Many real estate companies realize 
the strengths that both industries bring to the table. They also 
realize the severe limitations S. 1839 would impose on their ability to 
joint market, merge, be acquired, or even to buy a bank.
    In February of this year, The Realty Alliance--comprised of many of 
the Nation's largest and most successful independent real estate 
companies with a total of 62,000 agents--went on record in opposition 
to NAR's position. In its letter to NAR, The Realty Alliance stated, 
``Our members favor and support a fair, free-market environment unbound 
by legislative restrictions. We find it hypocritical and fundamentally 
wrong to ask that national bank subsidiaries be barred from real estate 
brokerage activity, while real estate brokerages operate mortgage 
banking, insurance and title insurance businesses. . . . We believe, in 
fact, that consumers would benefit from the influx of capital that may 
result from nationally chartered banks entering this arena. We also 
believe that increased competition from companies of size would benefit 
consumers by making all of us sharpen our skills and improve the 
services we provide. In our view, the role of Government is not to 
limit competition, as your legislation would do, but rather to foster a 
business environment in which consumers benefit from competition. The 
members of The Realty Alliance look forward to working, and prospering, 
in such an environment.''

    Paul Harrington, President of DeWolfe New England, which is one of 
the largest real estate firms in the Northeast, summed it up when he 
said, ``We believe that banks should be able to compete with us as long 
as there are safeguards to ensure that deposits are not being 
improperly invested. It would be hypocritical for us to say otherwise 
because we promote the fact that we offer customers convenience through 
one-stop shopping.'' \2\
---------------------------------------------------------------------------
    \2\ The Boston Globe, February 25, 2001.
---------------------------------------------------------------------------
Promoting Free and Fair Competition--The Fundamental Tenet of the
Gramm-Leach-Bliley Act
    The Gramm-Leach-Bliley Act established a framework for modernizing 
our financial system. After working on this for the last 20 years, 
Congress recognized the need for flexibility in the face of a rapidly 
evolving financial landscape. As Senator Phil Gramm said at the signing 
ceremony for this Act, ``The world changes, and Congress and the laws 
have to change with it. We have learned that we promote economic growth 
and we promote stability by having competition and freedom.''
    Providing the same opportunities under the same rules and 
regulations is a key to promoting free and fair competition. In today's 
real estate market, it is commonplace for real estate companies, 
securities firms, and insurance companies to provide end-to-end 
services, including brokerage, mortgages, and insurance. Yet not all 
financial service players have equal ability to offer these same 
services. The Gramm-Leach-Bliley Act was designed to address these 
inequalities. To examine this in detail, this section looks at three 
key issues: (1) the market reality that real estate firms are already 
providing banking and other financial services and that the real estate 
industry is more concentrated than the banking industry; (2) the system 
established in the Gramm-Leach-Bliley Act to correct disparity in the 
provision of financial services among providers and thereby promote 
free and fair competition; and (3) the changing real estate and 
financial marketplace that demands a flexible regulatory approach to 
address the inequities that exist today and may exist in the future.

Combining Real Estate Brokerage and Banking Services is Not a New or
Unusual Activity
    As I previously noted at the outset, real estate companies, 
securities firms, insurance companies, credit unions, savings 
associations and, in half the States, State-chartered banks can offer 
real estate services.\3\ Ironically, the National Association of 
REALTORS' is now objecting to the very combinations that 
their members have undertaken--offering brokerage, mortgage banking, 
and, often, insurance under one roof.
---------------------------------------------------------------------------
    \3\ See attachment developed by the Conference of State Bank 
Supervisors (CSBS) for a listing of the authorities for each State. 
Regarding credit unions, recently several in Wisconsin jointly 
purchased a majority interest in one of the State's larger real estate 
brokerage firms.
---------------------------------------------------------------------------
    Take, for example, two of the biggest real estate companies in the 
Washington DC area--Weichert and Long & Foster. Both offer the full 
range of financial services. Weichert calls it ``One Stop Gold'' and 
Long & Foster calls it ``Real-Edge Services.'' These packages provide 
valuable cost, convenience, and service options for customers. These 
examples show the importance companies--and their customers--place on 
having the option to combine real estate brokerage, mortgage and 
insurance services. On the following two pages, I have included several 
examples of how real estate companies that offer both banking and 
brokerage services characterize--in their words--their services.
    All banks should have the same options. In fact, according to NAR's 
own survey in 1999 and a recent 2002 survey by Murray Consulting, not 
only is one-stop shopping viewed extremely positive by homebuyers, but 
banks, mortgage companies, 
and real estate companies are all viewed equally as appropriate 
providers of these services.
    Simply put, if real estate services and other financial products 
are already combined by many real estate and other financial firms, 
there is no reason why all banking organizations should not be accorded 
the same opportunities to provide these products to their customers.
    In my opening remarks I made the point that this is an issue for 
banks of all sizes, not just large banks, as NAR has suggested. More 
than 40 percent of all banks--over 4,000 institutions--have fewer than 
25 employees. These are truly 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 loans and 
homeowners insurance. For the typical community bank, the intent is not 
to turn real estate brokerage into a major income-producing center, but 
rather to provide high-quality, high-personal-touch services for 
customers whose needs the bankers intimately understand and whom they 
already serve in other capacities. Generally, this is likely to take 
place by a combination with a local real estate firm--often one that 
needs the joint effort to complete with the national chains.




    It is also a misconception that all national banks are large (see 
Chart 1). In fact, over 90 percent of national banks are community 
banks. Moreover, of the 10 largest banking firms, four appear to 
already have the legal authority to engage in real estate activities. 
There certainly has been no market disruption from the fact that well 
over half of the insured depository institutions in this country have 
the ability to offer real estate brokerage and management services 
today.



    Banks that already offer real estate services through the trust 
department frequently find themselves having to explain to customers 
that the bank cannot help them with these services outside the trust 
relationship. These customers do not understand why the bank is unable 
to do so. Authority to offer real estate services by the banking 
organization would bridge this unnecessary gap.
    What is ironic about NAR's false assertion about large banks 
wanting to dominate the real estate market, is the fact is that the 
real estate industry is significantly more concentrated than the 
banking industry. Today, a few firms dominate the real estate brokerage 
industry (see Chart 2). In fact, the top two firms in the brokerage 
business (Cendant and Re/Max) have 33 percent of the market. By 
comparison, the top 10 banks have the same 33 percent of the banking 
market. Cendant Corporation accounts for one out of every four real 
estate agents and alone has a 23 percent market share of existing home 
sales.


    And because consolidation within the real estate industry is 
occurring at breakneck speeds, small realty companies are far more 
likely to be bought up by one of the major real estate firms than by a 
bank. Many real estate brokers have told the ABA that they would 
welcome approval of the proposal because it would provide a potential 
local partner to help them compete with the large national chains. In 
fact, the local bank can help the small firm, through joint ventures 
and capital, to compete with the large national real estate firms.
    Thus, the marketplace reality is that real estate firms already 
provide end-to-end services and the largest real estate companies have 
been increasing their domination over the market.

The GLB Act Was Designed to Allow Flexibility to Adjust to the 
        Marketplace
    In the years immediately preceding passage of the GLB Act, Congress 
recognized that the statutory standard for regulatory approval of new 
activities for bank holding companies--the ``closely related to 
banking'' standard--was woefully inadequate in an economy transformed 
by technological progress. Thus, Congress agreed to a new, considerably 
broader, standard to enable banks and bank holding companies to remain 
competitive no matter in what direction financial services evolved. 
That new standard--activities that are financial in nature or 
incidental to a financial activity--was intended to provide the 
flexibility Congress knew would be necessary. Those activities may be 
conducted only in financial holding companies (``FHC'') or financial 
subsidiaries meeting certain safety and soundness and community needs 
standards enumerated in the statute.
    Congress did not give the FRB and the Treasury unfettered 
discretion to make the determination that an activity is appropriate 
for approval. GLB Act specifically sets forth certain traditional 
banking activities that Congress knew were clearly 
financial in nature.
    In addition to these currently recognized activities, the Act 
authorizes activities that the FRB and Treasury determine, by 
regulation or order, to be ``financial in nature or incidental to such 
financial activity.'' This authority to permit new financial activities 
is considerably broader than the FRB's comparable authority before the 
GLB Act was enacted, which had only extended to a new activity that was 
``so closely related to banking as to be a proper incident thereto.''
    One specific aspect of this new authority is that the FRB is 
directed to define the extent to which three types of activities are 
``financial in nature'': (1) lending, exchanging, and engaging in 
certain other transactions with financial assets other than money or 
securities; (2) providing any device or instrumentality for 
transferring money or other financial assets; or (3) arranging, 
effecting, or facilitating financial transactions for the account of 
third parties. ABA believes the proposed real estate activities qualify 
under the first and third statutory categories. For example, real 
estate brokerage is generally the business of negotiating a contract 
for the purchase, sale, exchange, lease, or rental of real estate--
which we believe is a financial asset--for others.
    The Fed and Treasury, in their request for public comment, note 
that many of the essential aspects of real estate brokerage are already 
permissible under national bank ``finder'' authority. The regulators 
already authorize financial holding companies, as well as national 
banks and their subsidiaries, to act as finders in bringing together 
buyers and sellers for financial or nonfinancial transactions. 
Permissible finder activities include ``identifying potential parties, 
making inquiries as to interest, introducing or arranging meetings of 
interested parties, and otherwise bringing parties together for a 
transaction . . .'' \4\ This description of finders authority is the 
essence of every real estate transaction.
---------------------------------------------------------------------------
    \4\ 12 CFR 7.1002.
---------------------------------------------------------------------------
    Apart from their authority with respect to these three specified 
activities, the Fed and Treasury have broad discretion to determine 
that other types of activities are ``financial in nature or incidental 
to such activity.'' In making such a determination, the regulators are 
directed to consider a number of factors. Among the specific factors to 
be considered are:

 Changes or reasonably expected changes in the marketplace in which 
    financial holding companies compete or the technology for 
    delivering financial services; and
 Whether the proposed activity is necessary or appropriate to allow a 
    financial holding company to--
   Compete effectively with any company seeking to provide financial 
        services;
   Efficiently deliver information and services that are financial in 
        nature through the use of technology, including applications 
        involving systems for data transmission or financial 
        transactions; and
   Offer customers any available or emerging technological means for 
        using financial services or for the document imaging of data.

    The GLB Act standard is a significant expansion of the Fed and 
Treasury's capacity to consider the competitive realities of our 
Nation's financial marketplace when determining permissible activities 
for financial holding companies and financial subsidiaries. It is our 
contention that the marketplace, and the technology associated with it, 
in the case of real estate brokerage and property management, have 
already changed and will continue to change dramatically in ways that 
significantly impact the ability of banks to effectively compete with 
other companies that provide financial services.
    Finally, in addition to the newly authorized financial activities 
described above, the Act authorizes financial holding companies to 
engage in certain nonfinancial activities. Specifically, a financial 
holding company may engage in a nonfinancial activity, or acquire a 
company engaged in a nonfinancial activity, if the Fed and Treasury 
determine by regulation or order that the activity: (1) is 
complementary to a financial activity; and (2) does not pose a 
substantial risk to the safety or soundness of depository institutions 
or the financial system generally.
    The NAR would have this Subcommittee believe that Congress meant to 
preclude real estate activities in the GLB Act and that the legislation 
accomplished that goal. This is simply untrue, and we have seen no 
specific evidence to back up this unfounded charge. There is absolutely 
nothing in the legislative history to support this allegation. To the 
contrary, the plain language of the statute and the legislative history 
show the Treasury and Federal Reserve are following exactly the process 
and using the factors Congress intended.
    The GLB Act itself demonstrates Congress's knowledge of this issue 
in its determination that financial subsidiaries of national banks 
should be prohibited only from engaging in real estate development 
activities--the riskier aspect of the business in which the banking 
organization takes an ownership position. Had Congress intended to 
prevent banking organizations from engaging in the agency activities of 
real estate brokerage and real estate management, it clearly knew how 
to do so. The fact that Congress chose only to prohibit real estate 
development leads to the conclusion that Congress did not intend to 
restrict agency activities.
    Despite comments to the contrary, anyone who paid attention to the 
debate over the many years that led up to GLB Act would not have been 
surprised to see the current proposal. The ABA negotiated with NAR over 
10 years ago the rules under which banks would enter the real estate 
brokerage business. This negotiation took place with respect to 
criteria in a previous version of the GLB Act which was, in fact, much 
more restrictive than the criteria enacted in 1999. Thus, over 10 years 
ago, the NAR recognized that even a more restrictive version of 
financial modernization could be interpreted as permitting banking 
companies to offer real estate brokerage. Furthermore, in 1995, NAR 
testified on another forerunner of the GLB Act before the House Banking 
Committee. In that testimony, NAR stated unequivocally that the 
language must be clarified to exclude brokerage and management. It was 
neither clarified then, nor was it in the GLB Act. That 1995 bill, the 
Financial Services Competitiveness Act of 1995, contained similar, but 
less broad, language to that ultimately enacted in the GLB Act.
    Certainly the NAR had every opportunity to raise the issue with 
Congress in 1999 and either chose not to or did so without success. 
Rather, NAR's simplistic argument is that the proposal involves 
``commerce'' and is, therefore, beyond the scope of the GLB Act. 
However, the issue is not at all that simple. The language of the 
relevant provisions of the GLB Act does not prohibit commercial 
activities; rather they set out specific criteria to determine 
permissible activities. The authors clearly recognized that there was 
no exact or permanent line to define services that should be 
permissible. That is why they left the determination of whether or not 
a given activity is ``financial in nature'' or ``incidental to a 
financial activity'' to the Fed and the Treasury, and why they 
developed the specific criteria that are in the statute. To reiterate, 
if the Congress had wanted to make such a determination to exclude the 
proposed activities, it would have explicitly done so--as it did with 
real estate development.
    It is worth noting, since NAR has raised the specter of banking and 
commerce, that the Fed has, for many years, been the primary opponent 
of breaching the wall between banking and commerce. Based on this 
record, one would certainly expect the Fed to look very closely at any 
question relating to commercial activities.

