[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                   PROTECTING CONSUMERS AND PROMOTING
                  COMPETITION IN REAL ESTATE SERVICES

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 15, 2005

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-37













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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
JOHN CAMPBELL, California

                 Robert U. Foster, III, Staff Director
























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 15, 2005................................................     1
Appendix:
    June 15, 2005................................................    53

                               WITNESSES
                        Wednesday, June 15, 2005

Bliley, Hon. Thomas J., former Chairman, Committee on Commerce, 
  U.S. House of Representatives..................................    11
Gramm, Hon. Phil, former Chairman, Committee on Banking, Finance, 
  and Urban Affairs, U.S. Senate, delivered by Hon. Jeb 
  Hensarling.....................................................     5
Leach, Hon. James A., former Chairman, Committee on Banking and 
  Financial Services, U.S. House of Representatives..............     8
Duke, Elizabeth A., Chairman, American Bankers Association.......    15
Eastment, George T. III, President, Long and Foster Financial 
  Services on behalf of the Real Estate Services Providers 
  Council, Inc...................................................    19
Mansell, Al, President, National Association of Realtors.........    17

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    54
    Baker, Hon. Richard H........................................    57
    Bliley, Hon. Thomas J........................................    65
    Gramm, Hon. Phil.............................................   106
    Kanjorski, Hon. Paul E.......................................    60
    Leach, Hon. James A..........................................    61
    Duke, Elizabeth A............................................    71
    Eastment, George T. III,.....................................    95
    Mansell, Al..................................................   112

              Additional Material Submitted for the Record

Oxley, Hon. Michael G.:
    Covington & Burling memo to American Bankers Association.....   126
Kanjorski, Hon. Paul E.:
    Real estate market share chart...............................   140
American Bankers Association:
    Written responses to questions from Hon. Ginny Brown-Waite...   143
    Written responses to questions from Hon. Stevan Pearce.......   151
National Association of Realtors:
    Written responses to questions from Hon. Stevan Pearce.......   147





























                   PROTECTING CONSUMERS AND PROMOTING

                  COMPETITION IN REAL ESTATE SERVICES

                              ----------                              


                        Wednesday, June 15, 2005

                  House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:04 a.m., in 
Room 2128, Rayburn House Office Building, Hon. Michael Oxley 
[chairman of the committee] presiding.
    Present: Representatives Oxley, Leach, Baker, Pryce, 
Bachus, Castle, Lucas, Gillmor, Ryun, Biggert, Miller of 
California, Tiberi, Kennedy, Feeney, Hensarling, Brown-Waite, 
Renzi, Pearce, Neugebauer, Davis of Kentucky, McHenry, Frank, 
Kanjorski, Waters, Maloney, Gutierrez, Velazquez, Watt, Hooley, 
Sherman, Meeks, Lee, Moore of Kansas, Hinojosa, Crowley, Clay, 
Israel, Baca, Matheson, Lynch, Miller of North Carolina, Scott, 
Davis of Alabama, Green, Cleaver, Bean, Wasserman Schultz, and 
Moore of Wisconsin.
    The Chairman. Good morning. The committee will come to 
order.
    We have the honor of receiving testimony from the authors 
of one of the most significant pieces of financial legislation 
ever enacted by any Congress, the Gramm-Leach-Bliley Act, which 
repealed anti-competitive restrictions on our financial 
services industry that had been in statute since the Great 
Depression.
    These gentlemen have agreed to come before the committee 
this morning to explain the intent of this act and to highlight 
the reasons particular provisions were drafted in the manner 
that they were. Unfortunately, Chairman Gramm was unable to 
join us as he is tending to matters in Europe. In his place, 
however, I would like to thank our good friend and colleague, 
Representative Hensarling, a member of Chairman Gramm's staff 
in a former life, for agreeing to deliver Chairman Gramm's 
comments for the record.
    The Gramm-Leach-Bliley Act permitted financial holding 
companies to engage in activities that are financial in nature 
or incidental or complementary to the offering of financial 
services. The effect of this landmark legislation was that 
banking, insurance and security services could for the very 
first time be offered by a single entity. This act modernized 
our financial industry and did away with artificial barriers to 
competition in these markets.
    In their wisdom, the authors understood that the financial 
marketplace was an evolving one and that if this legislation 
was to stand the test of time it would have to be periodically 
updated. This flexibility was built into the act through a 
provision that permitted the Treasury Department and the 
Federal Reserve Board to determine, through the rulemaking 
process, that other activities are financial in nature or 
incidental to such activities.
    In 2001, the Federal Reserve Board and the Treasury 
Department exercised their authority under Gramm-Leach-Bliley 
by issuing a proposed regulation defining real estate brokerage 
and management services as financial in nature. The agencies 
have never been able to finalize their rule, however, because 
provisions have been inserted in every appropriations bill 
since 2001 at the behest of the National Association of 
Realtors prohibiting the Treasury Department from expending any 
funds to implement that regulation. I, along with the Ranking 
Member of the committee, have consistently objected to 
legislating on appropriations bills in this manner.
    To that end, the Ranking Member, Mr. Frank, and I have 
introduced legislation, H.R. 2660, which would amend the Bank 
Holding Company Act to state that real estate brokerage and 
management services are financial in nature. I regret that it 
has come to this, but this committee cannot sit idly by while 
the appropriators run roughshod over our jurisdiction and 
single-handedly frustrate the objective of financial 
modernization that the distinguished members of our first panel 
worked so long and hard to achieve.
    We will hear the arguments today that the offering of real 
estate brokerage and management services was specifically 
excluded under Gramm-Leach-Bliley because these services are 
commercial, not financial, in nature. The fact is that there is 
nothing in the act or in the legislative history of the act 
which speaks to the issue of real estate brokerage or 
management. On the contrary, while the act specifically 
prohibits bank subsidiaries from engaging in real estate 
development and investment, it is utterly silent on the 
separate issues of real estate brokerage and management.
    Moreover, particularly with housing prices at record 
levels, the purchase of residential real estate is for most 
Americans the most significant financial transaction that they 
will ever undertake. It is a transaction that often involves 
highly sophisticated financial instruments to finance it, and 
the vast majority of Americans' net worth resides in the value 
of their homes.
    Additionally, credit unions, thrift institutions and State-
chartered banks in over one-half of the States have long been 
permitted to offer real estate brokerage services. Excluding 
one class of depository institutions--national banks--from 
being able to compete on that same playing field is 
inconsistent with the goals of the Gramm-Leach-Bliley Act and 
with the fundamental principles that should govern free market 
economies.
    Indeed, free market competition is the hallmark of growth 
and innovation in our country. Man-made barriers to entry into 
markets result in monopolies that set the terms of the market 
and dictate the price. That is what we have today with regard 
to real estate. The consumer will benefit if free market 
principles are applied to real estate brokerage and management. 
Lower prices, improved services and greater access to 
affordable housing will be the result.
    Regardless of whether banks are eventually permitted to 
provide real estate brokerage, Congress needs a better 
understanding of whether the current rules for residential real 
estate brokerage are in the best interests of consumers. Few 
people understand how the NAR functions as a self-regulating 
organization. If its rules promote competition and consumers, 
why is the Justice Department suing the NAR over its rules 
blocking Internet brokers from displaying homes for sale on 
their Web sites? How are these rules consistent with a broker's 
fiduciary duty to the home seller?
    Furthermore, what is the relationship between the NAR and 
State realtor associations? Could it possibly be in the 
interest of consumers for State realtor associations to ask 
State legislators and realty commissions to adopt requirements 
preventing realtors from rebating part of their fees to 
consumers or preventing consumers from choosing low-cost 
discount brokers? The Justice Department is suing the Kentucky 
Real Estate Commission over just such rules.
    On March 15th, Ranking Member Frank and I wrote to the 
Government Accountability Office asking it to survey the state 
of price competition in the market for real estate brokerage 
services. This follows my GAO request last November on whether 
there are barriers to electronic commerce in real estate. We 
need to look broadly at consumer protections for home buyers 
and sellers and this committee will continue to do so.
    Let's forget about fighting among the various lobbyists and 
remember what is really important, and that is how we can get 
home buyers the best real estate services at the lowest 
possible prices. Competition is always the answer to that basic 
question. Choice is always the answer to that basic question. 
There is not enough competition in these real estate markets 
and that is what we seek to remedy.
    I look forward to hearing from the witnesses regarding the 
intent of Gramm-Leach-Bliley and the impact the increased 
competition could have on the marketplace and on consumers.
    I now recognize the gentleman from Massachusetts, Mr. 
Frank.
    Mr. Frank. Thank you, Mr. Chairman.
    This is an institution where precedent counts for 
something. I trust you have set on in the fact that our 
colleague Mr. Hensarling is here to represent former Senator 
Gramm. Then-Congressman Gramm came to this institution about 
the same time that you and I did, 25 or more years ago. I like 
this precedent of our being able to designate a significantly 
younger surrogate and I trust it will be from time to time 
extended on a broader basis for those of us from that 
generation.
    I am in a situation in this hearing which I have read 
about, but not had previous experience. To some extent, I think 
some of us feel like children in a custody dispute, being asked 
to choose between mother and father. I value the contributions 
that realtors individually and the National Association of 
Realtors and the Massachusetts realtors have made in public 
policy. They have been, in my judgment, effective advocates for 
housing policies.
    When we did the question of credit a couple of years ago, 
the realtors were in my recollection among the most effective 
advocates of the consumer position. They understood the 
unfairness of arbitrary credit rulings which would have kept 
consumers from being able to buy housing. So I value that 
relationship.
    In my particular case, sponsoring this bill is not any 
indication of dissatisfaction with or unhappiness with realtors 
and the service they perform, but one very specific 
disagreement. I have generally taken the position that 
competition is a good thing. Unlike a lot of my colleagues 
early in the 1980's, I was an advocate of repealing Glass-
Steagall. It seemed to me it had been undermined substantially 
by technology, but I also think that the notion of competition 
is a good one.
    One of the metaphors we hear frequently discussed in 
America is that of the level playing field. We have a very 
interesting economic and physical phenomenon that is, as I 
listen to various businesses, every business, every single 
business in the financial services field, every single one of 
them is at a disadvantage to its competitors. We have what we 
would call in economics a constantly downwardly sloping playing 
field. I have never met a business that received any advantage 
in the law, only disadvantages. How that is possible, I do not 
entirely comprehend, but simply empirically I must report to 
you that that is what we are told.
    I have generally tried to promote competition. Now, I 
understand the concern and we have heard it from the realtors; 
we have heard it even more vigorously when we were dealing with 
this legislation from people in the securities industry, namely 
that the ability of the banks to make loans would give them 
leverage and they could tie that to other transactions and 
therefore get people to do business with them in other areas 
because of the fear that they would not get loans. I think it 
was incumbent upon us to look very closely at that.
    I have to say that the evidence I have seen so far does not 
show such a pattern. It is a legitimate concern, but it is 
certainly not allowed under the law and there are restrictions 
on it. In my own State of Massachusetts, banks have been 
allowed to do real estate brokerage. It is not my understanding 
that they have widely taken advantage of that. But I do want to 
make clear, to me this is a difference between two groups of 
very constructive participants in our financial system, both of 
whose work I value, both of whom make important contributions, 
both in particular to the consumers they serve and to the 
economy in general. In this particular case, I do think we are 
served better by competition with the constant need to impose 
restrictions against illegal tying.
    So with that, I am ready. I will apologize in advance. 
There is a constituent of mine who has been very unjustly 
imprisoned in the Peoples Republic of China. At 11:15, the new 
Ambassador from China will be in my office to discuss that. 
Having secured the appointment, I was not in a position to 
change it around, so I will be absenting myself. But I do want 
to again reiterate that for me this is a specific disagreement, 
particularly with regard to the realtors, with an organization 
and a structure that I think plays a very constructive role. It 
is in that context that I hope this goes forward.
    The Chairman. The gentleman's time has expired.
    The Chair would indicate all members' opening statements 
will be made part of the record.
    We would like to now turn to our distinguished panel.
    Without objection, the first panel will be excused after 
giving their statements so we can get to the second panel.
    Our first witness is the gentleman from Texas, Mr. 
Hensarling, testifying on behalf of Senator Gramm.