The Changing Real Estate and Financial Marketplaces Require a
Flexible Regulatory Approach
    As noted above, the GLB Act requires that the regulators consider 
competitive factors and technological innovations when determining 
whether activities are financial in nature. A particularly applicable 
statutory phrase to focus on in this context is whether the activity is 
``appropriate'' to allow institutions to ``compete effectively with any 
company seeking to provide financial services in the United States.'' 
Other types of insured depository institutions have the authority to 
provide--and are providing--real estate brokerage and management 
services. We have already demonstrated that real estate brokerage firms 
are providing financial services throughout the United States. Clearly, 
the fact that real estate brokerage firms are offering mortgages and 
other financial services must be part of the regulatory consideration. 
Competitive imbalances like this are the very thing that Congress 
sought to correct when it enacted the GLB Act, and we believe that the 
use of the flexibility granted to the regulators under Section 103(a) 
is clearly justified in the case of real estate brokerage and 
management authority for banking organizations.
    Technological innovations have also had a dramatic impact on real 
estate markets. One major change is the development of the secondary 
market for mortgage loans and the efficient process that bundles 
individual home loans into highly liquid, globally traded securities 
(see Chart 3). 



    The increasing importance of the secondary market has facilitated 
the rapid growth of 50 percent mortgage lending outside traditional 
banking and savings institutions (see Chart 4).



    In fact, securitization has significantly changed the very nature 
of mortgage funding, enabling real estate firms to establish their own 
mortgage companies and to offer end-to-end real estate transactions--
helping a buyer find a home, finance it, and insure it. The result is 
that traditional deposit-based lenders--banks and thrifts--are often 
bypassed completely. These are exactly the kinds of technological 
changes the GLB Act authorized the Treasury and the Fed to address.
    The dominance of the secondary market is clear evidence that this 
form of funding for plain vanilla mortgage loans is generally superior 
in terms of costs to funding with bank deposits. If banks somehow 
enjoyed some special benefit from deposits, or deposit insurance (which 
banks pay for through premiums and extensive regulatory costs), banks 
would not be selling into the secondary market, and the secondary 
market would not control an ever-increasing share of the marketplace. 
No amount of deposit insurance can counteract this fundamental 
principle of efficient markets. More importantly, access to this 
secondary market source of funding is available equally to mortgage and 
banking organizations, and is clearly why real estate companies 
increasingly are affiliating with mortgage banking companies.
    To summarize this section, the GLB Act recognized that achieving 
the goal of promoting competition necessarily required regulatory 
flexibility. Section 103(a) provides that flexibility by authorizing 
the Fed and the Treasury, subject to certain statutory guidelines, to 
approve additional activities for banking organizations. The ABA 
believes strongly that real estate brokerage and management meet the 
criteria. Of course, the Fed and Treasury have not made any 
determination on this proposal. Regardless of their ultimate decision, 
the Fed and Treasury should be allowed to follow the process Congress 
created only two and a half years ago.

All Consumer Protections Are Maintained and Bank Safety and
Soundness Is Protected
    If banking organizations offer real estate services, consumers 
would actually have more protections under the law than they do today. 
All rules applicable to real estate brokers, including all State 
licensing, qualification, and sales practices will apply equally to 
bank-affiliated real estate agents. NAR has raised the specter of 
customers being taken advantage of as a result of conflicts of interest 
that may potentially arise when a real estate broker is affiliated with 
a lender. The simple fact is that the exact same potential for such 
abuse occurs, for example, each time an agent from Century 21, Coldwell 
Banker, ERA (all of whom are affiliated with Cendant) GMAC, Long & 
Foster, or USAA helps a customer buy or sell a house. And yet, although 
these integrated real estate organizations, as well as State banks in 
many States, savings institutions, and credit unions, have been selling 
real estate and funding mortgages for years, there has been no outcry 
about these conflicts of interest. Why?--Because the Real Estate 
Settlement Procedures Act (RESPA) \5\ requires REALTORS' 
affiliated with lenders to disclose that fact to customers before the 
purchase occurs.
---------------------------------------------------------------------------
    \5\ 12 U.S.C. Sec. 2601 et seq.
---------------------------------------------------------------------------
    The RESPA disclosure,\6\ which must be on a separate piece of 
paper, must state the relationship between the real estate agent and 
the lender and provide the estimated charges or range of charges of the 
lender. It must also notify the customer that he or she is not required 
to use the lender and is free to shop around for a better deal. If the 
real estate agent requires the use of its affiliated lender, that agent 
violates the kickback and unearned fee provisions of Section 8 of 
RESPA. The customer is expected to sign an acknowledgement of the 
disclosure.
---------------------------------------------------------------------------
    \6\ The requirement for affiliated business disclosures is part of 
the regulations of the Department of Housing and Urban Development that 
implement RESPA. 24 CFR Sec. 3500.15.
---------------------------------------------------------------------------
    In addition, consumers have even more protections when their real 
estate agent is affiliated with a banking organization. This is because 
banks and bank holding companies and their subsidiaries and affiliates 
are subject to the antitying provisions of the Bank Holding Company 
Act.\7\ These restrictions prohibit banks and their affiliates from 
conditioning the provision of credit on the purchase of another product 
or service.
---------------------------------------------------------------------------
    \7\ Section 106(b) of the Bank Holding Company Act Amendments of 
1970.
---------------------------------------------------------------------------
    Another false impression put forward by NAR is that somehow bank 
involvement is contrary to the spirit of the Community Reinvestment 
Act. Nothing could be further from the truth. Approval of the proposal 
would help low income and minority communities. Because banks are 
subject to CRA, they have every incentive to use the real estate 
authorities to enhance their outreach to communities. The bank would 
bring real estate services to areas now shortchanged and could use the 
combination of real estate and financial services to better serve their 
low-income and minority communities. Moreover, if the real estate unit 
were a subsidiary of a national bank, that subsidiary would be covered 
by CRA.
    Bank involvement in real estate brokerage and management services 
is also consistent with safe and sound banking. First, providing these 
services will help to diversify the income stream of these institutions 
and help to improve their financial base. Real estate brokerage and 
management services are activities where a bank acts only as an agent 
for a third party, but does not take an ownership position 
in the property. By their very nature, agency activities pose very 
little risk to the safety and soundness of depository institutions.
    Second, under the GLB Act, the bank regulators must deem a bank to 
be well-capitalized and well-managed before a banking organization can 
participate in any of the expanded financial activities permitted under 
the GLB Act, including real estate brokerage and property management. 
Thus, only financially strong institutions would be authorized to 
engage in these activities.
    Third, banking organizations are also subject to Sections 23A and 
23B of the Federal Reserve Act, which limit the amount of credit and 
other forms of support that a bank could provide to a real estate 
brokerage affiliate or subsidiary. Such limits ensure that the safety 
and soundness of the bank will not be negatively impacted by its 
subsidiaries or affiliates.
    Fourth, many banking organizations already have years of experience 
in providing real estate activities. In fact, the purchase, sale and 
management of real estate are frequently significant aspects of 
fiduciary asset management in many bank trust departments. Because 
banks currently have trust personnel who provide real estate brokerage 
and management services on a daily basis to trust customers, providing 
the service outside of the trust department would not be a new activity 
in which banking organizations lack expertise. Thus, no new safety and 
soundness issues would be raised.
    Finally, it is important to note that a precedent already exists 
for bank involvement in real estate activities. In over half of the 
States, State banking regulators have the authority (either explicitly, 
through regulatory interpretations, and through wildcard and parity 
statutes) to allow State-chartered banking organizations to engage in 
real estate activities (see the attached State-by-State listing 
developed by the Conference of State Bank Supervisors). Moreover, 
savings institutions and credit unions already have brokerage 
authority. Allowing banks the same rights and privileges should enhance 
the competition for real estate services.

Conclusion
    In July, it will be 2 years since the filing of the original 
petition requesting a determination that real estate brokerage and 
management be deemed financial in nature. It is now certain that this 
determination will not be made until 2003, as was indicated in an April 
22, 2002 letter from Treasury Secretary Paul H. O'Neill to Congressman 
Michael G. Oxley, indicating that, in consultation with the Fed, the 
Treasury will not make a final decision on this proposed rule until 
next year.
    A fundamental purpose of GLB Act was to enable banking institutions 
to compete with other financial services providers, and there is ample 
evidence demonstrating that the real estate competition is touting the 
advantages of one-stop homebuying services. While we as an industry 
have always looked at real estate brokerage and management as providing 
us with more options to compete in the long term, with each passing 
day, real estate firms become more deeply involved in financial 
services such as mortgage and insurance, and banks like mine cannot 
effectively compete for this business. With each passing day, the case 
for allowing banks to offer real estate services only gets stronger.
    As an industry we have grave concerns about the broader effects of 
this controversy and whether it sets a precedent that could hinder 
future approvals of new powers under GLB. The Act was designed to keep 
our financial system up-to-date by delegating those decisions to the 
Fed and Treasury. This goal is being frustrated by efforts to take the 
case for determining what is appropriate back to Congress, placing 
Congress in the very role that it delegated to the agencies with the 
greatest level of expertise to make these decisions based on specific 
statutory criteria.
    S. 1839 not only frustrates the GLB Act process, it reduces 
consumer choice. Consumers would have fewer choices of whom to do 
business with; agents would have fewer choices of whom to work for; and 
businesses would have fewer choices for joint marketing, fewer 
potential merger partners, and fewer potential buyers. We believe a 
competitive market is the best way to provide quality real estate 
brokerage and management services. Increased competition clearly 
benefits consumers and the economy. It is a catalyst for innovation, 
more customer choice, better service, and competitive prices. I have no 
doubt that my customers and my community would benefit if my small bank 
could offer these services.
    Not only would consumers benefit from bank involvement in real 
estate services, but also bank involvement is consistent with safe and 
sound banking. All consumer protections that apply to independent 
REALTORS' would apply to bank-affiliated real estate 
agents--plus bank-affiliated agents would be subject to additional 
antitying regulations. And because brokerage and management are agency 
activities, they pose no financial risk to the safety and soundness of 
the banking organization.
    Just 2\1/2\ years ago Congress made the decision to leave this type 
of determination to the regulators--so that they could keep the 
financial structure up-to-date and keep Congress out of the middle of 
competitive disputes. NAR now wants to put Congress back in the 
uncomfortable position of referee. Congress explicitly gave the Fed and 
Treasury the flexibility and authority to make these determinations 
based on their expert knowledge of the changes in the financial 
services marketplace. Those agencies should be allowed to carry out the 
authority that Congress wisely provided to them.
    I thank you, Mr. Chairman, for this opportunity to present the 
views of the American Bankers Association.







                   PREPARED STATEMENT OF JOHN TAYLOR

                 President and Chief Executive Officer
       National Community Reinvestment Coalition, Washington, DC
                              May 23, 2002

    Good morning Chairman Johnson, Senator Bennett, and distinguished 
Members of the Subcommittee on Financial Institutions. My name is John 
Taylor, and I am President and CEO of the National Community 
Reinvestment Coalition (NCRC). NCRC is a national trade association 
representing more than 700 community-based organizations and local 
public agencies who work daily to promote economic justice in America 
and to increase fair and equal access to credit, capital, and banking 
services to traditionally underserved populations in both urban and 
rural areas. NCRC has represented our Nation's communities on the 
Federal Reserve Board's Consumer Advisory Council (CAC), Community 
Development Financial Institutions (CDFI) Advisory Board, Freddie Mac's 
Housing Advisory Council, Fannie Mae's Housing Impact Council and 
before the United States Congress.
    On behalf NCRC, I thank you for the opportunity to testify before 
you here today on an important issue that will impact our Nation's 
progress in extending the American Dream of homeownership to minority 
and low- and moderate-income families: banks becoming real estate 
brokers. NCRC's community organizations are at the helm driving the 
reinvestment movement. Today, as a result of fair lending laws like the 
Community Reinvestment Act (CRA), which turns 25 this year, poor 
neighborhoods have been empowered by bank partnerships with community 
organizations to address credit needs and missed market opportunities. 
As a result, the number of loans to minority and working class 
borrowers over the last decade has increased faster than the number of 
loans to more affluent borrowers.\1\ Bank CRA commitments have grown 
from a few million dollars a year to over $50 billion annually.\2\ 
Without these loans and commitments, the economic flow of private 
credit and capital into our communities would be extinct and hence, 
certain death for disinvested neighborhoods.
---------------------------------------------------------------------------
    \1\ The Joint Center for Housing Studies, Harvard Univeristy, The 
25th Anniversary of the Community Reinvestment Act: Access to Capital 
in an Evolving Financial Services System, (March 2002).
    \2\ National Community Reinvestment Coalition, CRA Commitments 
(2002). Note: The Joint Center for Housing Studies, Harvard Univeristy 
used NCRC's database to find that low- and moderate-income communities 
received a higher portion of loans in geographical area in which 
lenders and community groups negotiated CRA agreements than in areas in 
which they did not.
---------------------------------------------------------------------------
    NCRC is very concerned about the ramifications of financial holding 
companies and national banks entering the real estate brokerage 
business. As you can imagine from the industries represented here 
today, you will hear varying perspectives on banks and real estate for 
consideration. I would like to emphasize that my testimony today will 
focus on three areas that will be affected if the banking and real 
estate industry are allowed to merge: competition, consumer 
protections, and serving our communities.

Competition
    NCRC has always maintained the position that competition is 
beneficial for the revitalization of communities. Healthy competition 
provides low-income and working families with more housing and lending 
options, and offers them alternatives to high-cost and abusive loans. 
However, in our rapidly shifting financial marketplace in which our 
largest banks now own subprime lenders and insurance agencies, we 
wonder whether product choice is increasing for our communities or 
whether financial conglomerates are steering consumers into costly and 
unnecessary products, often layering one product on top of another to 
maximize their profits.
    Over a decade ago, banks had a corner on the mortgage lending 
business with an overwhelming 80 percent market share.\3\ Today, 
however, is a different story. In 2001, the mortgage broker industry 
estimated that their market share has dramatically grown to 65 percent 
of all residential mortgage originations.\4\ Does this mean that banks 
are hurting for mortgage business? Absolutely not. Instead of relying 
on loan officers, banks now depend upon mortgage brokers to make loans 
in minority and low- and moderate-income communities. And too often, 
banks do not engage in sufficient due diligence or do not require 
brokers to follow fair lending safeguards. The situation would 
deteriorate if banks now owned a fleet of brokerage companies that 
combined lending and real estate services.
---------------------------------------------------------------------------
    \3\ David Olson, Testimony before the Senate Committee on Banking, 
Housing, and Urban Affairs' Hearing, Predatory Mortgage Lending 
Practices: Abusive Uses of Yield Spread Premiums (January 8, 2002).
    \4\ Ibid.
---------------------------------------------------------------------------
    The arena of competition has dramatically shifted in the wake of 
Gramm-Leach-Bliley (GLB), which blurred the distinction among financial 
industries. In March 2000, the Federal Reserve Board issued a list of 
the first 117 bank holding companies that elected to become financial 
holding companies to take advantage of the opportunities of entering 
into the insurance and securities markets. As of April 2002, over 600 
bank holding companies have elected to become financial holding 
companies in order to diversify their businesses.\5\ Conversely, less 
than a dozen nonbank firms have converted to financial holding 
companies for the purpose of seeking a banking charter.\6\ Banks are 
also taking advantage of an ownership stake (less than a controlling 
interest) in a financial subsidiary, meaning they form partnerships 
with firms offering a plethora of financial services including: 
investment planning, estate planning, asset protection, retirement 
planning, income tax planning and preparation, and education planning.
---------------------------------------------------------------------------
    \5\ Financial Markets Center, Firms Electing to Become Financial 
Holding Companies Under the Gramm-Leach-Bliley Act (April 26, 2002).
    \6\ Rick Lazio, President and CEO of Financial Services Forum, 
Remarks at American Enterprise Institues's Roundtable on the Gramm-
Leach-Bliley Act (November 13, 2001).
---------------------------------------------------------------------------
    To reiterate, NCRC supports competition in its truest sense--when 
parties act independently and offer the most favorable terms to secure 
business. But one must wonder if today's financial market upholds the 
true meaning of competition when it seems like GLB has allowed all 
roads to lead back to the bank. While nonbank lenders own real estate 
companies, they have not utilized GLB to amass the market power that 
banks now enjoy after their mad rush to become financial holding 
companies. Would adding real estate to the menu of businesses that 
banks can own level the playing field between banks and nonbanks or 
only serve to make banks more powerful to the detriment of real 
competition in the financial industry?
    NCRC maintains that the addition of real estate to the already 
dizzying array of products now offered by ``financial supermarkets'' 
will lead to even greater consolidation of bank market power and result 
in fewer choices for consumers. Our worst nightmare in a consolidated 
financial market that includes real estate brokerage is:

 A bank offers favorable loan terms to its real estate affiliate, 
    giving it significant advantage over a competing real estate 
    business that does not have an affiliate.
 The bank with the real estate affiliate stops offering loans to 
    customers of nonaffiliated real estate competitors.
 The number of product choices offered to customers of nonaffiliated 
    real estate businesses decreases, resulting in higher cost loans.

    During consideration of GLB, NCRC and other observers worried that 
the consolidation afforded under GLB would lead to only higher prices. 
That is why GLB commissioned the Department of Treasury to study the 
effects of mergers among banks, insurance companies, and securities 
firms on access to loan and bank products for low- and moderate-income 
communities. Treasury's study in January 2001 concluded that it was too 
early to assess the impact on cross-industry mergers.\7\ NCRC urges 
Congress and the Federal financial supervisory agencies to delay 
allowing banks to enter yet another industry, specifically the real 
estate industry, until the Treasury rigorously measures the impacts of 
GLB on affordability and accessibility of financial services.
---------------------------------------------------------------------------
    \7\ Robert E. Litan, Nicholas P. Retsinas, et al. for the 
Department of the Treasury, The Community Reinvestment Act After 
Financial Modernization: A Final Report (January 2001).
---------------------------------------------------------------------------
    When considering banks in real estate, policymakers have not 
adequately addressed the negative impacts on small real estate 
businesses of further industry consolidation. Women- and minority-owned 
small businesses have played a significant role in community 
revitalization. Many of these real estate entrepreneurs have 
established themselves in working class communities and dedicated their 
business to helping rebuild formerly redlined neighborhoods through 
partnerships with affordable homeownership programs.
    According to the most recent Economic Census, over 375,000 small 
women- and minority-owned real estate businesses operate in this 
country, generating over $41 million in sales annually. The wealth 
generated by these new-markets businesses plays a vital role in 
building a solid foundation from which veritable community reinvestment 
will flourish. Local real estate brokers are more likely than financial 
conglomerates to bring wealth back into their community and enter into 
business relationships with other neighborhood enterprises. The 
financial independence of small businesses in local communities 
increases an individual's stake in the economic empowerment of a 
community and improves the collective well being of our society.
    NCRC strongly takes that position that by allowing banks into the 
real estate business, small real estate businesses will be forced out 
of the marketplace by the monopolized ``financial supermarkets.'' Gone 
will be the days in which an entrepreneur dreams of opening a 
specialized financial business to serve his or her neighborhood 
customers. Instead, small real estate businesses, insurance businesses, 
and small investment companies will be forced to make a decision: 
forfeit their ownership and affiliate with a bank or face going under 
when a larger ``financial supermarket'' opens next door. Not only will 
our Nation's communities hurt, our entire economy will suffer.

Consumer Protection

Existing Problems in the Lending, Insurance, and Real Estate Markets

    The next area I would like to address in regards to today's subject 
matter is consumer protection. Repeatedly, I have been told by industry 
representatives advocating for banks in real estate that cross-
ownership within these markets will benefit the consumer by offering 
greater choice, greater convenience, and lower costs. NCRC, as a leader 
in fighting predatory lending, takes the issue of ``benefiting the 
consumer'' very seriously. Last summer, NCRC testified before the Full 
Committee during the 2-day hearings on predatory mortgage lending 
practices about the plague of abusive lending and equity stripping from 
communities of color. Lenders are not alone at the receiving end of 
NCRC criticism. Our membership organizations who are entrenched in the 
frontlines of protecting homeowners, also battle insurance redlining 
and unscrupulous real estate ``property flippers.'' In testifying 
before you today, I must be honest to NCRC's mission of economic 
justice and state emphatically that injustice exists in the banking, 
insurance, and real estate industries. Until the problems are solved to 
protect borrowers and consumers, these markets should not be 
commingled.
    According to the Department of Housing and Urban Development's 
(HUD) just released report Black and White Disparities in Subprime 
Mortgage Refinance Lending, subprime refinance mortgages accounted for 
36.3 percent of total refinance mortgages in low-income neighborhoods 
compared to 23.8 of total refinance lending nationwide in 2000.\8\ 
Borrowers in prominently African-American low-income neighborhoods were 
1.5 times more likely in 2000 to refinance with a subprime lender than 
borrowers in all low-income neighborhoods. Borrowers in upper-income 
African-American neighborhoods were 2.9 times more likely to refinance 
with a subprime lender than borrowers in upper income neighborhoods 
overall.
---------------------------------------------------------------------------
    \8\ Randall M. Scheessel for the Department of Housing and Urban 
Development, Black and White Disparities in Subprime Mortgage Refinance 
Lending (April 2002).
---------------------------------------------------------------------------
    NCRC research has found similar disparities. For example, major 
subprime and manufactured home lenders made 47 percent of the refinance 
loans in predominantly African-American and Hispanic neighborhoods in 
the District of Columbia in 2000, a significant increase from 39 
percent of the loans in 1999 and 25 percent of the loans in 1994. In 
contrast, subprime and manufactured home lenders made less than 4 
percent of the loans in predominantly white neighborhoods in the 3 
years of the study.
    Substantial evidence suggests that subprime borrowers in minority 
communities experience price discrimination. Over the last several 
years, Home Mortgage Disclosure Act (HMDA) data has indicated that 
African-American applicants are denied twice as often as whites. NCRC 
believes that it does not necessarily follow that 
African-American are twice as likely to have bad credit. And given that 
African-Americans are denied twice as often for conventional loans as 
whites, it does not follow that minority communities should be five 
times as likely to receive subprime loans as documented in an earlier 
HUD study.\9\ In some geographical areas, the disparity is much greater 
than five to one.
---------------------------------------------------------------------------
    \9\ Ibid. See also National Anti-Predatory Lending Policy is Good 
for America, NCRC Anti-Predatory Lending Toolkit (March 2002).
---------------------------------------------------------------------------
    The major secondary market institutions have found pricing 
inefficiencies in subprime loans. Freddie Mac states that up to 30 
percent of subprime borrowers were creditworthy for prime loans. Fannie 
Mae's CEO, Franklin Raines, is quoted as saying that half of all 
subprime borrowers could have received prime loans.\10\
---------------------------------------------------------------------------
    \10\ Kathleen Day, ``Fannie Mae Vows More Minority Lending.'' 
Washington Post, March 16, 2000, E1. Freddie Mac, Automated 
Underwriting: Making Mortgage Lending Simpler for America's Families, 
Chapter 5 (Spetmeber 1996).
---------------------------------------------------------------------------
    A study by the Research Institute for Housing America (RIHA) 
concludes that 
minority borrowers are more likely to receive subprime loans after 
controlling for 
credit risk factors.\11\ RIHA cautions against a conclusion that price 
discrimination alone explains this since minority borrowers may have 
different techniques of searching for lenders. However, considering the 
totality of the research by NCRC, HUD, Fannie Mae, Freddie Mac, RIHA, 
and others, it seems fair to say that the burden of proof lies with 
those who assert that discrimination does not occur in the subprime 
market.
---------------------------------------------------------------------------
    \11\ Anthony Pennington-Cross, Anthony Yezer, and Joseph Nichols 
for the Research Institue for Housing America, Credit Risk and Mortgage 
Lending: Who Uses Subprime and Why? (October 2000).
---------------------------------------------------------------------------
    The issue of insurance redlining is also a problem, but unlike home 
mortgage lending, insurance data is limited to only a handful of 
States. Since 1995, California has required insurance companies to file 
data indicating the race and gender of policyholders, the number of 
policies sold and cancelled, and location of offices and agents, all 
sorted by ZIP code. Working with the California Department of 
Insurance, consumer advocate Birny Birnbaum of the Center for Economic 
Justice (CEJ) obtained data that show disparities between the rate at 
which insurance companies write policies in low-income communities and 
the rate at which policies are written in middle- to upper-income 
communities. For example, in 1995, CEJ reported that approximately 16 
percent of California's population lived in underserved communities; 
however, the data reported by State Farm revealed the company had only 
2.59 percent of its agents in those communities.\12\ CEJ further 
concluded that the average insurer wrote only 5.57 percent of its 
private passenger automobile liability policies and only 6.62 percent 
of its homeowners policies in low-income, minority ZIP codes.
---------------------------------------------------------------------------
    \12\ Consumer Union Press Release, State Farm Loses on Attempt to 
Block Disclosure of Insurance Redlining Data (March 8, 2000).
---------------------------------------------------------------------------
    State Farm, one of the Nation's largest insurance companies, is 
also a Federally chartered thrift. As such, it offers a full range of 
banking services, including taking deposits and making various types of 
home mortgage, auto and home equity loans, in addition to full range 
investment products. Interestingly enough, 1 month ago, State Farm, 
California's largest insurer of homes, indicated it has stopped writing 
new homeowner policies in the State due to a surge in the amount of 
claims over the last two years.\13\ If lawmakers add real estate 
services to the roster of State Farm products, would this only increase 
the clout of State Farm and other giants? Would conglomerates turn 
product flow ``on'' or ``off'' in order to obtain concessions from 
regulatory agencies in States dependent upon their services?
---------------------------------------------------------------------------
    \13\ E. Scott Reckard, ``State Farm Won't Write New Homeowners 
Policies.'' LA Times, April 23, 2002.
---------------------------------------------------------------------------
    As I mentioned, the real estate market is not without its 
unscrupulous actors 
either. Property flipping involves buying a home at a low price and 
then reselling it at fraudulently inflated price within a short time 
frame, often after making only cosmetic improvements to the property. 
NCRC has seen the following practices employed in property flipping 
schemes:

 Real estate investors continually buying neglected properties at 
    sheriff sales and reselling homes at escalated prices to 
    unsophisticated first-time homebuyers;
 Using real estate agents, licensed and nonlicensed individuals, as a 
    front;
 Targeting immigrant communities, particularly nonEnglish speaking 
    individuals;
 Colluding with property appraisers to inflate property value;
 Colluding with home inspectors to secure clean reports; and
 Tricking homeowners into thinking they are dealing with legitimate 
    real estate companies.

    In 2000, the Department of Housing and Urban Development Inspector 
General (IG) testified about the rampant flipping rings the Agency was 
combating.\14\ One investigation alone uncovered over 1,200 flipped 
loans totaling approximately $160 million. Twenty-five percent of the 
loans were in default. The IG indicated that approximately 100 
representatives of lending and real estate industries colluded on this 
scheme. Another IG flipping investigation involved a HUD employee who 
conspired with a real estate agent to carry out a systematic scheme of 
selling HUD-owned properties at prices far below HUD's listed price. 
The FHA Insurance Fund lost several million dollars as a result of this 
scam. If Congress allows banks and real estate firms to combine without 
strengthening the consumer protection laws, our communities are more 
likely to be victims of scams than beneficiaries of greater product 
choice and lower prices.
---------------------------------------------------------------------------
    \14\ Susan Gaffney, Inspector General, Department of Housing and 
Urban Development, Testimony before the Senate Permanent Subcommittee 
on Investigations, Committee on Governmental Affairs' Hearing, HUD's 
Government Insured Mortgages: The Problem of Proerty ``Flipping'' (June 
30, 2000).
---------------------------------------------------------------------------

Consumer Choice
    As I previously mentioned NCRC was vocal during the consideration 
of Gramm-Leach-Bliley about the potential of banks product packing 
without regard of true customer needs.\15\ Banks are not shy about 
advertising their cross-marketing strategy: targeting an existing 
customer is easier and more profitable than acquiring a new one.
---------------------------------------------------------------------------
    \15\ John Taylor, Testimony before the Senate Committee on Banking, 
Housing, and Urban Affairs' Hearing, Financial Services Legislation 
(February 25, 1999).
---------------------------------------------------------------------------
    The Bank Holding Company Act, as amended, prohibits a bank from 
extending or varying the consideration for credit on the condition that 
the customer obtain any other nonbanking product from the bank holding 
company or any other subsidiary of the bank holding company. This 
prevents a bank from offering a reduced interest rate on a loan that 
may be used only to purchase products made or sold by an affiliate of 
the bank. However, the statute provides exceptions and exemptions that 
``financial supermarkets'' can take advantage of when cross-selling 
their products.
    Another problem for unsophisticated banking consumers is the 
perception that approval of their loan is contingent on their 
purchasing insurance or other products from bank affiliates. NCRC 
believes that banks should not force consumers to buy unwanted or 
unnecessary products, nor should they offer incentives to induce 
borrowers to purchase more products than they can afford.
    Last year Citibank sought and received a favorable exemption from 
antitying prohibitions to offer incentives to their credit card, 
mortgage, or loan customers who maintain a combined minimum balance in 
a package of products and services that include annuities, auto, 
homeowners, life, and/or long-term care insurance from insurance 
affiliates of Citibank.\16\ The incentives would include lower interest 
rates and/or other items, such as airline frequent flyer miles or 
contributions to accounts maintained by a customer with other Citibank 
affiliates.
---------------------------------------------------------------------------
    \16\ Opinion Letter of J. Virgil Mattingly, General Counsel, 
Federal Reserve (May 16, 2001).
---------------------------------------------------------------------------
    Is it really in the best interest of the consumer to be bombarded 
with credit card applications, insurance product brochures, investment 
fund prospectuses, and now perhaps real estate marketing materials when 
they go to a bank simply to open a checking account? Allowing banks 
into yet another industry would only compound the abuses associated 
with incentives and inducements to purchasing an array of products.
    Where are banks' priorities when there are over 10 million 
Americans who do not have checking accounts? \17\ Today, NCRC issues a 
challenge to the lenders to open your doors to the unbanked; for every 
product package you market to existing customer, dedicate the same 
energy to marketing Individual Development Accounts and lifeline and 
low-cost accounts to underserved communities.
---------------------------------------------------------------------------
    \17\ The Federal Reserve Board, Survey of Consumer Finances (1998).
---------------------------------------------------------------------------
    Finally, on the issue of choice, NCRC is very concerned that if 
banks are allowed in the real estate business, consumers using a bank 
affiliated real estate agent will be at a disadvantage when attempting 
to shop for the best priced loan product, particularly if a bank 
employs exclusivity with its affiliate.