STATEMENT OF HON. PHIL GRAMM, A FORMER SENATOR IN CONGRESS FROM 
  THE STATE OF TEXAS, FORMER CHAIRMAN, COMMITTEE ON BANKING, 
FINANCE, AND URBAN AFFAIRS, U.S. SENATE, DELIVERED BY HON. JEB 
                           HENSARLING

    Mr. Hensarling. Thank you, Mr. Chairman.
    Let me also thank you and my dear friend and mentor, 
Senator Phil Gramm, for asking me to read his testimony into 
the record.
    If I can make two observations, the testimony of Senator 
Gramm does not necessarily reflect that of his current employer 
and does not necessarily reflect my own views. Secondly, 
although the testimony is most insightful, it is not 
necessarily brief, Mr. Chairman.
    With that, I shall begin.
    Chairman Oxley, Ranking Member Frank and members of the 
committee, thank you very much for the invitation to testify 
before your committee today.
    Before continuing, Mr. Chairman, let me commend you and 
your colleagues for the leadership you exhibit on various 
issues within this committee's jurisdiction. The past several 
years have been marked by events affecting the delivery of 
financial services to consumer investors, financial accounting 
and transparency, and the review of numerous issues arising 
from the implementation of the Sarbanes-Oxley Act.
    Under your leadership, this committee has exercised the 
highest standard of congressional oversight. So while the 
distance between our offices is now more than just across the 
Capitol Plaza, I remain keenly interested in your work and 
commend you for your diligence in protecting the public 
interest. The hearing you hold today is yet another example of 
this committee's untiring efforts to address significant public 
policy issues.
    The subject of today's hearing focuses on some of the most 
important provisions of the Gramm-Leach-Bliley Act, known as 
``the act,'' clearly provisions serving as one of the pillars 
of financial reform, as my esteemed former colleagues, Chairmen 
Leach and Bliley will I think agree. Without the expansion of 
permissible financial activities, the removal of barriers to 
affiliation under the act is rendered meaningless. These 
provisions were topics of thorough debate and consideration and 
numerous meetings at which Chairmen Leach, Bliley and I were 
participants in 1999.
    I also must acknowledge the contributions of then-Ranking 
Member LaFalce. I am confident that Jim and Tom will agree with 
me that the final agreement of the conferees reached in this 
very room in late-October, 1999 evokes poignant, if not fond, 
memories. The agreement was announced by Chairman Leach and 
agreed to by all conferees, followed by a swift gavel 
signifying the conclusion of our proceedings at about 3 a.m. 
Upon reflection, I am inclined to believe that Chairman Leach 
quickly gaveled the conclusion of that meeting, not because of 
the lateness of the hour, but before anyone could have a change 
of heart.
    As a preliminary matter, let me be clear that my testimony 
solely reflects my personal views and not necessarily those of 
my current employer or fellow employees.
    Under the act, the Federal Reserve Board was granted 
umbrella regulatory powers over financial holding companies. 
The expended powers under the act may be engaged in by 
qualifying FHCs and by financial subsidiaries of national 
banks. The act reflects the wisdom of the Congress that none of 
us serving at the time could see into the future or judge what 
the full scope of financial activities would or should 
encompass. Rather, the act amended the Bank Holding Company Act 
and the revised statutes to create a process by which the list 
of financial activities could and would be expanded.
    I recall that in testimony before the Senate Banking 
Committee and before the then-House Banking Committee, Federal 
Reserve Board Chairman Alan Greenspan observed that the 
landscape of financial activities would change dramatically 
over the ensuing 5 to 10 years. We are now 6 years into that 
forecast. I believe that Chairman Greenspan's observation is 
accurate. I remain convinced that the Bank Holding Company Act 
and the revised statutes, both as amended by the Gramm-Leach-
Bliley Act, create the proper framework for the determination 
of financial activities.
    Specifically, the act created new subsections K through O 
of section four of the Bank Holding Company Act addressing 
generally the following: financial activities; coordination 
between the Federal Reserve Board and the Secretary of 
Treasury; conditions for engaging in financial activities; 
conditions applicable for failure to meet certain requirements; 
and the retention of limited non-financial activities and 
affiliations.
    While new subsection 4(k)(4) enumerates activities 
determined to be financial in nature, section 4(k)(2) 
establishes a process of coordination and cooperation between 
the Federal Reserve Board and the Secretary of Treasury, 
allowing them to determine jointly that an activity is 
financial in nature or incidental to a financial activity and 
therefore permissible for FHCs. Neither agency may determine 
that an activity is financial in nature or incidental to a 
financial activity if the other agency indicates in writing 
that an activity is not financial in nature, not incidental to 
a financial activity, or not otherwise permissible.
    Section 121 of the act creates a parallel provision for the 
Secretary of Treasury to determine new financial activities or 
activities incidental to such activities for financial 
subsidiaries of national banks. Section 4(k)(3) requires the 
Federal Reserve Board to take into consideration certain 
factors in determining whether an activity is financial in 
nature or incidental to a financial activity.
    Generally, the four factors specified in the law require 
the Federal Reserve Board to take into account the purposes of 
the Bank Holding Company Act and the act; changes or reasonably 
expected changes in the marketplace in which FHCs compete; 
changes or reasonably expected changes in the technology for 
delivering financial services; and whether the activity is 
necessary or appropriate to allow an FHC and its affiliates to 
compete effectively with any company seeking to provide 
financial services in the United States; efficiently deliver 
information and services that are financial in nature through 
the use of technological means; and offer customers available 
or emerging technological means for using financial services or 
for the document imaging of data.
    The act, at section 121, addresses the establishment of 
financial subsidiaries of national banks and establishes the 
same factors for consideration by the Secretary of Treasury for 
determining whether certain activities are financial in nature 
or incidental to such activities, and therefore permissible for 
the financial subsidiaries of national banks. Pursuant to 
section 4(k)(2) and section 5136(a), third parties are 
permitted to request that the Federal Reserve Board or the 
Secretary of Treasury determine that any activity is financial 
in nature or incidental to a financial activity.
    Acting under these provisions in December 2000, the 
agencies received a request for a determination that real 
estate brokerage and real estate management are financial 
activities. The agencies came to agreement that such activities 
are financial in nature. On January 3, 2001, they issued a 
joint proposed rule seeking public comment. Under the joint 
proposed rule, real estate brokerage is defined to mean acting 
as agent in a real estate transaction; listing and advertising 
real estate; providing advice in connection with a real estate 
purchase, sale, exchange, lease or rental; bringing parties 
together and negotiating on behalf of such parties.
    FHCs and financial subsidiaries would not be permitted to 
invest in or develop real estate as principal, or take any 
financial interest in real estate that they broker. Under the 
joint proposed rule, real estate management generally is 
defined to mean procuring tenants, negotiating leases, 
maintaining security deposits, billing and collecting rent 
payments, and inspecting and maintaining real estate. FHCs and 
financial subsidiaries would not be permitted to acquire a 
financial interest in real estate managed or directly repair or 
maintain real estate managed.
    Nothing in the act expressly or impliedly deems real estate 
brokerage or management activities to be impermissible for 
determination as financial activities. The only real estate-
related activities expressly mentioned are those at section 121 
of the act. In that section, financial subsidiaries of national 
banks are prohibited from engaging in ``real estate development 
or real estate investment activities unless otherwise expressly 
authorized by law.'' Section 121 was the product of careful 
negotiation over a substantial period prior to its acceptance 
at a meeting of the conferees held in the Capitol in the fall 
of 1999.
    Thus, it appears that the agencies properly exercised their 
authority under the Bank Holding Company Act and the revised 
statutes to determine that real estate brokerage and real 
estate management are financial activities and to solicit 
public comments on the contours of their proposed regulation. 
It is my understanding that the process has not been completed 
since it was initiated in 2001.
    It took Congress approximately 9 months to complete its 
work on the Gramm-Leach-Bliley Act, working with the Federal 
financial regulators, representatives of public interest 
groups, industry and certain State regulatory authorities. 
This, however, followed some 6 decades of debate on the need 
for reforms to update our banking laws. The method established 
under the act for determining financial activities and 
activities incidental to financial activities was one arrived 
at after lengthy negotiations. In order for our financial 
industry to remain competitive domestically and globally, our 
statutory and regulatory regimes must be able to respond to 
changing market dynamics and to do so quickly and effectively.
    When we decided in 1999 upon the method for determining new 
financial activities going forward, we agreed to do so on the 
basis that it was imprudent to create a static, fixed 
definition in the law for permissible financial activities. 
Instead, we provided flexibility for the Federal Reserve Board 
and the Treasury to initiate their own proposals or to consider 
proposals from third parties for new financial activities.
    It is my hope that we can rely upon this framework and that 
it can be a sound and fair basis upon which our financial 
institutions evolve. The rulemaking process contains procedural 
safeguards, transparency and the opportunity for public 
comment. Hopefully, section 4(k) of the Bank Holding Company 
Act and section 5136(a) of the revised statutes will not become 
empty provisions of the law, but will be utilized to serve the 
interests of a competitive industry, the consumers of financial 
products and services, and the safety and soundness 
considerations of our financial regulators.
    Thank you again, Mr. Chairman, Ranking Member Frank and 
members of this committee, for the courtesy of your invitation 
and for your interest in my views.
    Mr. Chairman, that completes Senator Gramm's testimony.
    [The prepared statement of Mr. Gramm can be found on page 
106 of the appendix.]
    The Chairman. Thank you. And I thank Chairman Gramm for his 
excellent testimony and your presentation of same.
    We now turn to the middle of the Gramm-Leach-Bliley 
provision, our good friend and the former chairman of this 
committee, Congressman Leach.

STATEMENT OF HON. JAMES A. LEACH, A REPRESENTATIVE IN CONGRESS 
 FROM THE STATE OF IOWA, FORMER CHAIRMAN, COMMITTEE ON BANKING 
     AND FINANCIAL SERVICES, U.S. HOUSE OF REPRESENTATIVES

    Mr. Leach. Thank you very much, Mr. Chairman and Mr. Frank, 
distinguished colleagues. I apologize I do not have a written 
statement, so I would request unanimous consent to revise and 
extend.
    The Chairman. Without objection.
    Mr. Leach. The background, Mr. Chairman, for consideration 
of financial modernization legislation, what came to be called 
Gramm-Leach-Bliley, was competition between various private 
sector industries; competition within each of these industries; 
and competition between regulators of various entities. At 
issue today is a review of how Gramm-Leach-Bliley addresses the 
real estate issue. The subject surprisingly involves all three 
of the above-cited competitions.
    For instance, there is an obvious competition or potential 
competition between financial holding companies, banks and 
realtors, perhaps exaggerated because a few banking 
institutions are either desirous or good at offering real 
estate brokerage services. This is evidenced by competition 
within the banking industry itself.
    A number of States, such as my own, for a number of years 
have given State banks real estate brokerage powers. Few banks 
nationwide have made much of a dent in the market, in part 
because real estate brokerage activities are so competitive and 
in part because real estate brokering is anti-bank in culture. 
That is, real estate brokers are on the hoof; bankers prefer 
the shelter of brick walls. The two cultures do not well mix.
    Interestingly, however, a number of States have laws that 
automatically give State banks any powers a national bank has 
authorized, but there is no reverse law. That is why in the 
regulatory competition between State and national banks, the 
national bank regulator, the OCC, has a strong bent to attempt 
through regulation to give national banks whatever powers any 
State authorizes and if possible more authorities.
    Therefore with regard to garnering consensus support for 
bank modernization legislation, a number of the non-bank groups 
relented in opposition to opening up competition between the 
three principal industries, that is banking, securities and 
insurance, because the OCC had been making concerted efforts to 
unilaterally empower banks.
    The law in its final format was equalitarian, that is, 
Gramm-Leach-Bliley. Powers granted banks were also accorded 
securities firms and insurance companies. Competition, not turf 
protection, was the aim of the legislation. But we should be 
clear that the OCC activism was part and parcel of everything 
that had to do with garnering support for passage of bank 
modernization.
    Even though there appeared under prior law to be a more 
constraining standard of flexibility for regulatory power-
granting, i.e., bank affiliates could only engage in activities 
closely related to banking, the OCC had begun to use a Supreme 
Court administrative law precedent called the Chevron case, 
which suggested that courts should give deference to Federal 
regulators as long as they did not operate capriciously to 
expand the powers of national banks.
    Given the State precedents on real estate brokerage 
activities, it was widely assumed that the OCC would authorize 
even greater powers for national banks. Indeed, when Gramm-
Leach-Bliley was under consideration, the OCC had under 
consideration a national bank request to allow it to engage in 
real estate leasing activities as well as certain real estate 
investment activities.
    Therefore, in an industry-balancing scenario, what Gramm-
Leach-Bliley did for the real estate industry was to 
statutorily proscribe banks from using federally insured 
deposit advantages for real estate investment and development. 
This was done in the context of the philosophical struggle then 
underway about the bill, whether commerce and banking should be 
breached itself.
    I want to diverge for a second on this subject for a couple 
of reasons. One is the import of the issue; and two, that the 
real estate industry played such a major role in consideration 
of the issue. That is, when Gramm-Leach-Bliley was under 
review, a large number of members of this committee, the 
majority of the leaders of both houses of Congress and of both 
parties in Congress, wanted to do a complete lifting of the ban 
between commerce and banking.
    What was at issue, in my view, was whether or not we would 
develop a system similar to Japan and Korea, that is to have 
what the Koreans called chaebols and what the Japanese called 
keiretsus; or what was the system in place in a country like 
Spain which involved the integration of commerce and banking. 
Whether, for instance, Citicorp could merge with Amoco and Wal-
Mart, and whether this would be good for the economy or not.
    The realtors held, as I did, that this would be a mistake 
and that it would radically change the whole system of American 
finance, as it would change the whole nature of the real estate 
industry. As it worked out, and partly because bankers backed 
off a little bit in partial measure because in my view there 
are only 200 to 300 Americans that actively wanted this, and 
they were all in large-bank boardrooms and investment bank 
boardrooms. But the interesting phenomenon was that no bank in 
America, with the exception of one, was in the top 20 of 
American corporations in asset value based on stock exchange 
valuation, that is, market valuation.
    It was my belief, and I wrote the heads of every bank in 
America, that if this provision passed, in short order Chase 
and Citicorp would not be taking over the world. They would be 
the first to be taken over; that Amoco, Wal-Mart, etc., would 
buy out Chase and Citicorp and that the big banks would be the 
most vulnerable institutions in America to losing their 
independence. This view came to be talked about rather widely 
in the higher echelons of finance. I can only suggest to you 
the difficulty would have happened. At that time, Enron had a 
greater market capitalization than any bank in the United 
States of America. MCI-WorldCom had a greater valuation than 
all but one.
    The point is, I think all of these institutions would have 
taken over banks, and what would that have meant when these 
companies got in difficulty? I think it would have been a 
rather difficult scenario for the United States.
    I raise this in this context because the realtors, like 
others in American commerce, but the realtors more than anyone 
that I know of paid attention to this issue. They were 
adamantly opposed to mixing commerce and banking. It is no 
accident that they did not object to this bill's passage. They 
understood that they were worse off without a bill and they 
would have been much worse off with a bill that was designed in 
a very different way.
    Finally, in terms of legislative history, the committee of 
jurisdiction chose to prohibit banks from engaging in real 
estate development investment, but allowed the legislation to 
be silent on brokerage activities. This was not an oversight. 
The first comprehensive version of Glass-Steagall reform that I 
introduced as chairman of the Banking Committee did reference 
the brokerage issue.
    But the banking community persuasively pointed out to 
committee members that not only was banking evolving, but so 
was the way real estate brokers conducted business. The banking 
industry argued that because sophisticated real estate brokers 
were also providing credit to clients by offering mortgage 
banking services themselves, it did not seem balanced to not 
allow or at least not preclude bankers from entering the 
business.
    The committee thus chose not to tilt in any direction on 
the issue and left decision-making up to the professional 
regulators. As one of the authors of the legislation, I have 
taken the position not to endorse any approach or give 
regulators any post-legislative advice. The law was intended to 
be flexible, adjusting to new times and new ways without 
congressional prejudice.
    Finally, a note about the regulatory competition. Gramm-
Leach-Bliley was intended to seal the gaps of regulation by not 
only ensconcing functional regulation, but by establishing a 
primary regulator so accountability could not be ducked. It was 
also designed to make regulation more seamless and less 
competitive. On this issue, for instance, the Fed and the 
Treasury have shared authority so that the OCC, which regulates 
national banks and the Fed which regulates State banks as well 
as holding companies, apply together consensus judgment. From 
the real estate industry perspective, this was considered a 
significant plus.
    In conclusion, let me stress that the Gramm-Leach-Bliley 
Act was the product of many years of legislative debate. The 
final legislation was designed to ensure that the evolution of 
the financial services industry would not be impeded by 
protracted congressional interference. The process of defining 
new powers for banks and financial holding companies was by 
intent de-politicized under the act.
    In America, process is our most important product. It is 
process as much as outcome which Gramm-Leach-Bliley is about. 
In this case, the silence of the act on real estate brokerage 
activities makes it subject to review by regulators. This 
review, however, should not be one which assumes a 
congressional bias on result. There is nothing in the hearing 
record or report language which indicates the direction 
regulators should take, with the exception that any judgment of 
regulators would presumably have to accommodate anti-tying 
product guidelines.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Chairman. We appreciate your 
testimony.
    We now turn to the third witness, my good friend and former 
chairman of the Energy and Commerce Committee, the gentleman 
from Richmond.
    Mr. Bliley, good to have you back.