Serving Our Communities
    The final point that I would like to address is the stake our 
Nation's communities have in the decision to expand banking business 
lines even further to include real estate. At the start of my 
testimony, I mentioned the great success story of how CRA has lead to 
the introduction of bank partnerships and commitments in formerly 
divested communities. I would briefly like to elaborate how CRA must be 
updated to cover all of the activities that financial institutions are 
now permitted to undertake.
    As you know, CRA only applies to the depository subsidiaries of 
financial holding companies. Other parts of the holding companies have 
no obligation to serve the entire community in which they do business, 
including low- and moderate-income communities. As CRA increasingly 
applies to a smaller portion of burgeoning holding companies, the risk 
that low- and moderate-income communities will once again become 
neglected--after years of steady progress in expanding homeownership 
opportunities down the income ladder--increases. Despite the Federal 
Reserve Board's findings in its study mandated by GLB that CRA-related 
loans are profitable, financial holding companies will become tempted 
to overlook low- and moderate-income markets as they enter new lines of 
business.
    It is a travesty to each and every underserved rural community and 
inner city neighborhood in our country that CRA basically ends with 
checking products and lending activities. When the Unites States 
Congress passed GBL, it missed a tremendous opportunity to extend 
community reinvestment requirements to all bank affiliates, insurance 
companies and securities firms. Thirty-six Members of the House of 
Representatives support our position and have cosponsored the Community 
Reinvestment Modernization Act (H.R. 865). As an addendum to my 
testimony, I have attached the first few pages of this bill detailing 
purposes, findings, and sections covered, and ask for your 
consideration of this important measure.
    If the banks are allowed into the real estate market NCRC strongly 
advocates for CRA coverage to be extended to the real estate affiliates 
to ensure these companies have agents in low- and moderate-income 
communities to serve minority and working class families. NCRC also 
strongly encourages Congress to enact a strong antipredatory law to 
prohibit abusive lending and property flipping.
    In closing, I leave you with a true story of how a 
REALTOR' helped identify a discriminatory, predatory lending 
practice and subsequently brought it to the attention of NCRC's Civil 
Rights Department for Assistance.
    The victims were an elderly minority couple who owned their home in 
the Mount Pleasant neighborhood, here in the District of Columbia, for 
over 43 years. In order to pay medical expenses, an independent 
mortgage company convinced the couple to take out an adjustable rate 
mortgage with a prepayment penalty and a loan payment that exceeded the 
couple's monthly income. Faced with imminent foreclosure, the couple 
was forced to consider a ``short sale'' of their home. The victims 
retained a REALTOR' to facilitate the sale of the home, who 
quickly identified that the appraisal conducted by the mortgage company 
was substantially inflated. Ultimately, a buyer was identified and a 
purchase contract placed. Unbeknown to all the parties involved the 
victims had prepayment penalty of $13,791.06 included in the note that 
stalled the real estate transaction. It was only after victims' 
REALTOR' requested NCRC to intervene that the sale took 
place.
    If the real estate agent had been affiliated with a predatory 
lender or any lender for that matter, it is doubtful that the agent 
would have acted as an independent watchdog. When we allow additional 
industry consolidation without providing stronger community protection 
laws, we remove the checks and balances that guard against abuses in 
power. Fewer independent businesses with stakes in their communities 
exist to protect against the exploitation and plunder of greedy 
conglomerates.
    I thank you, Mr. Chairman, for this opportunity to testify and 
present the views of the National Community Reinvestment Coalition. I 
will be happy to answer any questions you may have.











               PREPARED STATEMENT OF HOWARD W. HANNA, III

    Vice Chairman, The Real Estate Services Providers Council, Inc. 
                          (RESPRO')
           Principal and Former Chairman, The Realty Alliance
    President and Chief Executive Officer, Howard Hanna Real Estate 
                                Services
                        Pittsburgh, Pennsylvania
                              May 23, 2002

    Good morning, Mr. Chairman and Members of the Subcommittee. My name 
is Howard W. Hanna, III and I am President and CEO of Howard Hanna Real 
Estate Services, a family owned and operated full service real estate 
brokerage company headquartered in Pittsburgh, Pennsylvania.
    Howard Hanna Real Estate Services has 65 residential and commercial 
real estate brokerage offices doing real estate sales and leasing in 
Pennsylvania, Ohio, West Virginia, and New York State, and a mortgage 
banking company. Hanna 
Financial Services, which is licensed in those four States and also 
Illinois, Maryland, Colorado, Wisconsin, and North Carolina.
    Our firm has 1,500 associates and employees, of which 1,128 are 
members of the National Association of REALTORS', and I am 
proud to be a 32-year member of the REALTORS' Association of 
Metropolitan Pittsburgh, the Pennsylvania Association of 
REALTORS', and the National Association of 
REALTORS'.
    I currently serve as Vice Chairman of The Real Estate Services 
Providers Council, Inc. (RESPRO') and I am a Member of The 
Realty Alliance. I represent both organizations today.
    RESPRO' is a national nonprofit trade association of 
approximately 200 residential real estate brokerage, mortgage, home 
building, title, and other settlement service companies who united in 
1992 to promote an environment that enables providers to offer 
diversified services for homebuyers and owners (one-stop shopping) 
through strategic alliances across industry lines.
    Approximately 55 percent of RESPRO''s members engage in 
residential real estate brokerage, either directly or as a franchisor. 
Most of our real estate broker members are what I will refer to as 
``integrated'' real estate brokerage firms, which means that we also 
offer mortgage, title, and/or other settlement services to our 
customers.
    The Realty Alliance is a national organization of 45 regional, 
residential real estate brokerage firms that provides its members with 
idea sharing venues, industry forecasts and analysis, financial 
benchmarking, and technology information.
    Together, RESPRO' and The Realty Alliance members who 
are in the real estate brokerage business have closed over one million 
residential real estate transactions for a sales volume of over $1.8 
trillion, utilizing over 300,000 sales associates and over 78,000 
employees in over 50,000 offices nationwide.

Position of RESPRO' and The Realty Alliance Position on
Bank-Real Estate Affiliations
    Both RESPRO' and The Realty Alliance have formally 
decided, on a vote of their respective Boards of Directors, to support 
the 2001 proposal by the Federal Reserve Board (Fed) and Treasury 
Department to allow financial holding companies and national bank 
subsidiaries into the real estate brokerage and related businesses by 
declaring these activities to be ``financial in nature'', and to oppose 
legislation (S. 1839, H.R. 3424) to block this proposal.
    All available evidence shows that homebuyers like one-stop 
shopping, and that realty-based one-stop shopping offers potential 
consumer benefits such as convenience and lower costs. 
RESPRO' and The Realty Alliance believe in free enterprise 
and a competitive marketplace that would allow any company to offer 
consumers these benefits, regardless of its industry or affiliation.

Today's Realty-Based One-Stop Shopping Programs
    According to a 1999 study conducted by the independent consulting 
firm of Weston Edwards & Associates, the top 350 real estate brokerage 
firms closed $22 billion in mortgage loans in 1998, and realty-based 
and builder-based lending accounted for about 10 percent of all 
purchase money mortgages that same year.\1\ Edwards estimated that this 
amount would double to 20 percent within 3 years.\2\
---------------------------------------------------------------------------
    \1\ ``Changes in the Way Homes Are and Will Be Bought and Sold'', 
By Weston Edwards & Associates, 1999.
    \2\ Weston Edwards & Associates is expected to publish 2002 
statistics in the area sometime in 2003.
---------------------------------------------------------------------------
    Edwards also found that 66 to 69 percent of the 250 largest 
residential real estate brokerage firms in the country offer mortgages, 
31 percent offer title, closing, escrow or personal insurance in 
1996.\3\
---------------------------------------------------------------------------
    \3\ ``One-Stop-Shopping For The Homebuyer: A Rapidly Expanding 
Channel of Distribution'', by Weston Edwards & Associates, 1997. The 
business structures of these realty-owned one-stop shopping programs 
vary. Many of the largest firms have created wholly-owned mortgage 
lending or brokerage, title, and/or insurance subsidiaries. Smaller 
firms have created joint ventures with local or national mortgage 
lenders, financial institutions, or mortgage subsidiaries of financial 
holding companies, title underwriters, or title agencies that are 
jointly owned (e.g. 50 percent-50 percent) by the partners.
---------------------------------------------------------------------------
The Potential Consumer Benefits of Realty-Based One-Stop Shopping
    Since real estate brokerage firms have entered mortgage and other 
financial services businesses, there have been several consumer surveys 
and economic studies to assess their impact. All have conclusively 
shown that realty-based one-stop shopping programs in today's 
marketplace offer many potential benefits to the homebuyer.
    The most recent survey of consumer attitudes toward realty-based 
one-stop shopping, which is attached to this testimony, was performed 
in March of this year. 
Harris Interactive, the parent of Harris Poll, surveyed 2,052 recent 
and future homebuyers and found:

 That 82 percent of homebuyers would ``strongly'' or ``somewhat'' 
    strongly consider using a one-stop shopping service for their home 
    purchase.
 That when a homebuyer is aware that a real estate brokerage firm 
    offers a full range of services, it positively affects their 
    selection of a real estate agent 44 percent of the time.
 That the three preferred sources of one-stop shopping programs are 
    mortgage companies, banks and credit unions, and real estate 
    brokerage firms.
 That 64 percent of homebuyers who recently used one-stop shopping 
    programs had a much better overall experience with their home 
    purchase transaction.
 That over 90 percent of homebuyers who did not use one-stop shopping 
    programs believed that if they had used one, they would have had a 
    better overall home purchase experience because:

   They would have had just one person to contact,
   They would have saved money if the company offered discounted 
        prices,
   It would have sped up the homebuying process,
   It would have prevented things from falling through the cracks; and
   It would have assured one standard level of brand-named service 
        from all providers of the home purchase services.\4\

    \4\ The survey also asked homebuyers how they felt about financial 
institutions entering the real estate brokerage business. Sixty-nine 
percent believed it would positively affect the range of services 
available through one company, 47 percent believed it would positively 
impact the number of choices of companies to conduct their home 
purchase transaction, and 46 percent believed it would positively 
affect the price they paid for the services needed to conduct the home 
purchase transaction.
---------------------------------------------------------------------------
    The Edwards study I mentioned earlier found that mortgages offered 
by realty-based one-stop shopping programs are competitive in both 
price and service. It concluded that real estate agents prefer using 
outside lenders unless the in-house mortgage service is exceptional, 
and that they only recommend the in-house product to the homebuyer when 
the loan product is within 1/8th of a percent of the best rate and when 
he or she believes the service is superior to outside mortgage 
products. The Edwards study also found that 96 percent of realty-owned 
mortgage brokerage operations use multilender systems, in order to give 
their real estate sales force and their customers a choice of mortgage 
lenders.
    A 1994 economic study commissioned by RESPRO' and 
conducted by Lexecon, Inc., a national economic consulting firm, also 
found that realty-based one-stop shopping programs potentially offer 
lower costs.\5\ The study compared title and closing costs between 
realty-owned title companies and independent title companies in over 
1,000 home purchase transactions throughout seven States--Florida, 
Minnesota, Tennessee, Wisconsin, Mississippi, Pennsylvania, and 
California--and concluded that title and closing costs for realty-owned 
title companies were not only competitive with those of independent 
title companies, but actually resulted in a 2 percent cost savings.\6\
---------------------------------------------------------------------------
    \5\ ``Economic Analysis of Restrictions on Diversified Real Estate 
Services Providers'', by Lexecon, Inc., January 3, 1995.
    \6\ In a 1996 Economic Analysis accompanying a final RESPA 
regulation, the Department of Housing and Urban Development (HUD) 
offered its independent analysis of both the Lexecon, Inc. study and 
the Edwards study. It concluded that ``. . . referral activity among 
affiliates might still benefit consumers because of the possibility of 
immediate savings in shopping time and hassle and future reductions in 
prices due to lower marketing and other costs. Taking these benefits 
into account, referrals among affiliated firms are probably neutral and 
possibly beneficial to consumers.''
---------------------------------------------------------------------------
    The bottom line is that every consumer survey and empirical study 
to date has shown that homebuyers prefer and potentially benefit from 
realty-based one-stop shopping programs.

Integrated Real Estate Brokerage Companies Favor Open Competition
    As you know, the banking industry has argued that financial holding 
companies and national bank subsidiaries should be able to compete with 
integrated real estate firms such as Howard Hanna Real Estate Services, 
Long & Foster Real Estate, and other RESPRO' and Realty 
Alliance members. In addition, some participants in this debate have 
accused the real estate brokerage industry as being ``hypocritical'' by 
wanting to be in the financial services business without letting 
financial institutions compete with us in the real estate brokerage 
business.
    I can assure you that the vast majority of RESPRO' and 
Realty Alliance members favor open competition and believe that banks 
should be able to compete with us in our primary business in the same 
way we compete with them in the mortgage and other settlement service 
businesses.
    Over the last 20 years, a number of financial conglomerates have 
entered the real estate brokerage business, with varying degrees of 
success: in the 1980's and early 1990's, Sears Roebuck owned Coldwell 
Banker, Metropolitan Life owned Century 21, and Merrill Lynch owned 
Merrill Lynch Realty. Today, General Motors Acceptance Corporation 
(GMAC) owns GMAC Real Estate, Prudential Insurance Company owns 
Prudential Realty, Cendant Corporation operates the Century 21, ERA, 
and Coldwell Banker franchises, and Warren Buffet's Berkshire Hathaway 
owns Home Services of America, Inc.
    Initially, these companies appeared to have significant competitive 
advantages over traditional real estate brokerage companies, such as 
national distribution outlets, consumer marketing lists that made it 
easy to reach everyone, valuable data about buying habits, and 
tremendous name recognition. Sears even had access to Federally insured 
deposits through its affiliate Sears Savings Bank.
    Their entry into the business real estate brokerage business 
concerned many independent real estate brokerage firms at the time. In 
fact, in 1981, the long range planning committee of a national network 
of large regional independent brokerage firms issued a report to its 
members that stated that Merrill Lynch and Sears were the two greatest 
threats to the solvency of real estate brokerage firms ever faced by 
the industry.
    But this prediction was unfounded. Sears, Merrill Lynch, and 
Metropolitan Life have since left the real estate brokerage business. 
While Prudential, GMAC, Cendant, and Berkshire Hathaway remain 
competitors, their presence in the real estate marketplace has not 
changed the basic character of the real estate brokerage business. In 
fact, we believe that their entry contributed to the development of a 
wider range of services and caused traditional real estate brokerage 
firms to become more efficient and more consumer-focused than they were 
before.
    Federally insured financial institutions also have entered 
residential real estate markets over the years. This is not surprising, 
since over 50 percent of financial institutions (State-chartered banks 
in 26 States, Federal savings associations, and credit unions) can 
currently engage in real estate brokerage.
    Metropolitan Financial Corporation owned Minneapolis-based Edina 
Realty from 1988 to 1995, Sears Savings Bank was affiliated with 
Coldwell Banker, and Twin Cities Federal (TCF) and Great Western at one 
time owned real estate brokerage firms. Savings institutions or State-
chartered banks have also acquired real estate brokerage firms in 
Connecticut, Pennsylvania, Delaware, Texas, New York, and Florida. But 
over time, most of these financial institutions sold their real estate 
brokerage businesses and retreated from the marketplace.
    Finally, it's important to remember that real estate brokerage 
firms would have the ability to acquire Federally chartered financial 
institutions if the Fed-Treasury rule is finalized. Earlier this month, 
a bank in Pittsburgh with 25 offices and assets of $800 million that 
Howard Hanna Real Estate Services had a close working relationship with 
was sold to another bank. This was a bank that our real estate company 
would have been interested in purchasing if we were allowed to do so 
under Federal law.

There Should Be A Level Playing Field Between Bank-Owned and
Non-Bank Real Estate Brokerage Firms Under RESPA and State Laws
    While RESPRO' and The Realty Alliance support the 
ability of financial holding companies and national bank subsidiaries 
to enter the real estate brokerage business, we also believe that bank-
owned and nonbank real estate brokerage firms should compete under a 
similar Federal and State regulatory environment.
The Real Estate Settlement Procedures Act (RESPA)
    At the Federal level, all settlement service providers, including 
integrated real estate brokerage firms and our real estate agents, must 
comply with the Real Estate Settlement Procedures Act (RESPA), which 
requires that a lender give a Good Faith Estimate (GFE) of the closing 
costs 3 days after the application and a HUD-1 Settlement Statement at 
closing. Section 8 of RESPA also prohibits settlement service providers 
from giving or receiving referral fees, or ``kickbacks''.
    Integrated real estate brokerage firms also are subject to RESPA's 
``affiliated business'' restrictions, which requires us, before we 
refer business to our mortgage, title or other settlement service 
affiliates, to (1) disclose the nature of the financial relationship; 
(2) not require the use of the affiliated settlement service; and (3) 
not give or receive any payments (referral fees) that are otherwise 
prohibited under RESPA. Under the last requirement, neither the real 
estate brokerage firm nor its real estate sales associates can accept 
any ``thing of value'' from an affiliated mortgage or other settlement 
service provider for referrals of business.\7\
---------------------------------------------------------------------------
    \7\ In addition, any mortgage, title, or other settlement service 
joint venture created by a real estate brokerage firm must comply with 
guidelines issued in a 1996 Department of Housing and Urban Development 
(HUD) Policy Statement that intended to prevent ``sham'' joint ventures 
created primarily as a conduit for violating Section 8 of RESPA. Under 
these joint venture guidelines, HUD announced that it will look at a 
variety of factors to determine whether a joint venture is a ``sham'' 
or a legitimate joint venture, including whether both partners invest 
capital in the entity, whether the entity performs ``core'' settlement 
services, whether the entity has separate management and employees, and 
whether the partners' return on their ownership interest is 
proportional to the capital they invested in the joint venture entity.
---------------------------------------------------------------------------
    Financial holding companies and national bank subsidiaries that 
enter the real estate brokerage business would be subject to these 
RESPA guidelines, which we believe is appropriate.
    But in the near future, HUD is expected to issue a proposed RESPA 
rule that would exempt providers from Section 8 of RESPA if they 
guarantee the lump-sum cost of a settlement service ``package''.
    For there to continue to be a level playing field between bank-
owned and nonbank real estate brokerage firms, it is essential that HUD 
allow nonmortgage lenders such as real estate brokerage firms to offer 
a guaranteed ``package'' to our customers in the same manner as 
mortgage lenders. We urge Congress to closely monitor the progress of 
this HUD rulemaking proceeding to assure that all providers have the 
ability to compete under any new regulatory environment under RESPA, 
regardless of their industry or affiliation.

State Laws Affecting Integrated Real Estate Brokerage Firms
    Integrated residential real estate brokerage firms also are subject 
to a myriad of State laws and regulations that prohibit or restrict 
their operations.
    In 2001, 37 States had statutes, regulations, or policies that 
place percentage limitations on the amount of business a title insurer 
or agent can receive from an affiliate, including an affiliated real 
estate broker, real estate agent, home builder, mortgage lender, or 
financial institution.\8\ Other States have enacted laws that prohibit 
a person from receiving a fee as real estate broker or salesperson and 
mortgage broker in the same transaction.
---------------------------------------------------------------------------
    \8\ ``State Survey of Affiliated Business Laws'', by the Real 
Estate Services Providers Council, Inc. (RESPRO'), 2001.
---------------------------------------------------------------------------
    As you know, the Gramm-Leach-Bliley Act (GLBA) prohibited States 
from (1) preventing a depository institution or affiliate from being 
affiliated with any entity authorized by the Act; (2) preventing or 
significantly interfering with the ability of a depository institution 
or affiliate to engage in insurance sales, solicitation or cross-
marketing; or (3) preventing or significantly interfering with the 
ability of an insurer or affiliate to become a financial holding 
company or to acquire control of a depository institution.
    Since GLBA passed Congress, some financial institutions have 
successfully exempted themselves from these State restrictions under 
GLBA's State preemption provisions. For example, the Kansas Insurance 
Department ruled in 2001 that GLBA preempted Kansas financial 
institutions only from a Kansas State law that prohibited a title 
agency from receiving in excess of 20 percent of its operating revenue 
from an affiliate.
    As a result, Kansas financial institutions may own a title company 
but nonfinancial institutions, including real estate brokerage firms, 
may not. If financial holding companies and national bank subsidiaries 
are allowed to own real estate brokerage firms, then bank-owned real 
estate brokerage firms could own title agencies but nonbank real estate 
brokerage firms could not.
    RESPRO' and The Realty Alliance members have 
consistently opposed these state antiaffiliation laws over the years, 
and we support their preemption or repeal for both financial 
institutions and nonfinancial institutions. If the Fed and the Treasury 
approve a final rule, we urge Congress to assure that State laws apply 
equally to all real estate brokerage firms, regardless of their 
affiliation. This would better enable all real estate brokerage firms 
to offer homebuyers the benefits of one-stop shopping programs, 
regardless of whether they are affiliated with a financial institution.
    Mr. Chairman, I again thank you for the opportunity to testify, and 
I would be glad to answer any questions.

















































         RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
                        FROM TOM MURPHY

Q.1. During the few years before the enactment of Gramm-Leach-
Bliley in 1999, a huge disagreement existed between insurance 
agents and brokers, and commercial banks, about whether banks 
should be allowed to engage in insurance activities. A 
compromise was finally reached which allowed Gramm-Leach-Bliley 
to proceed, and opened a new chapter in which banks were able 
to affiliate with insurance companies, and to sell insurance. 
However, certain State consumer protection laws affecting those 
sales were able to stand, or be enacted, if they did not 
``significantly interfere'' with a bank's sales of insurance.

A.1. An important point to make is that Congress wrote that new 
insurance powers chapter, not the regulators. Even after that 
carefully crafted compromise was enacted, there are still 
regulatory problems arising from it. As late as April 2002, the 
Comptroller of the Currency encouraged preemption of the 
Massachusetts Consumer Protection Act. The Comptroller avoided 
the ``significantly interfere'' language of the GLBA and 
instead utilized a much lower standard that the Consumer 
Protection Act ``stands as an obstacle.'' (See attached letter 
from Chairman Mike Oxley to Secretary Paul O'Neill) Several 
other examples exist of national banks and financial holding 
companies seeking preemption of State and local statutes and 
regulations due to their national charter. It is very simple 
for the regulators to now claim that all existing regulations 
will 
be followed. But these examples prove their actual conduct is 
far different.

Q.2. How is this situation different from the one we are 
currently facing between banks and real estate agents and 
brokers? I understand that the concern among agents is that 
they might ``disappear'' once banks get into their business, 
and that people in the community will no longer turn to them 
for their services. However, anecdotal evidence in the case of 
the insurance agents would suggest differently, showing 
essentially that there is still a viable market for the agents 
and that people in the community do still turn to them because 
they trust them and like using them. Won't that situation hold 
out in the case of real estate agents as well?

A.2. Banks maintain that insurance companies and agents are 
actually benefiting from banks exercising insurance powers. 
There is no doubt that big banks will attempt to capture larger 
and larger market share. But what do the statistics say? What 
do consumers say? And what do the independent insurance agents 
say? In South Dakota, banks entering the real estate business 
will reduce the number of independent real estate brokerage 
companies and agents.
    This situation is quite different from that facing the real 
estate industry. The types of problems described above arising 
from ``functional regulation'' of insurance products offered by 
banks provide further evidence that the time is not ripe to 
grant additional powers to banks. Real estate regulation is far 
more localized than the insurance industry. Not only are there 
Federal and State rules and regulations, but also every local 
county, town, and village has individual requirements for the 
property located within their jurisdictions. There is no 
evidence that the regulators considered this when proposing 
their rule. There can be no comparison of real estate and 
financial products such as securities and insurance. Those 
products are fungible assets that have a value wherever they 
may be. A life insurance policy can ``follow'' its insured to 
any State or country. A piece of real estate can never move 
from where it is first located. It is earth itself. It is the 
most locally regulated industry there is, by necessity. The 
problem with allowing the huge banking conglomerates into the 
real estate industry is that they can dominate a market due to 
their size and Federally granted advantages. If we assume they 
would seek to build a national brand and marketing plan, we 
must also assume they would seek preemption of local and State 
regulations that would burden that national approach. Past 
experience shows this is the path they would take, along with 
their regulators. The result would be weaker consumer 
protections, less competition, and a less efficient real estate 
marketplace.

Q.3. Opponents of the REALTOR' argument have accused 
the REALTORS' of acting uncompetitively in this 
situation. In fact, allowing the entrance of banks into the 
real estate brokerage and management market will ensure a 
healthy and competitive environment for all.
    What is your response to those comments? Do you not believe 
the assertion that many small and community banks are looking 
to these possible activities as a way to remain competitive 
with credit unions, as well as REALTORS'?

A.3. We do not believe the assertion that many small and 
community banks are looking to these possible activities as a 
way to remain competitive. The fact is the petitions to the 
Federal Reserve Board and the Treasury Department that lead to 
the proposed real estate regulation were at the behest of the 
largest diversified financial holding companies and bank 
holding companies. The Financial Services Roundtable and the 
New York Clearing House represent these huge financial 
conglomerates and money center banks, not small community 
banks. The American Bankers Association also petitioned the 
Agencies for the real estate regulation. But they identified 
only one bank--Fremont National Bank and Trust (Fremont, 
Nebraska)--that should engage in real estate. Significantly, 
the Independent Community Bankers Association was not a 
petitioner to the Agencies.
    During hearing testimony Mr. Smith stated that he has had 
real estate powers since 1984. Although he argued that it is 
only in the last 2 to 3 years that he thought he might need to 
utilize that authority to compete, he still has not done so. He 
has the power to do so and has not. We believe this would hold 
true across the country for small community banks. The ABA has 
tried to sell this proposal as an aid to small institutions, 
but it is the top 5 to 10 largest banking conglomerates that 
really want this authority. If it is true that 26 States allow 
their State-chartered banks to operate real estate businesses, 
why aren't more of them doing it? Only 18 banks in six States 
are involved in residential real estate according to our 
research (see written testimony). It has been a precept of the 
dual banking system since its inception that each charter 
offers different advantages and disadvantages. There is no 
reason that any bank today could not apply for a State charter 
in any of these States and accomplish their goals, other than 
that they want to seek preemption of State and local rules 
because of their national charter. If small banks want to offer 
these services, they can become State chartered, or as 
explained below, partner with a real estate broker under 
existing rules.
    Credit unions account for less than 1 percent of mortgage 
originations in this country, and so the competitive argument 
is a red herring. Not long before the Gramm-Leach-Bliley Act 
was finally adopted by Congress, the banking industry failed to 
prevent credit unions' growth through a court challenge. That 
effort was overwhelmingly defeated by legislation passed by 
Congress. The competition among financial institutions is a 
legacy of the Nation's dual banking system and other financial 
policy decisions. Congress created these institutions, not the 
regulators.
    More specifically, how is it that banks entering brokering, 
leasing, and managing real estate will make banks more 
competitive with credit unions? Credit unions, by Federal law, 
can engage in real estate brokerage only through service 
organizations and those activities cannot exceed 1 percent of 
the contributed assets of 
the credit unions. Moreover, there are not more than half a 
dozen 
credit union service organizations operating residential real 
estate brokerages.