STATEMENT OF HON. THOMAS J. BLILEY, A FORMER REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF VIRGINIA, FORMER CHAIRMAN, COMMITTEE 
           ON COMMERCE, U.S. HOUSE OF REPRESENTATIVES

    Mr. Bliley. Thank you, Mr. Chairman.
    Chairman Oxley, Ranking Member Frank and members of the 
committee, thank you for inviting me here today to offer my 
views on consumer protection and competition in real estate 
services. It is good to see so many old friends, but let me 
assure those old friends that while much has changed in the 4 
1/2 years since I left Congress, I have not lost my fondness 
for brevity.
    The enactment of the Gramm-Leach-Bliley financial 
modernization law in 1999 was a singular event in the Nation's 
financial history. It did away with many of the rules and 
regulations that hampered economic growth in the financial 
services industry. One of, if not the, central aspects of the 
act was the creation of a new category of financial 
institutions known as financial holding companies, FHCs, the 
logical successors to simple holding companies under the Bank 
Holding Company Act.
    These new FHCs were given the authority to engage in a full 
range of activities; that is, ``activities that are financial 
in nature or incidental to financial activity.'' That was 
impermissible under Glass-Steagall. As our committee report 
said in 1999, permitting banks to affiliate with firms engaged 
in financial activities represents a significant expansion from 
the current requirement that bank affiliates may only be 
engaged in activities that are closely related to banking.
    Gramm-Leach-Bliley was supposed to put to final rest the 
issue of bank agency powers. Congressman Leach and I had 
numerous discussions in various forums on the mixing of banking 
and commerce. The collective wisdom of Congress in Gramm-Leach-
Bliley was to generally prohibit any mixture of commerce and 
banking, to strictly limit certain activities with a 
significant underwriting risk, such as insurance underwriting 
and real estate development, and to allow banking competition 
in agency and brokerage activities.
    There is a reason that Congress specifically walled off 
real estate development investment. It is not that we forgot 
about real estate brokerage or had never heard from the 
realtors. No, we intentionally drew the line at financial 
activities that put bank capital at risk, while leaving 
brokerage activities open, fully expecting that real estate 
brokerage would ultimately be part of that group. This was a 
careful compromise as we went from allowing a basket of bank 
commercial activities to walling off each activity Congress did 
not want banks to engage in.
    In fact, Gramm-Leach-Bliley specifically directed the 
Federal Reserve Board and Treasury to periodically bring in new 
activities that are financial in nature or incidental to a 
financial activity, for example, because such activity is 
necessary or appropriate to allow a financial holding company 
to compete effectively with any company seeking to provide 
financial services in the United States. We knew it was coming 
and created the mechanism to keep the system dynamic. We could 
have outlawed any number of other activities. We did not. That 
is largely because we did not want the act to become outdated 
before the conference report was even signed.
    In an era of amazing technological innovation and change, 
we consciously chose to make the law flexible, to allow the 
functional regulators with appropriate statutory guidance to 
define what specific activities should be permissible.
    Thank you, Mr. Chairman, for the opportunity to be here 
today. I also want to thank you and the other members of the 
committee for seeking to uphold the deregulatory intent of 
Gramm-Leach-Bliley.
    [The prepared statement of Mr. Bliley can be found on page 
65 of the appendix.]
    The Chairman. Thank you, Mr. Chairman.
    And thanks to all of the witnesses.
    This is a rather unique hearing in that we have had an 
opportunity to hear from the authors of this historic 
legislation. Having participated in this as a subcommittee 
chairman under Chairman Bliley through the markup and through 
the conference, it is good to lay the predicate for this 
historic legislation as viewed by the authors.
    It is not very often that we have that opportunity to hear 
from such three distinguished witnesses as these authors. I 
want to thank you.
    The gentleman from Massachusetts?
    Mr. Frank. I would just say people I think will be looking 
forward to 10 years from now when you and Senator Sarbanes play 
a similar role to even greater interest.
    The Chairman. Thank you all, gentlemen. Dismissed.
    While the other panel is getting set up, I would want to 
recognize the gentleman from Alabama for an opening statement 
as subcommittee chairman, and then Mr. Kanjorski.
    The gentleman from Alabama?
    Mr. Bachus. Thank you, Chairman, for convening this 
important hearing.
    Obviously what precipitated this hearing was the bank 
regulators' finding that real estate brokerage and management 
was a financial activity or was incident to a financial 
activity.
    Mr. Frank. Would the gentleman suspend? Could people finish 
their business? We have someone speaking here. Can we delay 
some of this fussing around until Mr. Bachus is finished? It 
can really all wait until Mr. Bachus is finished.
    Mr. Bachus. I will start over.
    Of course, the genesis of this hearing was the Treasury and 
the Federal Reserve making a finding that real estate brokerage 
and management was financial in nature, as opposed to 
commercial, I would suppose, because Gramm-Leach-Bliley in my 
mind kept the longstanding separation between commercial 
activities and financial activities. So to find real estate 
brokerage and management as permitted under the Gramm-Leach-
Bliley, they would have to find that it was financial in 
nature, as opposed to commercial, I would think, or incidental 
thereto.
    I think you can make arguments on both sides of that issue. 
I think that the proper place to debate these issues is not in 
the appropriations process. It is in this committee. So I think 
that we are in the proper forum. I applaud the chairman for 
having this hearing. I am also aware that the majority of this 
Congress, the majority of the members of this Congress have 
introduced legislation, I think Mr. Calvert and Mr. Kanjorski 
introduced it, taking a position that real estate brokerage and 
management should not be permitted. I know the chairman of the 
full committee, and I have respect for his opinion, he has 
introduced legislation to reaffirm the determination of the Fed 
and the Treasury.
    Obviously, on record the majority of the members of this 
Congress have expressed reservations over allowing financial 
institutions or holding companies to participate in a real 
estate brokerage and management. So whatever the intent of 
Gramm-Leach-Bliley, and I will say this, I have looked at the 
bill. I have looked at the committee reports. I have looked at 
the debate on the floor and in this committee. It is silent on 
it.
    So if in fact there was an understanding that it would 
include real estate management and brokerage, the absence of 
any referral to that in the record, or in the legislation, 
particularly in that it is such an important industry, to me is 
sort of puzzling; that it would not be anywhere in the record, 
and in fact they did address real estate investment, and 
specifically excluded and walled that off.
    I will say this. I do not think it is a given that the 
Federal Reserve and the Treasury had the right to say this is 
financial in nature, because to do so they had to determine 
that it was not commercial in nature. If you determine that 
buying and selling homes or brokering them is financial and not 
commercial, where do you end up? I mean, automobile 
dealerships, where do we go? I think that the intent of 
Congress, at least in my mind, was to observe the separation.
    There are arguments on the other side. There are arguments 
that State charters permit this, although there is very little 
of this in practice. On the other hand, banks for decades have 
engaged in real estate management through their trust 
departments, and have managed assets under their supervision. I 
do believe that something this important ought to be addressed 
by this committee and that really in fairness if we are going 
to have legislation, we probably need to have up and down votes 
on all the legislation since this is a democratic body.
    But I look forward to hearing this next panel. I will 
conclude by saying this, the one thing that both parties say is 
that this will increase competition if we allow it. The banks 
say it will increase competition. The real estate brokers, the 
real estate companies, the realtors say it will decrease 
competition. I do have a problem with saying to an industry 
that has had so much consolidation. We heard last week that 1 
percent of the companies in banks make 70-some percent of the 
profits. We have had tremendous consolidation in banking, where 
real estate brokerage is still one of the most competitive 
businesses, I believe, in America.
    The Chairman. The gentleman's time has expired.
    The gentleman from Pennsylvania, Mr. Kanjorski?
    Mr. Kanjorski. Thank you, Mr. Chairman, for convening this 
hearing on the pending regulatory and legislative proposals 
affecting real estate brokerage and management.
    Although I, like you, want to resolve these important 
matters, we have very different views on the appropriate 
solution. As part of the 1999 law to overhaul and modernize our 
Nation's financial services industry, we created a framework 
that prohibits the mixing of banking and commerce, but which 
permits financial institutions to engage concurrently in 
banking, insurance and securities activities.
    During our lengthy consideration of this groundbreaking 
law, I very strongly supported maintaining the firewall 
separating the financial and commercial sectors. To underscore 
our concerns about the integration of banking and commerce, the 
1999 law also specifically banned financial institutions from 
entering real estate development and investment services.
    Although real estate management and brokerage represent 
nonfinancial commercial activities, in one of their first acts 
of interpreting the Gramm-Leach-Bliley Act, regulators 
unfortunately issued an ill-conceived rule proposal that would 
allow national bank holding companies and their subsidiaries to 
engage in these pursuits.
    Because this proposal greatly concerned me, I began working 
to draft the Community Choice in Real Estate Act which I 
introduced, along with Congressman Ken Calvert. Our legislation 
would explicitly prohibit national bank holding companies and 
their subsidiaries from engaging in real estate brokerage and 
management. We first introduced the Community Choice in Real 
Estate Act in the 107th Congress. We also reintroduced the bill 
in the 108th Congress and the 109th Congress. In every Congress 
since its introduction, our bill has gained the support of a 
bipartisan majority of the House. In the 109th Congress, for 
example, 238 members of the House have already backed H.R. 111 
and we continue to add a few more cosponsors almost every week.
    Some parties involved in these longstanding debates have 
recently begun to suggest that we need to consider a compromise 
to resolve these matters. I can neither support a compromise 
that would fracture the firewall between banking and commerce, 
nor an arrangement that would undermine the leadership that our 
local communities generally need.
    Moreover, we should refrain from engaging in a lengthy and 
contentious debate on other legislative proposals in this area 
or yet-to-be-developed compromises. We should instead consider 
H.R. 111 as quickly as possible. The Community Choice in Real 
Estate Act already has the support of a majority in the House. 
It is the solution that my colleagues are ready to accept.
    In closing, Mr. Chairman, allowing banks to engage in real 
estate management and brokerage will only hurt consumers, 
communities and our economy. We are, as a result, seeking to 
stop a problem before it begins. I very strongly hope that we 
will therefore approve H.R. 111 before the end of the 109th 
Congress.
    [The prepared statement of Mr. Kanjorski can be found on 
page 60 of the appendix.]
    The Chairman. The gentleman's time has expired.
    We now turn to our panel. Let me introduce the witnesses 
for today: Ms. Elizabeth A. Duke, chairman of the American 
Bankers Association; Mr. Al Mansell, president of the National 
Association of Realtors; and Mr. George T. Eastment, III, 
president of Long and Foster Financial Services, on behalf of 
the Real Estate Services Providers Council, Inc.
    Ms. Duke, you may begin.

STATEMENT OF MS. ELIZABETH A. DUKE, CHAIRMAN, AMERICAN BANKERS 
                          ASSOCIATION

    Ms. Duke. Thank you, Mr. Chairman and also Ranking Member 
Frank and members of the committee, for inviting me here today. 
I want to particularly thank you, Mr. Chairman, for holding 
this hearing.
    My name is Betsy Duke. I am executive vice president with 
Wachovia Bank and current chairman of the American Bankers 
Association. I believe that the bankers and the realtors have 
more in common on this issue than the rhetoric suggests. We 
both believe that customers deserve to have the best possible 
service and we both want customers to have many choices so that 
they can seek out the agent or company they trust most.
    This is why we believe banks should be allowed to offer 
real estate services. Consumers would have more choices when 
buying or selling a home; real estate agents would have more 
choices of potential employers; and brokerage firms would have 
more choices of companies to partner with, providing new 
sources of capital and technology. Increased competition 
benefits consumers by encouraging innovation and increasing 
efficiency.
    Naturally, added competition would affect the realtors. No 
business is or should be immune from competition. Banks 
engaging in real estate services would compete with one another 
as well, just as they do today for consumers' checking accounts 
and other banking needs.
    To listen to the National Association of Realtors, keeping 
banks out of the real estate brokerage industry is all about 
protecting consumers. In reality, their campaign has been about 
protecting themselves from competition. It is important to note 
that combining real estate brokerage and banking services is 
not a new or an unusual activity. Real estate firms do it. 
Insurance companies do it. Securities firms do it. And more 
than half the depository institutions in this country, 
including many of the largest banks, can do it.
    Yet banks that cannot offer real estate services lose 
customers to real estate firms that aggressively offer 
mortgages and insurance. This is because customers tend to 
choose mortgages and other products from the businesses that 
are associated with the first point of contact in the home 
buying process which is the real estate agent. The packages 
that many real estate firms offer provide valuable cost, 
convenience and service options. Such combinations of services 
are good for consumers and ABA believes that all banks should 
have the same opportunity to meet the needs of our customers 
and offer similar products and services, just as the real 
estate firms do today.
    To remove itself from the process of determining who should 
be able to offer what financial services, Congress in the 
Gramm-Leach-Bliley Act adopted a process whereby two 
knowledgeable agencies could make that determination. Realtors 
would reverse the progress embodied in the Gramm-Leach-Bliley 
Act and by precedent put Congress back in as the referee for 
all future competitive disputes. Having worked so hard to 
develop a mechanism to continually keep our financial system up 
to date, Congress should not be asked to choose between banks 
and realtors. This is a choice for consumers to make based on 
their own unique set of needs and preferences.
    Simply put, banking institutions should be allowed to offer 
real estate brokerage and management services for three key 
reasons. First, it is good for consumers. It means more 
choices, better services, competitive prices and greater 
convenience. Competition stimulates innovation and encourages 
effective uses of technology to better serve consumers.
    Second, it is fair. Since real estate firms offer banking 
and insurance services, it is 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.
    Finally, it is safe. All consumer protections, including 
all State licensing, qualification, sales practices and 
continuing education requirements that apply to realtors today, 
along with strict privacy laws and anti-tying rules, would 
apply to all bank-affiliated real estate agents. Because 
brokerage and management are agency activities, they pose no 
risk to the bank.
    ABA appreciates the opportunity to testify, and I look 
forward to your questions.
    [The prepared statement of Ms. Duke can be found on page 61 
of the appendix.]
    The Chairman. Thank you very much.
    Mr. Mansell?

  STATEMENT OF AL MANSELL, PRESIDENT, NATIONAL ASSOCIATION OF 
                            REALTORS

    Mr. Mansell. Thank you very much, Mr. Chairman and 
Representative Frank, Ranking Member. We appreciate the 
opportunity of being here today.
    My name is Al Mansell. I am the 2005 president of the 
National Association of Realtors.
    Before I begin, I would like to correct one thing that was 
said earlier, Mr. Chairman, in your statement. That was the 
fact that we were being sued by the Justice Department. 
Actually, what has taken place is we have been investigated by 
the Justice Department for the last 2 years and no action has 
been taken to date, unless you know something we do not know. I 
do not know about that, but to the best of our knowledge, we 
have never been sued.
    Let me continue, if I might. I am here today to testify on 
behalf of our more than 1.2 million members who represent all 
aspects of the residential and commercial real estate industry, 
including more than 300,000 real estate companies. I appreciate 
the opportunity to share our view on the prospect of big 
banking conglomerates operating real estate brokerage, leasing 
and property management businesses.
    As we have heard today, opinions about the intent of Gramm-
Leach-Bliley may differ. To date, 238 members of the House of 
Representatives and 25 senators have shown they share NAR's 
opinion by cosponsoring the Community Choice in Real Estate 
Act. Mr. Chairman, you have introduced legislation that takes 
an opposing view. I will not spend my time here debating those 
legitimate differences.
    The real issue here is determining what is the mix of 
commerce and banking. I want to focus more on what likely would 
happen to consumers, small businesses and the real estate 
industry if huge banking conglomerates are permitted to enter 
the real estate business.
    America's housing system is working better than ever. We 
are in our fifth consecutive record-breaking year, with 
homeownership at the highest rates in history. The real reason 
this whole issue is before you today is because of that 
success. It is the same theme, follow the money. We have two 
very healthy industries, banking having record profits and real 
estate doing also record business. That continues to drive both 
our national and local economies. To make any changes to this 
vital market demands very careful consideration.
    Realtors believe there is no compelling market need to 
allow banks to enter the real estate business. We believe such 
a change would have profound negative consequences for 
consumers, businesses and the economy. Why is this change being 
considered? Bankers contend that small community banks seek 
this change so they can better compete with multi-service real 
estate firms.
    However, as the American Bankers Association states in its 
testimony, one-half of the States already allow their State-
chartered banks to own real estate companies. Few of these 
banks have taken advantage of that authority to operate a real 
estate business. I believe it currently is in the number 18 in 
the Nation.
    This begs the question. If banks would reduce costs 
further, why have we not seen a natural growth in banks in real 
estate in States where this is permitted? In other words, why 
is this legislation forcing the creation of a market that is 
not emerging naturally at the State level? NAR believes this is 
a concentrated plan by large banking conglomerates to gain 
regulatory and legislative edge in the real estate market.
    This is not a new effort. Banks previously have sought to 
amend the Real Estate Settlement Procedures Act, known as 
RESPA, in a way that grants them unfair advantages over other 
service providers. They have sought to limit the abilities of 
Fannie Mae and Freddie Mac to compete with large banks in the 
secondary market. I reference the portfolio issue, which is 
about market share.
    They have pressed the Federal Reserve to finalize this rule 
on real estate to allow banks in the real estate business, and 
they have succeeded in getting regulators to preempt them, 
being all the Federal banks, from State consumer protection 
laws dealing with predatory lending. Now, they say they will 
abide by all the State licensing and regulatory licensing 
dealing with real estate at the State level. In the beginning, 
I am sure that will be true, at least until they persuade the 
regulator to preempt those laws.
    Yes, the largest megabanks will benefit most from an open 
entry into the real estate business. They will use their size 
and government-granted advantages to drive out competition. 
Forcing independent real estate brokers to compete against the 
federally chartered megabanks would be like asking a cruise 
ship to compete against the United States Navy in warfare.
    NAR asks committee members to look closely at the existing 
relationship between banks and real estate brokers before you 
proceed. Contrary to what big banks would have you believe, 
there is a very efficient and effective process through which 
consumers buy and sell their homes and obtain financing. In the 
written statement from the ABA, it states, it mentions that the 
real estate industry has the ability to provide loans and one-
stop shopping. That is in fact true today.
    What they did not mention is that this is happening through 
a joint venture between banks and real estate companies. In 
other words, these services are being done jointly between the 
two groups. A good example of this is Prosperity Mortgage 
Company, a partnership between Wells Fargo and Long and Foster 
Real Estate. I would reference you about two-thirds back in the 
written statement to show, back to that page, which is the Long 
and Foster/Prosperity Finance page, talking about this, where 
it also references that this company is a partnership with 
Wells Fargo.
    Also, we have included in our statement a long list of 
these partnerships. We actually believe this is the proper 
role; that this gives consumers a very excellent opportunity to 
have one-stop shopping and also gives banks an opportunity to 
participate in that as partners with the real estate company to 
provide the consumers the very best product and opportunities.
    The Chairman. Could you sum up, please?
    Mr. Mansell. Okay.
    It appears to us that in the market today when a real 
estate agent goes out and sells a house to a consumer, 75 
percent of those mortgages produced in that transaction go to 
nonaffiliated mortgage companies. As we have checked around, 
that seems to be about the number, 75 percent or more go to 
nonaffiliated mortgage companies.
    That means the agents do not use their broker's mortgage 
company, but rather they go outside because real estate agents 
uniquely want to do that. I would submit to you that if in fact 
the banks are allowed into the real estate industry, that will 
disappear because of the employee relationship that will exist 
there.
    So it is our hope that you will give us an opportunity to 
have a hearing on H.R. 111 and give us the opportunity to have 
that voted up or down.
    Mr. Chairman, we thank you for the opportunity of being 
here today.
    [The prepared statement of Mr. Mansell can be found on page 
112 of the appendix.]
    The Chairman. Thank you, Mr. Mansell.
    Mr. Eastment?

STATEMENT OF GEORGE T. EASTMENT III, PRESIDENT, LONG AND FOSTER 
   FINANCIAL SERVICES, ON BEHALF OF THE REAL ESTATE SERVICES 
                    PROVIDERS COUNCIL, INC.