Q.4. As part of the ongoing discussion of this issue, some 
people have cited the fact that there are numerous real estate 
companies and brokerages that conduct services that are 
currently defined as traditional banking activities, such as 
mortgage lending and title insurance.
    Why do you feel this situation is different than one 
allowing banks to get into some traditional realty activities, 
such as brokerage and management?
    In fact, don't some State banks, thrifts, and credit unions 
already engage in real estate brokerage activities? How is this 
case different than national banks entering into this arena?

A.4. First, real estate companies are not offering traditional 
banking products. Mortgage lending and title insurance are 
financial products that both traditional banks and commercial 
firms such as real estate brokers offer (see chart in 
testimony). This ``gray'' area is where many commercial and 
banking industries compete. It is where automobile companies 
and banks compete for auto financing. It is where retailers and 
banks compete on personal loan financing. Real estate firms do 
not take deposits and cash checks. Those are traditional 
banking activities.
    Today, many of the financial services activities performed 
by real estate brokers are done in partnership with banking 
subsidiaries. Under the affiliated business arrangement rules 
of RESPA, a bank owned mortgage company can partner with a real 
estate broker to offer mortgage loans. They share in the 
profits resulting from that partnership, and operate under 
strict consumer protections such as disclosures and 
prohibitions against kickbacks. Mr. Smith's bank not only could 
offer real estate brokerage directly today as a Missouri trust 
company, but he could also partner with an existing real estate 
broker to offer mortgage and insurance services through an 
affiliated business arrangement. This is exactly what Mr. Smith 
claims banks are seeking through this proposed rule. But if 
they can do this today, what could be the true reason for 
seeking this rule? Could it be to avoid the tough RESPA-
affiliated business arrangement rules by directly operating the 
real estate brokerage, or could it be to seek preemption of 
State and local regulations as discussed in question one above?
    Banks make much of the real estate company affiliation with 
mortgage companies and other real estate service providers 
giving the impression that ``capture rates'' of clients' 
business is automatic and complete, much like what occurs when 
a bank customer enters a banking institution. The simple fact 
is that real estate clients using real estate company-
affiliated businesses rarely exceed 30 percent annually. 
Commercial bank mortgage originations still dwarf all other 
competitors.
    The difference in allowing huge national banks (that are 
the true proponents of this rule) in real estate and those 
already in the business is the size of these institutions. The 
top two or three national banks and holding companies have more 
assets than all of the existing real estate companies combined. 
This huge market power, along with Federal advantages, would 
allow these megabanks to dominate any market. As you know, once 
the market has been won, competitive forces will disappear and 
consumers will suffer.









        RESPONSE TO WRITTEN QUESTIONS OF SENATOR MILLER 
                        FROM TOM MURPHY

Q.1 As you know Georgia has allowed one State-chartered bank to 
offer real estate brokerage and management services. We have 
heard anecdotally that the local REALTORS' have 
found it useful because the bank has placed its properties on 
the multilist and the REALTORS' have more properties 
to sell. Don't you think this is a good thing?

A.1 Although we have no research to indicate the Georgia 
experience, it is true that the Georgia REALTORS' 
and bankers agreed to withhold any further State bank 
applications to perform real estate brokerage until it is 
decided on the Federal level. This is another reason why 
Congress should act on S. 1839, the Community Choice in Real 
Estate Act. It can be argued that Georgia State-chartered banks 
would be better served if huge national megabanks were not 
granted real estate powers. These State-chartered banks have 
very good business relationships with local real estate 
offices, and would be able to continue that practice under 
existing law. Entrance of the banking conglomerates would also 
unfairly squeeze the State bank markets.

Q.2. What aspects of the activities that your opponents are 
claiming to be ``financial'' or ``incidental to a financial 
activity'' do you specifically disagree with?

A.2. Banks claim that real estate brokerage, leasing, and 
management are financial activities or are incidental to a 
financial activity. The business of brokering, leasing, or 
managing real estate does not involve lending. It is financing 
the mortgage that facilitates the transfer of real property 
that involves lending. More than 20 percent of residential home 
purchases involve no lender financing whatsoever. If anything, 
the mortgage is incidental to the real estate sale, not the 
other way around. Real estate is better compared to a retail 
department store that provides consumer products to its 
customers. If the department store has a credit card, does that 
make the department store a bank because the credit card 
involves financing?

Q.3. What is your response to the position that The Realty 
Alliance, representing 45 member firms, has taken against your 
efforts? [The NAR is roughly 12 times the size of The Realty 
Alliance. However the NAR only represents about 40 percent of 
all those with a real estate licenses--though not all of the 
two million license holders are practicing.]

A.3. The Realty Alliance and the National Association of 
REALTORS' are two different associations. The Realty 
Alliance is an organization of 45 independent real estate 
broker-owners. The Realty Alliance itself has members who do 
not share that organization's position. (see attached Op-ed 
from Lennox Scott, member of Realty 
Alliance)
    The National Association of REALTORS' is an 
organization of 810,000 members that includes real estate 
broker-owners, brokers, and agents. The National Association 
also has affiliates that have their own membership that 
practice real estate specialties, all of which require a real 
estate license. (see written testimony chart on support for NAR 
position)

Q.4. How can banks restrict themselves from ``product 
packing,'' their clients believing that they must use a bank 
for all available services to receive easier credit approval or 
lower financing rates? What is to stop FHC salary-based real 
estate representatives from tying in other bank products? [Real 
estate firms have RESPA requirements which force them to have 
clients sign disclosure statements that ensure understanding 
that real estate lending partners do not have to be used, and 
that the customer is free to shop around for a better deal.]

A.4. It seems inconceivable that banks would restrict 
themselves from product packing, despite the existence of 
antitying provisions. Even Fed Chairman Alan Greenspan made a 
critical point during hearings on Gramm-Leach-Bliley: Firewalls 
leak and in today's closely integrated financial institutions 
they leak quickly. Chairman Greenspan had the ``Asian 
contagion'' fear in mind when making these comments. Given the 
failure of the Japanese universal banking system these comments 
were well founded. The whole point in banks getting these 
additional authorities is to cross sell their proprietary 
products. Banks call this ``one-stop'' shopping. We call it 
``one-bank'' shopping. Banks do not have an agency relationship 
with their customers. Banks necessarily will promote their bank 
and financial products to the exclusion of any competitive 
products. That is the nature of banking. The business of 
banking requires capturing customers for proprietary product 
and service sales. Real estate brokers and agents have a 
completely different relationship with their clients based on 
an agency relationship and the unique nature of selling and 
marketing real estate. Their only goal is to assist in the 
marketing or purchase of their client's real estate. Although 
they may recommend ancillary services, their only compensation 
comes from the completion of that transaction. Thus their 
motivations are completely different from a banker's. A real 
estate agent's sole obligation is to their client.





         RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED 
                      FROM JAMES E. SMITH

Q.1. During consideration of the Gramm-Leach-Bliley Act in 
1999, was the banking industry pushing to have real estate 
brokerage and management services considered as financial 
activities? Although real estate sales and development were 
explicitly prohibited by the Act, why do you believe that the 
Fed and the Treasury were correct in promulgating rules that 
would make brokerage and management activities ``financial in 
nature,'' or ``incidental to financial services?''

A.1. There was no attempt to incorporate specific ``financial 
in nature'' activities in the statute other than the securities 
and insurance activities that are included. Congress recognized 
the dynamic nature of the financial services industry and 
designed a statute that could evolve with the industry. 
Accordingly, the Gramm-Leach-Bliley Act (GLBA) provides a 
flexible regulatory framework to make certain that the new 
statute would resist obsolescence and adapt to innovations in 
the marketplace. That framework grants the Federal Reserve and 
Treasury Department the authority to determine whether future 
activities are financial in nature. Furthermore, GLBA provides 
that financial subsidiaries of national banks should be 
prohibited only from engaging in real estate development 
activities--the riskier aspect of the business in which the 
banking organization takes an ownership position. Had Congress 
intended to prevent banking organizations from engaging in the 
agency activities of real estate brokerage and real estate 
management, it clearly knew how to do so. The fact that 
Congress chose only to prohibit real estate development leads 
to the conclusion that Congress did not intend to restrict real 
estate agency activities.

Q.2. Do you believe, should banks be allowed to enter into 
these new activities, that they should be held to a higher 
standard? In other words, that the Community Reinvestment Act 
should apply to other affiliates of the bank, such as real 
estate brokerage and management parts, in addition to the 
deposit-taking part of the bank?

A.2. Approval of the proposed rule would actually enhance a 
bank's ability to assist low-income and minority communities. 
Since banks are subject to the Community Reinvestment Act 
(CRA), they have every incentive to use the real estate 
authorities to further their outreach to communities. The banks 
would provide real estate services to areas that are currently 
underserved in this respect and could use the combination of 
real estate and bank services to better serve their low-income 
and minority communities. Moreover, if the real estate agency 
were a subsidiary of a national bank, that subsidiary would be 
covered by CRA. On the other hand, nonbank-
affiliated mortgage companies, such as those affiliated with 
real estate companies, have no CRA or other obligation to low-
income communities. Moveover, an institution's record of 
compliance with CRA already is a consideration pursuant to 
GLBA. That is, all insured depository institutions of a holding 
company must have a ``satisfactory'' or better CRA rating in 
order to engage in new financial activities. With respect to 
requiring affiliates of the bank to comply with CRA, we believe 
that directly subjecting a real estate affiliate of a bank to 
CRA would place them at a competitive disadvantage to 
nonaffiliated real estate agencies that are not subject to CRA 
requirements.

Q.3. Do you believe that as part of the regulation being 
considered by the Fed and the Treasury, there should be a 
strict firewall between the deposit-taking part of the bank and 
the real estate brokerage part, similar to those State laws 
enacted in the context of insurance sales by a bank?

A.3. The proposed rule provides that real estate brokerage 
activities must be conducted through a subsidiary or affiliate 
and not the bank itself. Furthermore, all State licensing, 
qualification, sales practices, and continuing education 
requirements would apply to bank-affiliated real estate agents. 
Thus, similar to the situation with insurance agency 
activities, bank-affiliated agents would be subject to the same 
sales practice requirements as those agents not affiliated with 
banks. In addition, banks are subject to Sections 23A and 23B 
of the Federal Reserve Act, which limit the amount of credit 
and other forms of support that a bank could provide to a real 
estate brokerage affiliate or subsidiary. Consumers have even 
more protections when their real estate agent is affiliated 
with a banking organization because banks and bank holding 
compamies are subject to the antitying provisions of the Bank 
Holding Company Act. These restrictions prohibit banks and 
their affiliates from conditioning the provision of credit on 
the purchase of another product or service.

Q.4. As part of the ongoing discussion of this issue, some 
people have cited the fact that there are numerous real estate 
companies and brokerages that conduct services that are 
currently defined as traditional banking activities, such as 
mortgage lending and title insurance. Why do you feel this 
situation is different than one allowing banks to get into some 
traditional banking activities, such as brokerage and 
management? In fact, don't some State banks, thrifts, and 
credit unions already engage in real estate brokerage 
activities? How is this case different than national banks 
entering into this arena?

A.4. This question recognizes an important point in this 
debate: real estate companies, such as Long & Foster, Century 
21, and Prudential, provide end-to-end services for the home 
purchasing process, including real estate brokerage, mortgage, 
and insurance services. It is ironic that the National 
Association of REALTORS' is now objecting to the 
very combinations that their members have undertaken--offering 
brokerage, mortgage banking, and, often, insurance under one 
roof. Furthermore, in 26 States, State banking regulators have 
the authority to allow State-chartered banking organizations to 
engage in real estate brokerage activities. In addition, 
savings institutions and credit unions already have brokerage 
authority. Restricting national bank subsidiaries and financial 
holding companies from offering the same end-to-end combination 
of real estate services and mortgage lending places them at a 
tremendous competitive disadvantage. We lose not just an 
opportunity in the brokerage field, but also the opportunity to 
interact with the customer in the first place and to offer one 
of the most traditional of banking products--the mortgage loan.

        RESPONSE TO WRITTEN QUESTIONS OF SENATOR MILLER 
                      FROM JAMES E. SMITH

Q.1. Aren't there already in place antitying provisions that 
would prohibit a bank from offering favorable loan terms to its 
real estate affiliate?

A.1. Yes. Sections 23A and 23B of the Federal Reserve Act would 
limit the amount of credit and other forms of support that a 
bank could provide to a real estate brokerage affiliate or 
subsidiary. Consumers have even more protections when their 
real estate agent is affiliated with a banking organization 
because banks and bank holding companies are subject to the 
antitying provisions of the Bank Holding Company Act. These 
restrictions prohibit banks and their affiliates from 
conditioning the provision of credit on the purchase of another 
product or service.

Q.2. Why do you not think banks will have an unfair advantage 
after new proposed regulations are enacted? Others claim that 
Government subsidies (for example deposit insurance) as well 
the ``deep pockets'' of your institutions will allow for an 
unfair advantage that would create an opportunity for FHC's to 
exploit the market--perhaps going as far as using your 
subsidies to provide below-market prices?

A.2. The subject of whether deposit insurance and the Federal 
Reserve's discount window provide a competitive advantage to 
banks was fully debated during discussions that ultimately led 
to the Gramm-Leach-Bliley Act of 1999. Testimony and statements 
at that time from Federal banking regulators (Office of the 
Comptroller of the Currency (OCC) \1\ and Federal Deposit 
Insurance Corporation (FDIC)) \2\ and other experts \3\ support 
the conclusion that no subsidy exists in the Government's 
provision of services to banks. If a subsidy existed, banks 
would be expected to dominate in businesses where they compete 
directly with nonbanks. In fact, banks have been losing market 
share in terms of both assets and household savings since the 
1970's. The mortgage markets provide the most striking example 
of how the market has shifted away from depository 
institutions. The reason for this shift is the secondary 
market--not insured deposits--has become the most cost-
efficient way to fund most mortgages. Investor demand is so 
great for mortgage-backed securities that mortgage banks have 
access to the lowest-cost funds available in the world. 
Traditional deposit-based lenders--who pay for deposit 
insurance and face a host of regulatory expenses like higher 
capital requirements, exam costs, and CRA--are often bypassed 
completely. If banks enjoyed a subsidy, nondepository 
institutions would not control an ever-increasing market share.
---------------------------------------------------------------------------
    \1\ ``The Competitive Implications of Safety Net-Related 
Subsidies,'' Gary Whalen, Economics Working Paper 97-9, OCC, May 1997.
    \2\ Testimony by Ricki Helfer, Chairman, FDIC, before the House 
Committee on Banking and Financial Services, March 5, 1997.
    \3\ ``Federal Subsidies in Banking: The Link to Financial 
Modernization,'' Frederick Furlong, Federal Reserve Bank of San 
Francisco Economic Letter, number 97-31, October 24, 1997.
    ``The Battle for Bank Regulatory Supremacy,'' Carter Golembe, The 
Golembe Reports, volume 1997-2 (March 1997).

Q.3. Why do you not think banks will have a conflict-of-
interest situation, with either lending favorable loans to 
their affiliates, or even going as far as not lending to 
---------------------------------------------------------------------------
nonaffiliated firms--essentially to your competitors?

A.3. Banking organizations are subject to Sections 23A and 23B 
of the Federal Reserve Act, which limit the amount of credit 
and other forms of support that a bank could provide to a real 
estate brokerage affiliate or subsidiary. Such limits ensure 
that the safety and soundness of the bank will not be 
negatively impacted by its subsidiaries or affiliates. 
Moreover, the exact same potential for such conflicts exists 
today given that a number of real estate firms such as Century 
21, Coldwell Banker, ERA, and Long & Foster all offer mortgages 
to homebuyers. Although these integrated real estate 
organizations, as well as State banks in many States, savings 
institutions, and credit unions, have been selling real estate 
and funding mortgages for years, conflicts of interest has not 
been a problem. The Real Estate Settlement Procedures Act 
(RESPA) addresses such conflicts (explained in further detail 
below).

Q.4. What aspects of ``banking'' that real estate agencies 
currently have access do you think give them an unfair 
advantage?

A.4. Real estate companies, such as Long & Foster, Century 21, 
and Prudential, provide end-to-end services for the home 
purchasing process, including real estate brokerage, mortgage, 
and 
insurance services. It is ironic that the National Association 
of REALTORS' is now objecting to the very 
combinations that their members have undertaken--offering 
brokerage, mortgage banking, and, often, insurance under one 
roof. Such combination of services provides valuable cost, 
convenience, and service options for customers. All banks 
should have the opportunity to compete in the same manner as 
the real estate companies.

Q.5. How can banks restrict themselves from ``product 
packing,'' their clients believing that they must use a bank 
for all available services to receive easier credit approval or 
lower financing rates? What is to stop FHC salary-based real 
estate representatives from tying in other bank products?

A.5. First, as explained in the first question, banks and bank-
holding companies are subject to the antitying provisions of 
the Bank Holding Company Act. Second, RESPA applies to banks in 
the same manner as it applies to real estate firms. 
Specifically, RESPA requires REALTORS' affiliated 
with lenders to disclose that fact to customers before the 
purchase occurs. The RESPA disclosure, which must be on a 
separate piece of paper, must state the relationship between 
the real estate agent and the lender and provide the estimated 
charges or range of charges of the lender. It must also notify 
the customer that he or she is not required to use the lender 
and is free to shop around for a better deal.

        STATEMENT OF THE AMERICAN HOMEOWNERS GRASSROOTS ALLIANCE

    The American Homeowners Grassroots Alliance (AHGA) is a national 
bipartisan advocacy organization representing the Nation's 70 million 
homeowners. AHGA believes that preserving and enhancing homeownership 
should be a national policy priority. AHGA believes that homeowners and 
homeownership are generally benefited by domestic and international 
free market policies.
    AHGA has carefully reviewed policy documents and testimony from the 
real estate, lending sectors, and other sources on the issue of 
allowing banking organizations to be involved in real estate brokerage. 
From the consumer perspective there are significant potential benefits 
of such a policy. Those benefits clearly outweigh the limited potential 
risks. Also, a substantial majority of consumers would like the option 
of ``one-stop'' shopping for real estate services. For these reasons 
AHGA believes that consumers will benefit if banking organizations are 
involved in real estate brokerage and urges Congress to support the 
entry of banks into this market.
    Opponents argue that because banks lack the invaluable experience 
in local real estate markets and the in-depth knowledge of real estate 
law, consumers will suffer. While it is true that most banks currently 
do not have core real estate brokerage competencies, both experience 
and common sense suggest it is unlikely that consumers will suffer. 
Companies in the banking and real estate sector have successfully 
entered each other's markets without serious problems. Federal savings 
institutions, credit unions nationwide, and commercial banks in about 
half of the States have had the ability to engage in real estate 
brokerage for a number of years. Many real estate companies, including 
Long & Foster, Century 21, and Coldwell Banker and many others 
currently provide brokerage, mortgage lending, title insurance, and 
property insurance. Consumers have substantial protection in the fact 
that real estate practice is heavily regulated, and State licensing 
requirements establish minimum competencies that all participants must 
demonstrate. Rather than build those competencies from scratch, it is 
likely that many banks will enter the real estate brokerage market 
through partnerships with or the acquisition of small local real estate 
agencies that have substantial experience in their real estate markets 
and in-depth knowledge of real estate law. Another argument against 
permitting banks to enter real estate brokerage is that it will 
accelerate the consolidation process currently underway in both the 
real estate and lending sectors. This would reduce competition and 
increase costs to consumers. This is not a strong argument either. 
Other larger economic factors are driving the consolidation that will 
almost certainly continue in banking and real estate (and many other 
sectors as well), whether or not banks are allowed to enter real estate 
brokerage. AHGA believes that any contribution of this new policy to 
the consolidation process will be small. If banks are permitted to 
enter real estate brokerage the most visible difference will likely be 
that banks instead will purchase some of the small real estate 
brokerages that would otherwise be purchased by large real estate 
brokers. Because there will be more bidders the small independent 
brokers will benefit from higher selling prices when they sell their 
businesses. Fortunately there are a very large number of existing 
competitors in both sectors, so it would take many years before 
consolidation reduces the number of competitors in either sector to the 
point that any company or small group of companies could override 
market forces in determining prices of banking and real estate 
services. If and when we ever reach the point that market forces do not 
prevail in setting real estate service prices and lending prices and 
rates, U.S. antitrust laws are available to stop anticompetitive 
behavior.
    Last, opponents argue that permitting banks to enter real estate 
brokerage creates a conflict of interest in that a lender owning a real 
estate brokerage will try to sell follow-on products or services to its 
clients its other services, and in many cases those products or 
services will not represent the best value for the consumer. Most 
consumers recognize that the products or services of only a few 
companies in a given industry can represent the very best value for a 
particular consumer. They also recognize that the consumer is in the 
best position to determine his or her needs and priorities and it is 
the consumer's responsibility to sort out which products or services 
represent the best value. Cross-selling of follow-on products is a very 
common practice in many sectors, and the products and services a 
company seeks to cross-sell are no different with respect to their 
potential fit to a consumer's needs that the product or service that 
attracted the consumer in the first place. AHGA believes that most 
consumers are sophisticated enough to recognize that any company's 
follow-on products or services also may or may not be the best value 
for the consumer and act accordingly. There is therefore no greater 
conflict of interest between a consumer and business regarding a 
follow-on product or services or the product or service that attracted 
the customer in the first place. Most consumers do a lot of research 
regarding competing real estate and mortgage lending services before 
buying, selling, or financing a home. There is a wealth of free, 
inexpensive information that is available to consumers on those 
subjects from a wide range of sources, including AHGA's sister 
education and research organization, the American Homeowners Foundation 
(AmericanHomeowners.org). Almost every source strongly urges consumers 
to comparison-shop every major component of real estate services.
    There are several arguments in favor of permitting banks to enter 
real estate brokerage. Businesses cross-sell because it is more 
efficient way to market, for example the costs are lower. In a 
competitive marketplace a share of marketing cost savings will 
inevitably be passed on to consumers in the form of lower fees and/or 
rates. In addition to potentially saving homeowners money, the closer 
coordination of home brokerage and lending services under one roof also 
potentially reduces the time between purchase and settlement, which can 
often be very important to consumers as well. These likely cost and 
time savings are a substantial potential consumer benefit. They would 
indirectly benefit individual real estate agents, because they will get 
their commissions sooner and the reduced costs and time savings will 
likely mean more homebuyers and sellers. Consumers are very concerned 
about the protection of their financial and other personal data. 
Currently RESPA requires that all real estate companies and banks 
provide disclosure notice to the customer of multiple services offered 
by affiliated firms. In addition banks are currently subject to greater 
privacy regulation than real estate companies. The current regulatory 
proposal to allow banks to enter the real estate brokerage requires 
real estate brokers to provide greater protection to the privacy of 
consumer data. Consumers support this requirement and will benefit from 
greater protection. One-stop shopping is by itself a substantial 
benefit to many time-starved consumers. Many homebuyers are couples 
with two demanding jobs and often more demanding children. We believe 
many of those homebuyers consciously and intentionally trade 
convenience for economy in many decisions. They make that choice with 
full awareness that they will likely be forgoing a better offer if they 
took the time to shop around.
    From a policy standpoint the question is whether Federal 
legislators should deny consumers this freedom of choice, and if so, 
what is the appropriate alternative. While AHGA strongly encourages 
consumers to take the time to shop competitively for all real estate 
and financing services, AHGA also believes consumers have the right to 
make their own choice. In addition, recent home sellers favor allowing 
banks to offer real estate brokerage by a 2 to 1 margin according to a 
2001 survey.
    For this reason AHGA urges Members of Congress to oppose S. 1839 
and H.R. 3424. If Congress concludes that the risks of permitting 
banking organizations to be involved in real estate brokerage 
outweighed the benefits, then consistency would require that Federal 
savings institutions, credit unions nationwide, and commercial banks in 
several States that engage in real estate brokerage to divest 
themselves of their real estate businesses. Since the primary arguments 
against the bank's market expansion go to core competencies and 
potential conflicts of interest, then conversely the many real estate 
companies that currently provide mortgage lending should also be 
required to divest themselves of their real estate lending businesses. 
While these steps would apply the principles contained in S. 1839 and 
H.R. 3424 on a consistent basis, it would deny many consumers what they 
want--one-stop shopping. If Congress truly believes action is necessary 
to protect consumers it would be more effective to require consumers to 
meet some minimum level of due diligence before entering a real estate 
or lending transaction (for example demonstrating that they have 
interviewed three real estate agents before listing a home, looked at 
three houses before making an offer to buy a house, or considered three 
lenders before applying for a loan). However as previously stated AHGA 
believes this would be too much of a restriction of personal choice. In 
deciding whether to support real estate companies or bankers on this 
contentious issue, AHGA recommends that Congress choose the side 
consumers. Congress can best serve consumers by supporting the 
implementation of regulations to permit banking organizations to be 
involved in real estate brokerage.
    The American Homeowners Grassroots Alliance (AHGA) is a national 
bipartisan advocacy organization representing the Nation's 70 million 
homeowners. AHGA believes that policies that encourage and protect 
homeownership are in our national best interest. Those policies 
encourage and sustain the maintenance of a strong and broad middle 
class, build a sense of community and responsibility, and facilitate 
investment in homes, which are the largest, most universal savings/
equity-building vehicle for most Americans. AHGA's positions and more 
information about the organization are available at 
www.AmericanHomeowners.org. The American Homeowners Foundation's 
section of the website also contains free educational materials to help 
homeowners and future homeowners buy, sell, remodel, and finance their 
homes.

            STATEMENT* OF THE FINANCIAL SERVICES ROUNDTABLE
                              May 23, 2002

    The Financial Services Roundtable (``Roundtable'') appreciates the 
opportunity to submit testimony on the proposal by the Federal Reserve 
Board (``Board'') and Treasury to allow greater competition in the real 
estate brokerage industry by permitting financial holding companies and 
national bank subsidiaries to enter the business. The Roundtable 
represents 100 of the largest integrated financial services companies 
providing banking, insurance, and investment products and services to 
the American consumer. Member companies participate through the chief 
executive officer and other senior executives nominated by the CEO.
---------------------------------------------------------------------------
    * Due to size and quality of attachments, they will be held in 
Senate Banking Committee files.
---------------------------------------------------------------------------
    Roundtable member companies provide fuel for America's economic 
engine, accounting directly for $12.4 trillion in managed assets, $561 
billion in revenue, and 1.8 million jobs.
    The Roundtable strongly opposes the Community Choice in Real Estate 
Act (S. 1839 and H.R. 3424). Despite its name, the Act would limit the 
ability of consumers to choose the real estate agent or broker of their 
choice, and would artificially restrain competition in the brokerage 
industry. As a result, the Act would harm both consumers and the 
financial services industry.
    S. 1839 would prohibit the Board and the Treasury from completing 
the administrative rulemaking process required by the Gramm-Leach-
Bliley Act. (the GLB Act) and from ruling--if the statutory factors are 
met--that real estate brokerage and real estate management are 
``financial in nature'' and therefore permissible for financial holding 
companies and national bank subsidiaries.
    The Roundtable believes that the Board and the Treasury should be 
allowed to complete the rulemaking process. In addition, the Roundtable 
believes that the Board and Treasury should ultimately rule that real 
estate brokerage is a permissible activity, for several reasons. First, 
permitting financial holding companies to enter the real estate 
brokerage business is good for consumers. Second, it is good for the 
financial services industry. Third, real estate brokerage is a 
financial activity consistent with the Gramm-Leach-Bliley Act.