    Mr. Eastment. Good morning, Mr. Chairman and members of the 
committee. My name, as you have heard, is George Eastment. I am 
president of Long and Foster Financial Services, a full-service 
real estate company headquartered in Fairfax, Virginia.
    Long and Foster has 230 residential real estate brokerage 
offices in Virginia, Maryland, West Virginia, Delaware, 
Pennsylvania, North Carolina, New Jersey and Washington, D.C. 
We have 17,500 sales associates and employees of which 15,000 
are licensed real estate agents. As you have heard, we offer 
mortgages through Prosperity Mortgage. We have an insurance 
company that does commercial and personal lines. We also have a 
title agency for settlements.
    Today, I am representing RESPRO, the Real Estate Service 
Providers Council. RESPRO is a national nonprofit trade 
association of approximately 260 companies, across industry 
lines, that united in 1992 to promote an environment that 
enables providers to offer diversified services to home buyers, 
better known as one-stop shopping. RESPRO's membership includes 
real estate brokers, mortgage companies, title companies, home 
warranty companies, vendor management companies and home 
builders.
    RESPRO's real estate broker members are not alone in 
providing diversified services for home buyers. According to a 
2004 study, 88 percent of the 350 largest real estate companies 
in the country offer mortgage services; 66 percent of those 
same 350 companies offer title or closing services. Since our 
creation in 1992, RESPRO has advocated a Federal and State 
regulatory environment that would allow any provider to offer 
the services that it believes would best meet the needs of its 
consumers, regardless of what industry or affiliation it has.
    RESPRO strongly believes that one-stop shopping offers 
potential consumer benefits such as convenience and lower 
costs. There have been several consumer surveys and economic 
studies over the last 15 years that support this contention. 
The particulars of those are in my written statement.
    In 2002, RESPRO decided after careful deliberation to 
support the concept of financial holding companies and national 
bank subsidiaries entering the real estate brokerage business. 
The reason that RESPRO decided to enter into this debate is 
simply because we believe it is more important to promote one-
stop shopping for home buyers than to keep banks out of our 
business. Also, we were often being viewed as hypocritical by 
being in the financial services business without letting 
financial services firms compete with us in the real estate 
brokerage business.
    This latter view was a misperception of RESPRO's position. 
Frankly, the majority of RESPRO's real estate broker members do 
not believe that the entry of financial holding companies or 
national banks into our business would fundamentally change the 
nature of the marketplace. Over the last 20 years, a number of 
financial conglomerates have entered the real estate brokerage 
business, namely Berkshire-Hathaway, General Motors, 
Prudential, Merrill Lynch, Sears and Metropolitan Life. Their 
entry concerned many independent real estate brokerage firms at 
the time, but we eventually found that this concern was 
unfounded. Some of these financial conglomerates have sold 
their real estate operations and others have remained in the 
business, but the basic character of the real estate brokerage 
business has not changed.
    In addition, State-chartered banks in approximately 28 
States have been able to engage in real estate brokerage over 
the years. For example, in southern Virginia, Long and Foster 
competes with a large bank-owned real estate company with no 
discernible market effect.
    As you know, the debate over banks in real estate has been 
occupying Congress, the banking industry, and the real estate 
industry for over 4 years with no final resolution. RESPRO 
believes it would be useful for the parties in this debate to 
enter into discussions to resolve our differences and we would 
willingly participate in any such discussion in good faith.
    We expect that the discussion will revolve around, at least 
in part, ways to protect the safety and soundness of the 
federally insured deposits of banks affiliated with real estate 
firms and to ensure that real estate brokers and agents who are 
affiliated with financial holding companies are subject to the 
same licensing requirements that apply to all real estate 
agents and brokers. RESPRO would certainly support provisions 
in any law or regulation that would accomplish these goals.
    In summation, I would want to make four quick points. 
Number one, consumers want one-stop shopping. Number two, real 
estate brokers want to and need to stay in the mortgage, title 
and other affiliated businesses. We think that if financial 
institutions are not permitted in the brokerage business, that 
the reverse may start to occur.
    Third, if banks enter the real estate business, we are not 
afraid of the competition. As was said by Congressman Leach 
earlier, the brokerage business is an entrepreneurial local 
business. It is very different than the banking business. While 
I would not want to compete with the national banks by opening 
a bank, I certainly think that we can deal with them quite 
handily in the real estate brokerage business.
    Fourth, I think that the main point is that all of the 
parties to this debate should get together and try to resolve 
their differences of opinion.
    Mr. Chairman, thank you for this opportunity to testify.
    [The prepared statement of Mr. Eastment can be found on 
page 95 of the appendix.]
    The Chairman. Thank you, Mr. Eastment.
    Thank you to all of our witnesses.
    Mr. Mansell, you indicated in your statement that certain 
banking groups were pressuring the Federal Reserve to issue 
that rule. Is that correct?
    Mr. Mansell. I believe my testimony was that they had been 
wanting to get that passed, yes.
    The Chairman. You used the word ``pressure.'' Do you have 
any evidence that any banking group was pressuring the 
independent Federal Reserve?
    Mr. Mansell. Well, it was through the banking groups that 
the request was made and I assume they would like to get it 
taken care of. That would be the only thing I could say about 
that. I personally cannot speak to when and how.
    The Chairman. So you do not think that the word 
``pressure'' was particularly appropriate?
    Mr. Mansell. I do not know whether that is the right 
connotation or not, to be honest with you. I cannot speak to 
that, Mr. Chairman.
    The Chairman. You were present at the testimony of Gramm, 
Leach and Bliley, were you not?
    Mr. Mansell. I was.
    The Chairman. Did you notice any disagreement among the 
authors of that legislation on its intent?
    Mr. Mansell. No, I think they all had basically the same 
intent.
    The Chairman. And what do you think that intent was?
    Mr. Mansell. I think their intent was to give regulators 
the authority to regulate what banks could do.
    The Chairman. And when NAR was participating in the debate 
which became Gramm-Leach-Bliley, your association successfully 
lobbied for inclusion of a provision in the act that would 
prohibit real estate development and investment activities. Is 
that correct?
    Mr. Mansell. I assume that is correct. I was not there, Mr. 
Chairman.
    The Chairman. In addition to seeking to prevent banks from 
engaging in real estate development and investment, NAR also 
urged Congress to explicitly state in the legislation that real 
estate brokerage and property management activities were not 
permissible activities for banks. Is that correct?
    Mr. Mansell. I cannot speak to that because I was not 
there. Evidently, the record is not very clear on that.
    The Chairman. No, the record is very clear on that. The 
record is very clear on that. As a matter of fact, let me quote 
you from the NAR's testimony before the Senate Banking 
Committee during the 106th Congress. NAR ``urged that the 
legislation expressly declare that real estate brokerage and 
related activities, including property management and 
counseling, are not financial activities.''
    Mr. Mansell. Okay.
    The Chairman. Did the version of financial modernization 
legislation that passed the Senate during the 106th Congress 
include a declaration that real estate brokerage and management 
were not permissible activities for the banks?
    Mr. Mansell. To the best of my knowledge, nothing that has 
passed either body had anything that said that it would not be 
permissible.
    The Chairman. Can you cite for the committee any reference 
in the legislative history of the Gramm-Leach-Bliley Act during 
the 106th Congress, whether it be a House or Senate committee 
report, House-Senate conference committee report, House or 
Senate floor debate or anything else, that supports the 
National Association of Realtors' current contention that 
Congress intended to preclude real estate brokerage and real 
estate management from ever being defined as financial in 
nature?
    Mr. Mansell. I do not think that was ever put in the 
record, Mr. Oxley.
    The Chairman. In light of the specific prohibition in 
Gramm-Leach-Bliley on bank subsidiaries engaging in real estate 
development and investment, can you explain to the committee 
why the authors of that legislation chose not to include a 
similar prohibition on real estate brokerage and management?
    Mr. Mansell. I think what you are looking at here is trying 
to get a bill through, and the consensus was that is what you 
could get through. I think that is the reason, because they had 
to reach a consensus. I think that is true of any legislation 
that runs through this body, is you have to find a way to get 
consensus and that is how they chose to get consensus. On the 
other hand, we have a bill sitting out there that has 238 
members that have said their consensus is that it should not be 
included.
    The Chairman. A lot of those same members, of course, voted 
for Gramm-Leach-Bliley. It was pretty clear from the testimony 
of the authors of the legislation, and my memory, having been a 
member of the conference committee, that was established. So 
you are basically saying that in spite of the Gramm-Leach-
Bliley Act and the consensus among the sponsors and the desire 
of the regulators who are the experts in this area, that NAR 
wishes to essentially reopen Gramm-Leach-Bliley and reverse 
what was passed in the act 6 years ago?
    Mr. Mansell. I am saying that since it does not 
specifically address that, we would like to specifically 
address it.
    The Chairman. It sounds to me as if NAR spoke on that issue 
and precisely proposed that, but it was at some point rejected 
because it was not in the Act.
    Mr. Mansell. I think that is absolutely accurate, Mr. 
Chairman. It was rejected because you had to get consensus on a 
bill to get the bill through.
    The Chairman. Did the NAR support passage of Gramm-Leach-
Bliley?
    Mr. Mansell. At the end, they did support passage of Gramm-
Leach-Bliley because we thought that passage of the bill was 
important. We also believed that we would not be sitting in 
this position and have a request within the first 6 months 
after the passage of Gramm-Leach-Bliley since it requires a 
change in the market or a change in technology, which neither 
one took place in those 6 months.
    The Chairman. You heard Mr. Eastment's testimony about 
providing one-stop shopping for people who are intending to buy 
homes. Do you support that concept?
    Mr. Mansell. Absolutely.
    The Chairman. So how do you differ then from Mr. Eastment, 
who in fact supports the passage of Gramm-Leach-Bliley and 
supports banks into real estate?
    Mr. Mansell. I think the only difference is how those 
services are provided. We support what Mr. Eastment has done in 
his company, and that is to partnering with banks so that both 
industries have value in that mortgage piece.
    The Chairman. He is not alone, of course, in that. There 
are several members of RESPRO that provide that kind of 
service. Is that correct?
    Mr. Mansell. In our written testimony, there are two or 
three pages of them that we have provided for you that do that.
    The Chairman. So you support that concept?
    Mr. Mansell. Absolutely. And we have supported it. We 
believe it is a good concept to merge the two together.
    The Chairman. And yet you do not support the concept that 
the Fed and Treasury, under the law, have to determine what is 
financial in nature?
    Mr. Mansell. I do not know that I don't support the 
concept. I do not support the finding that they have come up 
with.
    The Chairman. Ms. Duke, do you have any comments on that?
    Ms. Duke. We do not think that real estate brokerage 
services would constitute commercial activities. We think they 
are financial in nature. Before joining Wachovia, for most of 
my career I was a community banker. I can tell you that for 
nearly all of my customers, the primary component of their net 
worth was the equity in their homes. It is one of the ways that 
the American consumer builds wealth. It is also the largest 
financial transaction that many of our customers would engage 
in their lifetimes. So for that reason, we think it is 
financial.
    Secondly, we would draw the line in that we would not own 
the real estate. This is not development or ownership and 
selling something that we own. This is merely bringing together 
buyers and sellers in an agency relationship.
    The Chairman. Precisely, which was excluded under the 
provisions of the Gramm-Leach-Bliley Act.
    Ms. Duke. Correct.
    The Chairman. Mr. Mansell, isn't it true that all consumer 
protections, including all State licensing qualifications, 
sales practices, continuing education requirements that apply 
to realtors, plus strict privacy laws and anti-tying rules, 
would apply to bank-affiliated real estate agents?
    Mr. Mansell. I think that would be true in the beginning, 
yes, Mr. Chairman. I do not believe it would be true long term 
because I believe the OCC would preempt State law, just like 
they did with predatory lending laws.
    The Chairman. What makes you think that would be the case?
    Mr. Mansell. Because there is nothing that makes me think 
it would not be the case, is more accurate.
    The Chairman. Have you seen any evidence in the 28 States 
that permit banks into real estate, do you know of any abuses, 
consumer protection issues, or any other violations that you 
know of?
    Mr. Mansell. In that regard?
    The Chairman. Yes.
    Mr. Mansell. I do not know of any.
    The Chairman. Mr. Eastment, you mentioned the fact that you 
provide full service, and indeed that was the essence of Gramm-
Leach-Bliley, wasn't it?
    Mr. Eastment. Yes, sir, it was.
    The Chairman. And you have been the embodiment of that, 
along with other RESPRO representatives, and indeed I 
congratulate you on that because I think that is precisely what 
we tried to do. It seems that Mr. Mansell basically is in favor 
of a one-way street, but not a two-way street. Would you speak 
to that?
    Mr. Eastment. I think it may even go past RESPRO members. 
As I said in my testimony, 88 percent of the largest 350 
brokers in the United States are in the mortgage business. I 
think the only area where Mr. Mansell and I disagree is that if 
banks were to get into the brokerage business, we do not see 
that as the end of the world.
    I can remember in 1978 when Merrill Lynch came to us and 
told us they were going to put us out of business. Well, they 
exited that business in about 5 years and we are still in it. I 
do not think that the largeness or the financial capacity of 
financial holding companies threaten our business. Our business 
is basically a low capital-intensive business and we feel we 
can compete.
    The Chairman. Let me ask each of you, since I participated 
in that as a subcommittee Chair and a member of the conference 
committee, and as Mr. Mansell said, there were obviously 
compromises made along the way. We worked for probably 60 years 
to repeal Glass-Steagall and get an undergirding for the new 
financial services marketplace.
    I think it is also safe to say that not everybody got 
everything they wanted in that legislation. I would assume that 
includes the banks. Is it appropriate in that context, when you 
have historic legislation like that, to come back after the 
Deal is struck and try to reopen and change and to basically 
get what you did not get the first time around? Let me ask you 
that, Mr. Mansell. Do you think that makes any sense from a 
public policy standpoint?
    Mr. Mansell. I think it must be appropriate when we have 
238 members of the House that agree with us.
    The Chairman. Do they agree with you that we ought to 
reopen Gramm-Leach-Bliley and change the basic context of that 
legislation?
    Mr. Mansell. I think they agree that we should restrict 
banking conglomerates from getting into the real estate 
business.
    The Chairman. In spite of the fact of what Mr. Eastment has 
talked about and providing full service real estate, or what 
Ms. Duke has testified to, in spite of all of that, and in 
spite of the legislative history. Let me ask you this. Do you 
think that your representatives missed the boat during the 
conference committee?
    Mr. Mansell. I honestly cannot speak to that. That may be a 
fair conclusion from where you are sitting, but I cannot speak 
to that because I was not here. I do not know if they were 
included in the last day of discussions.
    The Chairman. Of course they were.
    Mr. Mansell. Some of those final things were done in those 
wee hours.
    The Chairman. It was right in this very room as a matter of 
fact. And you say that the NAR was not represented?
    Mr. Mansell. I did not say that. I said I do not know if 
they were.
    The Chairman. Okay. Believe me, they were. The agreements 
were made, and it was not long after that agreement and passage 
of that historic act that NAR sought to overturn the intent of 
that act. I think that is why we are here today, and the only 
reason we are here today.
    Mr. Mansell. Correct.
    The Chairman. The gentleman from Pennsylvania?
    Mr. Kanjorski. Mr. Chairman, I, too, was here in 1999. I 
did not get the impression we were writing the Bible. Is that 
what that act encased, a biblical act of some sort that 
something left uninterpreted would later be interpreted and 
always against the interest of the argument? The argument 
today, as I understand it, was a matter of banking and 
commerce, and I was one of those and still am adamantly opposed 
to mixing of banking and commerce.
    The fact of the matter is that as the history was repeated 
by our first panel of witnesses, there was no mention for the 
purposes of making sausage of brokerage and management. It was 
left unsaid. If the history, as I understand it, is the 
application was by the banking industry to their regulator to 
allow them to engage in that and to define special new 
categories and changes that would allow them to define 
brokerage and management as financial activity. Now, maybe I am 
remiss in my recollection, but that is the best recollection I 
have.
    What we are really here today is considering an issue that 
was ignored by this committee and the Congress because it was 
too contentious to come to compromise to pass a new regulatory 
act, H.R. 11. Now, we are reexamining whether that should be 
done. As I understand the hearing, it is based on the Oxley-
Frank bill which in fact is now making a definition that 
clearly brokerage and management is under the act, the original 
act.
    The bill pending, H.R. 111, my bill and Mr. Calvert's bill, 
is to the effect that we want to now delineate very clearly 
that it was not the intent of Congress and we have 238 members 
of the sitting House of Representatives that agree with us, and 
I believe there are two sponsors to the Oxley-Frank bill at the 
present time. But that is not the point. The question is: 
Should we mix banking and commerce? What will be the impact on 
the industry?
    Let me ask Ms. Duke, the top 10 banks in the United States, 
what is the share of the banking industry that they are 
concentrated? How much of the banking industry do they have? Do 
you have any idea?
    Ms. Duke. I do not have it on the top 10. I know on the top 
3, it is about 17 percent.
    Mr. Kanjorski. On the top 3, 17 percent.
    Ms. Duke. The top 3, about 17 percent. As we understand it, 
within the real estate industry, the top 3 would account for 56 
percent of the business.
    Mr. Kanjorski. Oh, I have figures before me that the top 10 
have only 10.5 percent. I do not know where you get your 
figures. But as a result of that, if I may, Mr. Chairman, I 
would like unanimous consent to offer in the record something 
that was denied, I think, entering into the record now as an 
exhibit showing the top 75 firms and the statistical analysis 
on the concentration of market share of these firms.
    The Chairman. Without objection.
    Mr. Kanjorski. Mr. Mansell, you represent 1.2 million 
regulators, realtors.
    Mr. Mansell. Yes.
    Mr. Kanjorski. Regulators, sometimes it is like 1.2 million 
regulators.
    Mr. Mansell. There are that many sometimes, I think.
    Mr. Kanjorski. How many banks are there in the country, Ms. 
Duke?
    Ms. Duke. About 7,000.
    Mr. Kanjorski. 7,000. There used to be about 15,000 just a 
short while ago, about 7 or 8 years ago. A lot of people just 
decided there was not any profit in the banking business, or 
did they consolidate?
    Ms. Duke. There has been quite a consolidation, but there 
are actually about 1,200 new charters chartered every year, so 
there are additional banks.
    Mr. Kanjorski. I wonder why there are so many community 
banks that are started up every year in all these communities? 
Why would people want to start with a new bank if the present 
existing banking system is providing such luxurious service to 
so many communities in America. Well, that is a rhetorical 
question. I am not going to ask you to answer that.
    I am going to ask you to answer this, though. One of the 
reasons I support H.R. 111 has little to do with banking, quite 
frankly. It has to do with community service and leadership. I 
am disturbed in my community, my district and my State, at the 
loss of participation of leadership from the banking community 
because of consolidation.
    When I first came to Congress 20 years ago, we put 
competition on for the Saturn project in my district. I called 
up a very good friend of mine who was a banker. I said, Rica, 
will you call the leadership of the community together so we 
could organize? And he did. We went to the local club. I was 
not a member, but he was, as most bankers were, but members of 
Congress are not, and we had our meeting. At that meeting, 40 
bank presidents were there, 40. I was impressed. And they 
worked diligently, hard to make this fight for about 6 months. 
We lost the fight.
    Today, if I wanted to call that regional fight together and 
I called Rica up, he is retired now, but if I said Rica, get 
all the presidents of all the banks together at the club so we 
can discuss this fight, we could not get 6 presidents because 
there aren't any. Now, I am sympathetic to industries being 
competitive, but competition is also that you have a presence 
in communities, that you participate in community leadership. 
The consolidation of the banking industry does not afford that 
opportunity today.
    So one of the strong efforts for the realtors, they are 
about the last group of leaders in my community that when I 
call and want to do something for the Boy Scouts, for the 
United Fund or for economic competition or development, the 
realtors are the largest group that show up now because they 
are still private individual business people.
    Now, if we pass the chairman's bill, I think you may even 
be able to make a strong argument that the price may go down in 
some services. I do not really care, because the price to my 
communities, to Pennsylvania, and I think to rural America is 
that, you know, we give at the office. When you ever go to a 
contribution, the office is usually New York or Houston or 
Miami or somewhere. It is not in rural, it is not in small, it 
is not in middle-size America.
    So this is as much a sociological problem of determining 
whether or not we are going to have further concentration in 
this country, not only of wealth, not only of power, but of 
leadership.
    The Chairman. The gentleman's time has expired.
    The gentleman from Iowa, Mr. Leach?
    Mr. Leach. I will pass. Thank you.
    The Chairman. The gentleman passes.
    The gentleman from Alabama?
    Mr. Bachus. I thank the chairman.
    Mr. Eastment, do you think there is a lot of competition in 
real estate brokerage today?
    Mr. Eastment. It is very competitive. I thought there were 
80,000 firms. I heard earlier there were 300,000 firms. 
Nevertheless, it is a very competitive business. While there 
has been some consolidation, for every consolidation the cost 
of entry is quite low, and we have people going out and 
starting up business. So I think it is very competitive.
    Mr. Bachus. And you do not see that ending?
    Mr. Eastment. No, I do not.
    Mr. Bachus. Okay. One of the reasons advanced for allowing, 
for Congress in debating whether or not to affirm what the 
Federal Reserve and the Treasury has done is that it will 
increase competition, but it is a very competitive market 
today. Is that so?
    Mr. Eastment. Yes, it is.
    Mr. Bachus. In the banking industry, have you seen a lot of 
consolidation?
    Mr. Eastment. Yes, I have.
    Mr. Bachus. Okay. I know there has been a lot of talk about 
that in certain State banks, the State-regulated banks are into 
real estate, but we do not have any large-scale banks that you 
know of doing real estate brokerage and management nationwide, 
do we?
    Mr. Eastment. Not nationwide, just locally in southern 
Virginia where we compete.
    Mr. Bachus. But if this regulation went into effect, then 
we would have our large national banks at least would have the 
opportunity, the so-called megabanks, to get into real estate 
brokerage and management, would they not?
    Mr. Eastment. Yes, they would have that opportunity.
    Mr. Bachus. Are there different talents needed to broker 
and to manage property than, say, to lend money? Those are two 
different basic businesses, are they not?
    Mr. Eastment. I think they are very different businesses. 
Banking is highly structured. As was said, the local banks have 
branches. Our people are out in the street and it is very 
entrepreneurial. It takes very different skills.
    Mr. Bachus. I noticed back in the 1970's when the banks 
started sponsoring these real estate investment trusts, do you 
recall what happened to those?
    Mr. Eastment. I am not familiar.
    Mr. Bachus. Okay. Most of them collapsed with large losses. 
There has been some concern expressed by the president of the 
Federal Reserve in Minneapolis that as banks become more 
diversified and getting into fields that they have not normally 
done that is riskier behavior because it is not the business 
that they are as adapted to do and they have experience. Do you 
agree with, I think it was, Governor Stern?
    Mr. Eastment. I just feel that there just should not be 
legislation. I think the marketplace should take care of that. 
If the banks would get into the business and succeed and build 
a better mousetrap, that is fine for them. If they fail, real 
estate firms fail every day, too. It is the marketplace.
    Mr. Bachus. Is there not a difference in a federally 
insured institution?
    Mr. Eastment. Yes. But as I understand the proposal, there 
would be firewalls and we would support that. In addition, a 
real estate brokerage business that was owned by a bank should 
conform to all the applicable State and Federal regulations.
    Mr. Bachus. But a failure of a wholly-owned subsidiary 
could domino into an effect on the federally insured 
institution, could it not?
    Mr. Eastment. I do not necessarily agree that would happen, 
though.
    Mr. Bachus. But you just said, I thought you said, let them 
get in the business; if they fail, they fail.
    Mr. Eastment. We are talking, as I understand it, about 
large banks competing in the real estate marketplace.
    Mr. Bachus. I guess we have to assume that if they get in 
the business, they could fail.
    Mr. Eastment. I think if anyone gets into a business, they 
can fail.
    Mr. Bachus. I am not saying they will, but if they did then 
it would have a financial effect on the bank and the banks are 
federally insured by the taxpayers, by depositors, and it would 
have an effect on our deposit insurance fund, could it not?
    Mr. Eastment. I support appropriate firewalls to protect 
that from happening.
    The Chairman. The gentleman's time has expired.
    The gentlelady from California, Ms. Waters?
    Ms. Waters. Thank you very much, Mr. Chairman.
    Let me just state for the record so that there is no 
misunderstanding about where I stand on support of the real 
estate industry. I have been very clear. I have been outspoken. 
I share my colleague Mr. Kanjorski's feelings. I support H.R. 
111. I will be an advocate in every way that I possibly can for 
the real estate brokers and their ability to do what they do so 
very well, without being literally overtaken by the banks that 
are consolidating more and more, and I guess swooping up more 
and more industries into their net.
    I want to ask Mr. Eastment about the joint venture. Could 
you tell me, what does it mean to have a joint venture with a 
bank? Does it mean that you have a responsibility to make sure 
that you give that bank that you have the joint venture with 
the opportunity to finance the mortgage? What does that joint 
venture mean?
    Mr. Eastment. Our mortgage company, Prosperity Mortgage 
Company, is 50 percent owned by Long and Foster and 50 percent 
owned by Wells Fargo Mortgage. It is jointly run by the two of 
us.
    Ms. Waters. So what is your responsibility to Wells Fargo?
    Mr. Eastment. Our mutual responsibility is to serve the 
customers at Long and Foster with one-stop shopping. We make 
loans available to them if they wish to take it, and then we 
try to do the best possible job to get them the proper loan and 
get to the closing table.
    Ms. Waters. And does your mortgage company have the same 
products as Wells Fargo? Do you have like products or are your 
products different?
    Mr. Eastment. We have identical products.
    Ms. Waters. Do you have more subprime loans than in the 
Wells Fargo portfolio?
    Mr. Eastment. We do not have any more or any less. We have 
the same product line from A to Z that they do.
    Ms. Waters. So all of your customers are kind of geared to 
either your mortgage company or to Wells Fargo?
    Mr. Eastment. Could you repeat that please?
    Ms. Waters. All of your customers are directed to your 
mortgage company or to Wells Fargo?
    Mr. Eastment. Our mortgage company is full-service. We have 
450 people who originate the loans; who process the loans; and 
who close them. And once they are closed, they are sold to 
Wells Fargo.
    Ms. Waters. I have been handed something that talks about 
your need to disclose. When you are dealing with customers, 
they have the right to know that they do not have to use your 
mortgage company or they do not have to use Wells Fargo. Is 
that correct?
    Mr. Eastment. That is correct. They are handed a disclosure 
at settlement that is required under RESPA that discloses any 
ownership that we have in the mortgage, the title or the 
insurance company.
    Ms. Waters. Well, for any of you on the panel, let me just 
say what I like so much about the industry the way it works 
now. It was alluded to by my colleague that the real estate 
industry is truly entrepreneurial. What I like about it is the 
fact that you have these brokers and you have these real estate 
agents, and they operate in ways that, you know, many women, 
for example, are in this business. They operate sometimes part-
time. They can design their lives how ever they want to design 
them, to work a few hours, to work more hours. I like this 
industry because you have so many entrepreneurial 
opportunities. I do not want to see it consolidated under the 
auspices of big banks.
    For example, the purchase of a house or a home really does 
create opportunities in so many ways, the escrow agent, the 
appraisers, the inspectors, the insurance companies. I like all 
of them at work, all of them at work doing what they do best, 
competing, offering their services and just really creating 
opportunities. What is it about either the joint venture or the 
opposition of the banks or the desire of the banks to include 
real estate services? What is it that you can consider creates 
more competition and more opportunity than the way it operates 
now?
    The Chairman. The gentlelady's time has expired. The 
witness may respond.
    Ms. Waters. I will direct that to Ms. Duke.
    Ms. Duke. A couple of things. First of all, the 
characterization of all banks as the large banks that have been 
consolidated, there are probably 50 banks that would be 
considered large banks, and there are 7,000 community banks. 
Those community banks are working just as hard to compete with 
those large banks every day and are showing up in their 
communities, along with other bankers from banks of all sizes.
    Ms. Waters. Until you all buy them up.
    Ms. Duke. Excuse me?
    Ms. Waters. Until you purchase them. Go ahead.
    Ms. Duke. Well, I have myself started two banks and have 
myself been purchased and started again.
    To the question of the realtors and their 
entrepreneurialism, I would expect that banks entering the real 
estate business would do so by hiring the best realtors in the 
marketplace. It would be not to our advantage to go into the 
marketplace without the right professionals there. If those 
same entrepreneurial realtors decided that the proposition 
offered by bank-owned agencies as employers was better than 
another agency as an employer, I think that is a win for that 
entrepreneurial agent.
    The Chairman. The gentlelady's time has expired.
    The gentleman from Oklahoma?
    Mr. Lucas. Thank you, Mr. Chairman.
    If I could use Ms. Duke and Mr. Mansell more as a conduit 
to pass some concepts along to your association people, from my 
perspective it is time for both parties to sit down and work 
this out. Bring your bright policy people together somewhere 
and come up with a compromise that no one will necessarily 
like, but can live with and get on with it.
    I was a junior member of this committee when this bill was 
written. Yes, this and a few other things have been interesting 
quirks since then that have come to light. Obviously, when this 
was put together, the bankers' policy people were either very 
skillful or very bright. To my realtor friends, obviously on 