Consumers Will Benefit From the Proposed Rule
    The Roundtable strongly believes that consumers will be the real 
winners if the proposed regulation is adopted. Adoption of the rule 
will increase competition in the brokerage industry. More competition 
means more consumer choice, lower prices, and better customer service.
    Adoption of the regulation is necessary to meet the demands of 
consumers for one-stop shopping for all their homebuying needs. In 
1999, a study of recent homebuyers was conducted on behalf of the 
National Association of REALTORS' (NAR). (See Attachment A). 
According to this NAR study, 76 percent of homebuyers said that getting 
all or some of their homebuying services handled through one company 
was appealing. Eighty-one percent supported the idea of one-stop 
shopping for all of their homebuying services and were evenly split on 
whether the best provider of such services would be a bank, a 
REALTOR', or a mortgage company, although a slight majority 
stated they would prefer a bank as the one-stop shopping provider. The 
NAR study concluded that 77 percent would consider using a bank for 
those one-stop shopping services in future transactions.
    If the proposed regulation is adopted, consumers will be able to 
receive in one location all the services necessary to buy a home: 
preapproval for a mortgage loan; assistance in finding a home; a 
mortgage loan after a contract to purchase a home has been signed; and 
insurance for the property (including title insurance, property 
insurance, and private mortgage insurance) prior to closing. The 
consumer's life will be simplified and services will be expedited. Many 
traditional real estate brokers already have responded to consumer 
demand for one-stop shopping and are offering mortgage and, insurance 
services in addition to real estate brokerage services.
    Proponents of the Community Choice in Real Estate Act oppose 
letting financial holding companies compete in the real estate 
brokerage business. They argue that consumers are worried about their 
privacy when purchasing a home, and that letting financial holding 
companies compete would hurt consumer privacy. Concluding that 
brokerage is a financial activity in fact greatly enhances consumer 
privacy. While customers of financial holding companies and national 
banks are entitled to the GLB Act's far-reaching privacy protections, 
customers of real estate brokers currently have no Federal privacy 
protections.
    If adopted, the Board/Treasury regulation will afford brokerage 
customers the same Federal privacy protections now afforded to bank 
customers: real estate brokers will have to disclose their privacy 
policies to homebuyers and will be prohibited from sharing certain 
nonpublic information about the homebuyer with any nonaffiliated third 
parties unless the homebuyer has been given notice and the opportunity 
to opt-out of such information sharing. Ironically, enactment of S. 
1839 would in effect harm consumers by depriving them of the Federal 
privacy protections currently afforded the consumers in other sensitive 
financial transactions.
    Proponents of S. 1839 also argue that allowing financial holding 
companies to offer real estate brokerage services could result in 
harmful tying and other coercive practices. This argument is easily 
refuted by the fact that many brokerages are already affiliated with 
mortgage lenders, insurers, thrifts, credit unions, and State banks, 
and there is no evidence of these harmful practices occurring. 
Moreover, existing banking laws are more than adequate to preclude 
these types of practices within a financial holding company. Sections 
23A and 23B of the Federal Reserve Act prohibit a bank from making 
below-market loans to any affiliates or subsidiaries, including those 
that would be engaged in real estate brokerage, and severely restrict a 
bank's ability to provide equity contributions and other support to the 
real estate brokerage affiliate.\1\ Furthermore, Section 8 of the Real 
Estate Settlement Procedures Act \2\ and the antitying provisions of 
Section 106 of the Bank Holding Company Act Amendments of 1970 \3\ 
preclude any coercive practices against the bank's (or brokerage's) 
customers. In fact, a customer dealing with a brokerage affiliated with 
a bank will enjoy far greater consumer protection than if he or she 
were dealing with a real estate brokerage firm not affiliated with a 
bank.
---------------------------------------------------------------------------
    \1\ See 12 U.S.C. Sec. Sec. 371c, 371c-1 and 1828(j).
    \2\ 12 U.S.C. Sec. 2607.
    \3\ 12 U.S.C. Sec. 1971, et seq.
---------------------------------------------------------------------------
The Financial Services Industry Will Benefit From the Proposed Rule
    Adoption of the regulation is prudent for the financial services 
industry. Traditional real estate brokers are now actively competing 
with banks and financial holding companies by offering financial 
services--in particular, loans and insurance. Of the 10 leading real 
estate brokers cited by REALTOR' magazine, nine provide 
financial services and compete with financial holding companies by 
offering loans or insurance. According to the ``1999 National 
Association of REALTORS' Profile of Real Estate Firms,'' 56 
percent of its residential real estate brokerage firms with more than 
50 agents are involved in mortgage lending. (See Attachment B).
    Additionally, Federal thrifts \4\ and credit unions,\5\ as well as 
State-chartered banks in 26 States, are permitted to act as real estate 
brokers. (See Attachment C for data on the States). In fact, the only 
financial institutions that uniformly cannot engage in real estate 
brokerage are financial holding companies and national banks. The 
Roundtable asks only that more competition be allowed by permitting 
financial holding companies and national bank subsidiaries to offer 
these services as well.
---------------------------------------------------------------------------
    \4\ See 12 CFR Sec. Sec. 559.4(e)(3) (thrift service corporations), 
584.2-1(b)(8) (thrift affiliates).
    \5\ See 12 CFR Sec. 712.5(g) and (p).
---------------------------------------------------------------------------
    NAR argues that permitting financial holding companies to engage in 
real estate brokerage would create an unlevel playing field due to 
alleged ``Federally chartered advantages.'' NAR contends, without 
support, that Federal deposit insurance and access to the Federal 
Reserve system, for example, creates ``Federal subsidies'' enjoyed by 
depository institutions which give banks an unfair advantage. NAR 
further alleges that the proposed regulation would result in an unsafe 
and unsound banking system.
    Brokerage poses very little risk to the banking system. A real 
estate brokerage company does not act ``as principal,'' but rather acts 
in an ``agency'' capacity by being an intermediary in a transaction 
between a buyer and a seller. Banks have historically been permitted to 
conduct ``agency'' activities either directly or through affiliates. 
Financial holding companies are currently permitted to provide their 
customers with a wide array of agency services, including travel, 
securities, commodities, and insurance brokerage.
    Any Federal subsidy is far outweighed by the heightened regulatory 
burden and cost of supervision borne by depository institutions. The 
proposed regulation would permit real estate brokerage only in nonbank 
affiliates and financial subsidiaries--entities which, by law, are 
firewalled away from their affiliated depository institutions and 
therefore cannot enjoy any such alleged ``Federal subsidy.'' In any 
event, NAR's contention that the proposal would result in an unsafe and 
unsound banking system has not been evidenced in the 26 States that 
currently permit real estate brokerage by banks, or by the thrift, or 
credit union industries.
    There is no evidence that consumers have been hurt in any way by 
the current involvement of these depository institutions in the real 
estate brokerage industry, and there is no evidence that depository 
institutions in these markets dominate the brokerage industry or enjoy 
significant market power. Prohibiting real estate brokers from 
affiliating with financial holding companies seems to be out of step 
with the current marketplace. The most vocal proponent of the Act--
NAR--does not speak for the entire real estate industry. The Realty 
Alliance, a real estate brokerage trade organization with over 62,000 
members (most of whom are also members of NAR), publicly opposes NAR's 
efforts. (See Attachment D for a copy of a White Paper delivered by The 
Realty Alliance to the NAR). The Realty Alliance, like the financial 
services industry, welcomes increased competition and recognizes the 
potential benefits to consumers that the regulation could bring.

Real Estate Brokerage is a Financial Transaction Consistent with the
Gramm-Leach-Bliley Act
    Finally, the Roundtable believes that the proposed regulation is 
entirely consistent with the GLB Act which was designed to modernize 
and expand the financial services marketplace. The specific purpose of 
financial modernization, as stated in the preamble to the GLB Act, was 
to ``enhance competition in the financial services industry by 
providing a prudent framework for the affiliation of banks, securities 
firms, insurance companies, and other financial service providers, and 
for other purposes.'' [emphasis added].
    Title I of the GLB Act created the ``financial holding company'' 
structure and permitted financial holding companies to conduct a much 
broader range of financial activities than was historically permissible 
for bank holding companies. The GLB Act permits financial holding 
companies to engage in all activities that have been determined by the 
Federal Reserve Board to be ``financial in nature,'' or incidental or 
complementary to a financial activity.\6\ Given the historical 
experience of the Glass-Steagall Act and the practical limitations of 
creating a rigid regulatory structure, the GLB Act established a 
flexible framework that allows regulators to respond to changes in 
technology, the marketplace, and consumer demand. The GLB Act provides 
the Board, in consultation with Treasury, the authority to expand the 
statutory list of financial activities.\7\
---------------------------------------------------------------------------
    \6\ See Bank Holding Company Act Sec. 4(k)(1)(A), (B) (12 U.S.C. 
Sec. 1843(k)(1)(A), (B)).
    \7\ See Bank Holding Company Act Sec. 4(k) (12 U.S.C. 
Sec. 1843(k)).
---------------------------------------------------------------------------
    Consistent with Congress' directive and following the request of 
the American Bankers Association, the Roundtable, and others, the Board 
and Treasury issued a joint notice of proposed rulemaking in December 
2000 to determine that real estate brokerage and real estate management 
activities are ``financial in nature'' or ``incidental to a financial 
activity'' and, consequently, permissible for financial holding 
companies and national bank subsidiaries. By issuing this proposal, the 
agencies were simply fulfilling their obligation under the GLB Act to 
ensure that financial holding companies and national banks have the 
ability to compete with other financial service providers. In doing so, 
the Board and Treasury have followed the objective rulemaking process 
contemplated by the GLB Act and have sought public comments on the 
rule. We ask that the Board and Treasury be allowed to continue their 
deliberative process.
    The broader scope of the ``financial in nature'' standard for 
nonbank activities of financial holding companies is reflected in both 
the legislative history of the GLB Act and the diverse range of 
activities that financial holding companies are currently permitted to 
conduct. First, the Conference Report to the GLB Act states that 
``[p]ermitting banks to affiliate with firms engaged in financial 
activities represents a significant expansion from the current 
requirement that bank affiliates may engage only in activities that are 
closely related to banking.'' \8\ Second, financial holding companies 
are currently permitted to conduct a broad range of activities that 
bank holding companies are prohibited from conducting, such as 
unrestricted securities underwriting, merchant banking, unrestricted 
insurance underwriting, unrestricted insurance agency, travel agency, 
and acting as finder.\9\ The financial services marketplace has changed 
dramatically in the past 30 years, and what may have been inappropriate 
for bank holding companies in the early 1970's may be entirely 
appropriate for the diversified financial holding companies of the 
early 21st century.
---------------------------------------------------------------------------
    \8\ H.R. Conference Report No. 106-434, at 153 (November 2, 1999).
    \9\ See BHCA Sec. 4(k)(4) (12 U.S.C. Sec. 1843(k)(4)); 12 CFR 
Sec. 225.86(d)(1) (finder activities).
---------------------------------------------------------------------------
    With respect to the permissibility of real estate brokerage under 
the GLB Act, the GLB Act permits the Board to define certain activities 
as ``financial in nature,'' including ``transferring . . . for others 
financial assets other than money or securities.'' The Roundtable 
believes that real estate brokerage is exactly that type of activity. 
Real estate is the largest financial asset owned by most consumers and 
is the most widely used source of collateral for consumers seeking 
credit. The purchase of real estate is the largest financial 
transaction for most consumers. For many, real estate is the largest 
source of individual wealth; the decision to purchase, sell, and 
finance real estate plays a significant part in retirement planning. 
Real estate is conferred special status under Federal and State tax 
laws, distinguishing real estate from other large-ticket items. For 
these reasons, we believe that real estate is a ``financial asset'' and 
that brokerage is ``financial in nature.''
    In addition, the GLB Act defines as ``financial in nature'' all 
activities that involve ``arranging, effecting, or facilitating 
financial transactions'' for others.\10\ Real estate brokerage is part 
of the overall financial activity of helping a consumer receive 
preapproval for a mortgage loan, find a home, appraise the property, 
receive final approval for the mortgage loan, close the transaction, 
and insure the home with property insurance, title insurance, and, in 
certain cases, private mortgage insurance. Each of the services and 
products offered as part of the overall financial transaction are 
integrated with one another. Such integration is reflected in several 
ways. First, consumers frequently enlist the services of a real estate 
broker at 
the same time that they seek the products of a mortgage lender and an 
insurance 
agency. Second, consumers generally pay the loan fees, the 
REALTOR''s commission, and the initial insurance premiums 
together at the closing. Third, the documents that consumers sign with 
respect to the mortgage loan, real estate brokerage, and the insurance 
generally cross-reference and are conditioned upon each other.
---------------------------------------------------------------------------
    \10\ See Bank Holding Company Act Sec. 4(k)(5)(B)(iii) (12 U.S.C. 
Sec. 1843(k)(5)(B)(iii)).
---------------------------------------------------------------------------
    In determining whether an activity is ``financial in nature,'' the 
GLB Act also requires the Fed to consider ``changes in the marketplace 
in which financial holding companies compete'' and whether such 
activity is ``necessary or appropriate'' to allow a financial holding 
company or its affiliates to ``compete effectively with any company 
seeking to provide financial services in the United States.'' \11\ As 
highlighted earlier, approval of the regulation is both necessary and 
appropriate to allow financial holding companies to compete effectively 
with real estate brokerage companies, as well as with Federal thrifts, 
credit unions, and State banks in 26 States.
---------------------------------------------------------------------------
    \11\ Section 103(a), new Bank Holding Company Act (BHCA) section 
4(k)(3)(A)&(D)(i).
---------------------------------------------------------------------------
    As a result, the Roundtable firmly believes that real estate 
brokerage is ``financial in nature,'' consistent with the GLB Act. At 
the very least, the Board and Treasury should find that it is 
``incidental to a financial activity.'' Banks and financial holding 
companies are involved in virtually every other aspect of residential 
and commercial real estate transactions, ranging from rendering advice; 
acting as a finder; appraising the property; issuing abstracts of title 
and performing title searches; selling and underwriting hazard, title, 
and mortgage guaranty insurance; arranging or providing financing; 
providing loan closing, settlement, and escrow services; and 
securitizing mortgage loans or underwriting and selling mortgage backed 
securities. Clearly, acting as a real estate broker is incidental to 
the performance of these other real estate related services that are 
already considered to be ``closely related to banking'' or ``financial 
in nature.''
    In sum, assertions that the Board and Treasury may not rule on real 
estate brokerage are without basis under the GLB Act. Such an 
interpretation of the GLB Act would chill future proposals for 
activities to be considered ``financial in nature'' and would 
effectively turn the clock back on financial modernization.

Conclusion
    In conclusion, the Roundtable strongly supports the proposed 
regulation and believes that its adoption would be a win-win 
proposition for consumers and the financial services industry. The 
regulation would allow financial services companies to build alliances 
with real estate brokerages, creating tremendous benefits for 
consumers, including one-stop shopping, lower prices, more choice, and 
increased competition. The Community Choice in Real Estate Act is 
nothing but an attempt to derail the deliberative rulemaking process--
thereby preserving artificial barriers to entry in the brokerage market 
for the purpose of preserving market share and reducing threatened 
competition. While NAR wants to compete in the financial services 
markets by making loans and selling insurance, NAR wants Congress to 
protect them from competition in their own backyard. For the foregoing 
reasons, the Roundtable opposes S. 1839 and supports the rulemaking 
process commenced by the Board and the Treasury in December 2000. This 
rulemaking process is an appropriate delegation of authority to the 
regulators, who have expertise and experience in this area and are 
fully equipped to consider all the substantive issues and make an 
objective ruling in the best interests of both the consumers and the 
industry.
    Thank you for the opportunity to submit our views.

    
    
    
    