this particular moment on that day, your policy people were not 
awake at the switch, but the circumstances are where they now 
are. We have 28 States, according to testimony here, that allow 
State-chartered banks to do this. The barn door is open. We 
cannot return to where we were. Set your policy people down and 
come up with something that all of you can live with.
    I have had all the bankers and all the realtors to my town 
meetings that I would ever care to have. You are all wonderful 
people. But the sandbox that you are playing in, you are doing 
no good by throwing sand in each other's eyes constantly. Sit 
down and sort this out for your own benefit and for the benefit 
of all of our customers and constituents. Sort this out.
    Thank you, Mr. Chairman.
    The Chairman. I thank the learned gentleman from Oklahoma.
    The gentlelady from New York?
    Ms. Velazquez. Thank you, Mr. Chairman.
    Ms. Duke, as you know, minorities continue to lag behind 
non-minorities in achieving homeownership. Do you believe 
permitting banks to engage in real estate activities will help 
close this gap?
    Ms. Duke. Yes, ma'am, I do. Banks have a number of outreach 
programs that go into all manner of communities, and 
particularly low-to moderate-income communities and minority 
communities in order to make mortgage loans and to make lending 
available. I think combining that with real estate services 
would be a positive for those communities.
    Ms. Velazquez. Mr. Eastment, when you answered Mr. Bachus, 
you talked about the competitive nature of your business, or 
the real estate industry. Typically, 6 percent of the home 
purchase price goes to real estate agents. Do you believe 
permitting banks to engage in real estate activities will 
impact this fee?
    Mr. Eastment. I think that fee is being impacted as we 
speak, even without banks. The marketplace is very competitive 
and is forcing commission rates now. I believe banks, if they 
had a significant market share, would add to that pressure.
    Ms. Velazquez. Mr. Mansell, over the last decade the 
financial service industry has tended toward greater 
consolidation. At this point at the end of 1984, there were 
more than 15,000 banks. At the end of 2003, there were less 
than 8,000. With regard to the real estate industry, it is 
populated by independently owned small businesses. If banks 
were permitted to engage in real estate activities, how would 
this impact the competitive landscape of both industries?
    Mr. Mansell. Thank you for the question. We believe that 
the competitive nature of the real estate industry would be 
less, not more, because of consolidation. Right now, the 
largest company in the Nation has 4.8 percent of the market. 
Everybody else is in the 1 percent range. Our friends at Long 
and Foster have 1.1 percent of the national market, and they 
are the third largest company in the Nation. After you get to 
the fourth one, nobody has even .05 percent. As you look at 
that, what could be more competitive?
    The other thing that is interesting in the real estate 
side, 5 years ago we had 700,000 members of the real estate 
industry. Today, we have 1.2 million. Can you show me any other 
industry that has grown so much to stay competitive with so 
many people out there trying to participate in the business and 
this competitive and wonderful market that we have been 
involved in? Frankly, that is what has driven it, but it has 
stayed extremely competitive. I think by this consolidation 
that would take place, and I do believe it would take place, 
that you would have less opportunities and less 
competitiveness.
    Ms. Velazquez. And Ms. Duke?
    Ms. Duke. We think we would make it more competitive. In 
addition to adding just a number of competitors, I think the 
banking industry does bring some advantages of technology as 
well as capital. You may not see large numbers of banks racing 
to get into the real estate business. I do not think you will 
see banks going into that business unless they believe that 
within their business model and their customer base that they 
have a better proposition, that they can provide better 
services or services not currently provided at a competitive 
price.
    Ms. Velazquez. Thank you, Mr. Chairman.
    The Chairman. The gentlelady from Illinois, Ms. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman.
    In 1999, I sat down in the front desk. I was not at the 
kiddie table at that time, for those of you who remember the 
kiddie table. There were three of our members there. So I was 
very proud that I had a desk.
    I came to this committee thinking that I had served on 
financial services in the State legislature and this was going 
to be an issue about banking versus insurance. Was I ever 
naive. This was a real education in financial institutions. So 
many of the members that were here then had spent most of their 
congressional service talking about this issue and working on 
the Gramm-Leach-Bliley as the title came to be.
    My point is that there are so few of us remaining who are 
here and were really involved in this dialogue in 1999. I was 
asked when this real estate bill came out to sign onto it every 
year. I said that I really could not sign onto a bill if it was 
going to be heard, would come up in this committee, and to make 
a decision prior to the discussion of the bill I thought was 
wrong. I had to keep an open mind. I have an open mind right 
now.
    In my former life, I was a real estate attorney and worked 
on that. Illinois is a little bit different because we have a 
case which says that real estate transactions must have a 
lawyer. It is very lucrative for those that were in the real 
estate practice to be involved in that. But I have an open 
mind.
    What my concern is that when I said I could not sign on as 
a cosponsor, I had ads run against me in my district. And that, 
I think, was wrong. I wonder how many people that happened to 
in this body that had ads run against them, because I think for 
us to make this decision to decide whether the regulators 
should go forth with that decision or whether it should be 
something in Congress, I do not know. I have not heard anything 
yet in this discussion that makes me have a firm view one way 
or the other.
    I do think and I do agree with Mr. Lucas that the bodies 
need to get together. I would hope that they would sit down and 
discuss this issue so that then whether we need to do this or 
whether the regulators, because Gramm-Leach-Bliley was I think 
a bill that came out that I was very proud to have been here at 
this time. I think to reopen all of what went on before is 
wrong, but I also think that the bill was made so that there 
can be, as the market changed, the place changes, that there 
can be accommodation. But I think if the parties would get 
together first and make those decisions, rather than having 
this fight between the two bodies is bad.
    With that, I really do not have a question, but I will ask 
Mr. Eastment, because you seem to be kind of in the middle of 
this process, what would it take to get the real estate 
industry to the negotiating table? Am I correct that there are 
some useful models that have been developed by State 
legislatures across the country for addressing potential 
conflicts of interest and other issues that arise when banks 
engage in real estate brokerage?
    Mr. Eastment. I totally support the comments about how we 
ought to all get in a room and hammer this out. I think the 
only area where the National Association of Realtors and RESPRO 
really disagree is the fact that we do not think the world 
would end if banks get in the business. RESPRO represents real 
estate companies that provide over 50 percent of the real 
estate transactions in this country. The majority of RESPRO's 
members do not feel that the world will come to an end.
    So I would like everyone to get into the room together. As 
far as a model for that, the Commonwealth of Virginia several 
years ago passed a bill to allow State banks into the business. 
It was a compromise that was reached between the bankers and 
the realtors in the State. As a result of that bill, there is 
at least one bank who has bought a real estate company. I think 
that could be referenced as a model.
    The Chairman. The gentlelady's time has expired.
    Mrs. Biggert. Thank you.
    The Chairman. The gentleman from Illinois, Mr. Gutierrez?
    Mr. Gutierrez. Thank you, Mr. Chairman.
    Ms. Duke, if national banks are permitted to engage in real 
estate activities, what laws would govern their activities? 
Would they be licensed and regulated by the States, since there 
are no Federal laws in this area? Would the State Attorneys 
General have jurisdiction over them?
    Ms. Duke. The real estate activities would be licensed and 
governed by the State laws. However, the banks would also be 
governed by Federal laws which address things like privacy and 
anti-tying. So there would be a combination of the two, but the 
real estate activities themselves would be governed by State 
laws.
    Mr. Gutierrez. If they are to be governed by State laws, 
why are you not subject to State laws governing your other 
subsidiary activities? I would think that mortgages are local 
as well and are tied to property.
    Ms. Duke. Actually, the insurance business is still 
governed by State law, rather than a national law.
    Mr. Gutierrez. In other words, if I hear you correctly, if 
banks were to engage in real estate activities, locally you 
would be regulated by States and come under the jurisdiction of 
the local attorneys general. So if you sold me a home and then 
I imagine your banks are going to give the mortgage, why 
wouldn't that mortgage that you give tied to that loan be 
regulated by the same State agencies?
    Ms. Duke. The brokerage business, which is regulated by the 
States, in the case of real estate and insurance, are governed 
by the State. The Federal laws, particularly on disclosure on 
mortgage lending, do govern. They are enforced in some cases 
with national banks enforced by Federal regulators and with 
State banks enforced by State regulators as well as Federal 
regulators.
    Mr. Gutierrez. Yes, and as I heard my colleague suggest 
earlier, but there is no anti-predatory law there.
    Ms. Duke. I am sorry?
    Mr. Gutierrez. There would be no anti-predatory laws there.
    Ms. Duke. No anti-predatory laws in the real estate 
business?
    Mr. Gutierrez. If you are not regulated, if your one 
activity has nothing to do with the Federal Government, right, 
that is the side of your activity that has to do with 
mortgages, right, there is nothing at the Federal level to 
prohibit that.
    Ms. Duke. I believe the Comptroller of the Currency is the 
one that regulates lending activities of national banks.
    Mr. Gutierrez. Right. That is my point. So there would be 
no anti-predatory lending laws governing that activity. So you 
would have two activities. It just seems to me that as we have 
a marketplace, you would be put at a particular advantage. That 
is to say that State banks regulated by State and local banks 
versus national banks would have two different areas in which 
they would compete.
    One would be regulated by the State both for the real 
estate license division, which you say you would be covered by 
the State, but on the other hand they would also be on the 
mortgage end, that is on the lending end, but you would not be 
on the lending end. You said earlier you would only be covered 
by Federal regulators.
    Ms. Duke. On the issue of predatory lending, there are 
numerous laws that govern the lending. On the issue of the 
competitiveness of the mortgage market, the vast majority of 
mortgages, whether they are originated by banks or they are 
originated by independent mortgage companies, are sold into the 
secondary market and are governed by those market forces.
    Mr. Gutierrez. Yes, but somebody sells them. There has been 
a lot of conversation today about fair competition. Aren't 
there similar concerns about competition is not fair if 
national banks are not subject to the same State laws and 
regulations as State banks currently are? Doesn't that question 
need to be answered first before we move forward into the area 
of allowing our national banks to sell real estate?
    Ms. Duke. I am not sure even in the case of independent 
mortgage companies, that they are regulated by other State or 
Federal regulations.
    Mr. Gutierrez. I am talking about banks, since you 
represent the banks, and not so much the independent mortgage 
companies, since we want a level playing field for everyone. So 
in other words, if I have a State bank, that is regulated, 
according to your testimony, by both the State and the Federal 
governments. But the national banks would not be regulated by 
the Federal Government in terms of giving out mortgages 
because, as you said, that is only Federal regulations on them.
    The Chairman. The gentleman's time has expired.
    The gentleman from California, Mr. Miller?
    Mr. Miller of California. Thank you, Mr. Chairman.
    Many people in this House disagree on many issues we vote 
on each and every day. Chairman Oxley is, I think, a great man. 
I have tremendous respect for Chairman Oxley, but when you look 
at members of this committee who go to the floor and vote, one 
press is red and one press is green. It does not mean that one 
is necessarily right and one is necessarily wrong, but we have 
a difference of opinion.
    When Gramm, Leach and Bliley worked on this bill, they were 
all good men. They really had the best of intentions. They 
tried to come up with the best product that they possibly could 
come up with. There are certain areas within the law, Gramm-
Leach-Bliley, that are not prohibited. There are areas that are 
silent. Powers were given to the Federal Reserve and the 
Treasury and those are subject to review by the regulators, 
which are the regulators. But when we talked about GSE reform, 
many of us had huge concern with the Treasury Department taking 
oversight over GSEs because of their lack of expertise, we 
believed, in housing.
    Now, one of my favorite individuals as a comedian was W.C. 
Fields. He one time said, ``I spend far too much time searching 
through the Bible trying to find loopholes.''
    You know, I guess maybe if it is not prohibited and subject 
to review, that might be considered a loophole by some people. 
As a Christian, I know I read the Old Testament and the New 
Testament. One says one thing, ah, God changes his mind and he 
has a New Testament. Something else happened. We are all the 
time around here passing laws because we are changing laws we 
previously passed that we think need to be changed.
    Now, something keeps being said that there is a need for 
competition. I have been a developer for over 30 years. I have 
tremendous respect for lenders because if it was not for 
lenders, I could not have built houses. We had one-stop shops. 
We built houses. We had a realtor sell the house. We provided a 
lender to make the loan. Usually, the guy who made me the 
construction loan, I tried to give them the take-out if I 
could. We used escrow companies and we provided title policies, 
but I did not own any of those. I was just the builder out 
there.
    Now, if competition is good and if real estate is 
considered financial activities, I guess you would say where 
does that end? Because things have changed in the development 
industry today. We have a lot of publicly held corporations out 
there building homes, KB, Lennar, and many other ones. In some 
way, they have an advantage over the old private ma and pa 
construction company because they go to the stock market and 
raise huge amounts of money.
    Now, if competition is just what we are concerned about, I 
really think banks could probably be more competitive building 
houses than I could as an independent guy because you have more 
money than we do. You can take those risks we can't. I mean 
that in a good way, not a bad way. Do I think you should? No, I 
do not think you should.
    But if I am looking for competition, I will bet you Bank of 
Wal-Mart could probably make me a good loan out there and save 
me 10 or 15 percent. I used Bank of America. I have used them 
since it was Security Pacific, for 30-some years. But I will 
bet you Bank of Wal-Mart would probably make me a good deal 
when I went in there to buy my pretzels and whatever I buy at 
Wal-Mart. I will bet you Bank of Wal-Mart auto mall could 
probably save me a lot of money, too, because they would 
probably work on a smaller margin than many good friends of 
mine who have auto malls and sell at dealerships.
    So if we are purely looking at competition, that opens up 
an area that is so broad in and of itself that I think we need 
to be very, very, very cautious. Even the founders who wrote 
the Constitution amended it because there were certain things 
that they thought needed to be changed as time went along. I 
see a problem with this industry being opened up to banks. It 
is not that I have anything against banks. I have huge respect 
for banks. I deal with a lot of bankers, but I deal with a lot 
of realtors, too.
    I think there is a huge conflict of interest if banks could 
be a one-stop shop for real estate and title work. To give you 
an example, a title company guarantees the title to a piece of 
property. If a bank could do that and there was a problem on 
the title guarantee, who does the person who owns a home go to? 
Not only did they borrow the money from the bank, the bank 
guaranteed the title to make the loan to buy the house. Is 
there a conflict of interest there? I think there is. That is 
my perspective. I have never owned a title company. I have 
never owned a bank. I am not a realtor today, but I see 
inherent conflicts in those areas.
    I think banks see a huge conflict with Wal-Mart getting 
involved in the banking industry because they could do 
everything. Next thing you know they will be building the 
houses. They will be providing the realtors out there. They 
will be providing the title insurance. They will be providing 
the loan. Wal-Mart really works on a competitive, very small 
margin out there.
    And then are we going to consolidate our entire housing 
industry and financial industries in a very few people? I think 
we could do that.
    The Chairman. The gentleman's time has expired.
    Mr. Miller of California. So I commend the chairman for 
having the hearing so we can at least talk about the issues, 
and sometimes we just disagree.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman from North Carolina?
    Mr. Watt. Thank you, Mr. Chairman.
    I will call Mr. Miller and raise him. He quoted W.C. 
Fields. I have an even more famous philosopher that I think 
this situation calls for, and that is Yogi Berra.
    He said when you reach the fork in the road, take it.
    The banks feel like we reached the fork in the road when we 
passed Gramm-Leach-Bliley, and we took it. The realtors think 
we ought to go back to that fork in the road and take it again. 
So I kind of feel like Barney Frank on this. I actually love 
these disputes because they remind me of the telecommunications 
debate. All of the parties are so well-financed and have the 
best lobbyists in America and they are in here fighting with 
each other and throwing stones at each other, and exposing some 
of their own vulnerabilities in the process.
    One vulnerability was referred to by Mr. Gutierrez for the 
banking industry. It is hard for the banks to say we are going 
to be regulated by State and local real estate laws, when the 
Federal regulators have preempted the Federal banks from 
predatory lending laws at the State level. That is a real 
problem.
    It is hard for the realtors to be in here talking about 
this as competition. I am not sure it is about competition on 
either party's side. It is about who gets the advantage of 
competition. But it is hard for realtors to say that with a 
straight face when they have some issues with online real 
estate people.
    I did learn a lot today. I was in the room when we did 
Gramm-Leach-Bliley and I thought I knew what was going on until 
I heard Mr. Leach testify.
    Then I realized that a whole different discussion was going 
on. I was over there fighting Senator Gramm on whether he was 
going to crack down on community groups when they opposed bank 
mergers. We were trying to get some language there, and a whole 
different discussion was going on at a much, much higher and 
different level, but it is wonderful.
    I love this debate because it is totally bipartisan: Oxley 
and Frank on one side; Kanjorski and Bachus on the other side. 
I mean, that is about as bipartisan as you get.
    Now, you notice I do not have a question.
    I am just getting all this out of my system.
    Mr. Leach. Will the gentleman yield?
    Mr. Watt. No, no, no, no. Oh, to Mr. Leach? Yes, 
definitely, I will yield.
    Mr. Leach. I just wanted to explain to you. I thought the 
logic of the Phil Gramm statement was something today that I 
recognized completely. The tone was not.
    Mr. Watt. I think I could certainly concur with that. The 
logic of everything that everybody testified today was 
brilliant, but my recollection is we just kind of punted this 
issue to the regulators because we were afraid to deal with it. 
It was going to blow up the whole Gramm-Leach-Bliley 
discussion. This was a good way to put it off to a future time. 
Maybe that time has come, which is why the Yogi Berra comment 
seems to me to be applicable.
    There is no question in my mind that real estate brokerage 
is incidental to financial services. I mean, just about 
anything you could think of would be incidental to financial 
services. I think the question is, should it be financial or 
shouldn't it be, and so then we get to the question of who 
should be making that decision. Should it be legislators or 
should it be regulators?
    We are back to the box we were in when we were dealing with 
Gramm-Leach-Bliley. We are going to have to bite this bullet 
and not blame whatever the regulators decide at some point. 
Should it be this committee or should it be the Appropriations 
Committee? I do not have any question where I come down on 
that.
    I hope one lesson will be learned by all parties from this 
discussion today, however, and that is one that all of the 
parties learned in the telecommunications debate. You can spend 
a lot of money fighting about this, but at some point you all 
are going to have to get together and sit down and talk about 
it and try to reach some meeting of the minds, and then perhaps 
you can get all of us off the hook, because right now we are 
having to make some tough decisions. Do we love real estate 
people and hate banks? Or do we love banks and hate real estate 
people? None of us really fall into either one of those 
categories, in my opinion.
    The Chairman. The gentleman's time has expired.
    The gentleman from Texas, Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman.
    I do not with to take up the committee's time with this, 
but perhaps after our hearing the gentleman from Iowa can 
inform me inasmuch as I failed to capture Chairman Gramm's 
tone, whether that is praise or criticism. I am not sure.
    Mr. Watt. You need to be a lot more surly, young man.
    Mr. Hensarling. Thanks for your guidance.
    Mr. Chairman, before I get into my line of questioning, I 
would like to make one observation. I notice that a number of 
my colleagues, members of this committee, have shown a lot of 
consternation over bank consolidation. For those of us, myself 
and my friend Mr. Moore from Kansas and others who are working 
on regulatory relief legislation for our financial 
institutions, have heard very compelling testimony that the 
regulatory burden on our financial institutions is one of the 
top drivers of bank consolidations. I hope that as we work on 
that legislation, Mr. Chairman, that my colleagues will recall 
their enthusiasm for wanting to deal with the problem or the 
challenge of banking consolidation and embrace our legislation.
    Mr. Mansell, I would like to ask you a couple of questions 
and make sure I really understand exactly where your 
association, how they feel on this issue. Number one, is there 
an objection to the Gramm-Leach-Bliley process in determining 
the definition of financial activities? Or do you just feel 
that the Fed and Treasury got it wrong here?
    Mr. Mansell. I think I would have to say we think they got 
it wrong. You might ask yourself, are those the two right 
parties that should be making that decision? Or should maybe 
one of them be eliminated and have Commerce be the other one, 
so that you have two sides of the argument in the regulator 
side that can also make the determination. As it is, you have a 
pretty lopsided regulator. In fact, you could ask the question, 
is it a regulator or is it a permitter?
    Mr. Hensarling. So the answer to the question might be 
both, some concern with the process and certainly you believe 
they got it wrong here.
    In your testimony, I think a couple of times you used the 
phrase ``huge banking conglomerates'' in speaking of your fear 
of what they would bring to the marketplace. One of my 
colleagues brought up the specter of Wal-Mart, if you will. 
Would you be against Wal-Mart being in the business of 
competing in real estate brokerage? Are they viewed as a 
conglomerate or banking? Or is the fear merely huge?
    Mr. Mansell. I do not know that I would particularly like 
to see them in the banking business. They would certainly be 
huge, but there would be nothing to prevent them from doing 
that.
    Mr. Hensarling. So your association would not necessarily 
advocate legislation that would prohibit them getting involved 
in real estate brokerage merely because they are large?
    Mr. Mansell. No, it would not be, because they are 
commercial in nature and we believe we are commercial in 
nature. And so there would be nothing there that would prevent 
that.
    Let me add that Wal-Mart sells assets or a product, so they 
are commercial in nature. Real estate brokers sell product or 
assets. What makes the real estate broker any different than 
the Wal-Mart when you are defining which one is financial in 
nature? I think you have it just backwards in the 
consideration, and that is the sale of the home and the finding 
of the home is generally the first thing that takes place.
    The financing comes after. I believe that was the testimony 
of Ms. Duke. I would agree with that. So which one is 
incidental? It seems to me that the financing is the incidental 
part of the real estate transaction and 20 percent of all the 
homes that are sold have no bank financing on them. They are 
either cash or seller-financed.
    Mr. Hensarling. If I could, my time is starting to draw to 
a close here.
    The portion of your testimony that I would tend to feel 
most compelling, I am very sensitive to arguments that someone 
is leveraging a government-provided benefit to unfairly compete 
in a different arena. However, in my own survey, it appears 
that the mortgages that banks are offering are typically within 
a few basis points of those offered by real estate-affiliated 
mortgage lenders. If they have all of these advantages, why 
don't I see a greater disparity in the mortgage rates that are 
offered? How are they leveraging their benefits, be it their 
FDIC insurance or the other benefits that you elucidate in your 
testimony?
    Mr. Mansell. I do not know that they are leveraging them. I 
think they are using them to the highest profit possible. 
Therefore, they are letting the market determine where that 
pricing is, rather than using that advantage.
    Mr. Hensarling. I appear to be out of time, Mr. Chairman.
    Mr. Leach. [presiding] Excuse me? Fine.
    Mr. Sherman?
    Mr. Sherman. Thank you, Mr. Chairman.
    I note that the majority of Congress is cosponsoring H.R. 
111, yet only one of our witnesses is taking that position. So 
I am going to make a number of observations, and then ask Mr. 
Mansell to respond to these observations.
    First, I would note that current law undoubtedly allows a 
combination of mortgage banking and real estate. The issue 
before us here is whether we are going to combine federally 
insured banking with real estate brokerage. Another observation 
is that Gramm-Leach-Bliley, we are talking about whether we 
should open it up. Well, the supporters of H.R. 111 think 
Gramm-Leach-Bliley needs to be clarified. The supporters of 
Oxley-Frank want Gramm-Leach-Bliley clarified. So there is 
simply no doubt that it ought to be clarified. If that is 
opening it up, I do not know.
    But the Gramm-Leach-Bliley provision says that we are going 
to have a list of financial services and then we are going to 
add new ones as there is a change in technology. I have yet to 
figure out what happened in the 6 months after we passed Gramm-
Leach-Bliley so that there is a sudden new change. The last I 
thought, I thought real estate brokerage existed in 1999 and is 
not a new invention created for the new century.
    One observation made by Mr. Gutierrez is we are asked 
whether these banks are going to be subject to the same 
realtor-agent licensing and consumer protection laws. Keep in 
mind, these same Federal bank regulators have already exempted 
their charges, their banks from the State predatory lending 
consumer protection laws.
    So no doubt if we let banks into real estate, we will have 
a chance to have an agent who is exempt from all the State 
licensing laws and all the State consumer protection laws on 
real estate agents, and he can sell or she can sell you a home 
that might have some defects in it because, well, those 
consumer protection laws do not apply. And they can set up with 
a loan which under your State law is deemed a predatory loan, 
but don't worry about that, the Federal regulators have 
exempted them.
    Japan shows us the disaster of mixing banking and commerce, 
but we are told that it is okay for banks to go into real 
estate for two reasons. First, financing is important to the 
consumer on a house, except those houses where there is no 
financing; and second, that the family is acquiring an 
important and valuable asset for the family portfolio. Well, 
let's apply that to some other areas and we will see that these 
arguments open up a Pandora's box.
    In order to purchase an auto, it is very important to get a 
loan. Poor people, they get a loan or they do not get a loan. 
That means they get a car or they do not get a car. And that 
auto is the most valuable family asset in the portfolio of many 
renters in my district. So that means banks should be selling 
cars and I would assume manufacturing them as well? Gold is a 
financial asset, so banks will be in the gold mining business.
    It is not the house, I hate to tell a real estate panel 
this, it is not the house that is the most valuable asset for 
most American families. It is the education and the enhanced 
earning capacity of the people who live in that house. And of 
course, students need loans. So banks can own proprietary 
technical schools. The arguments in favor of letting banks into 
real estate lets them into everything from auto manufacturing 
to appliance stores to boat manufacturing. We are opening 
Pandora's box. I think it ought to be closed.
    But the real reason that I am cosponsoring H.R. 111 is that 
this one-stop shopping idea with federally insured deposits, 
the whole idea is you will have the bank as realtor and the 
bank as lender. My fear is people who do not deserve loans will 
get them. When I say ``don't deserve,'' I mean these are hard-
working people, but I want the Federal insurance system 
protected by a banker who can say no. Well, it is much harder 
to say no when the very day that the deal closes, the bank as 
an entity gets 6 percent right there. That is a huge incentive 
to say yes.
    Now, the consumer will understand this. The consumer will 
say, I have shaky credit. A bank, using its best thinking, 
would not make me a loan. Let's go to a realtor who is part of 
a bank and I will get a loan, and will instinctively understand 
6 percent right off the top. And who bears the risk of that? 
Well, if a series of these transactions go well, the holding 
company does well. Its real estate agency does well. The 
lending agency does well. Everybody makes a lot of money. But 
if a bunch of these transactions go poorly, it is the taxpayer 
who steps in and says, oh gee, the bank made a lot of loans 
they should not have made. It looks like they got too turned on 
by that 6 percent and we, the taxpayer, get stuck holding the 
bag.
    Mr. Mansell, do you have some comments about my 
observations?
    Mr. Mansell. I think your observations are pretty good. I 
really do. I think there is a way to actually determine the 
difference between banking and commerce, and I might suggest 
that to you. I would suggest that you call both the banks and 
the realtors at 8:00 Saturday night. The one that answers is 
commerce and the one that does not is banking.
    Mr. Sherman. Believe it or not, I know some bankers and 
certainly some real estate lenders that are available that 
late. I do not want to characterize one group in this room as 
harder-working, more meritorious, or even a greater pillar in 
the community as another. But I would say that if you are 
selling a physical asset, that is going to be used, whether it 
is a car. You know, this shirt, I got through a banking 
transaction.
    Mr. Mansell. Did you use a credit card?
    Mr. Sherman. Absolutely. And I am not sure that I could 
have afforded this shirt if banks had not helped me at the 
time. But I do not expect to see blue size 16 1/2 shirts there 
at the bank for sale. So I just do not understand why selling a 
house is financial, but selling a car, a boat, a houseboat, a 
boat big enough to have a house, an RV I could live in, a car 
big enough for me to sleep in, is somehow a financial 
transaction.
    With that, I yield back.
    Mr. Leach. Mr. Pearce?
    Mr. Pearce. Thank you, Mr. Chairman.
    All this is a stunning amount of information I am trying to 
process here. I have got notes everywhere. I will make some 
scattered observations, but I will close with one question just 
in case the witnesses might want to go to sleep on me.
    The idea of competition is basically one of pressure and 
pressure is both a good thing and a bad thing. Being a small 
businessman, buying a small business with four employees and 
competing with an international competitor that tried to grind 
the financial life out of my wife and me actually exposed me to 
many of the plusses and minuses of competition and of pressure.
    When I hear the terms of competition used today, I am 
stunned. I am overwhelmed. I hear the ranking member say that 
he is all for competition; that competition is a good thing. I 
suspect if I ask him to cosponsor the Davis-Bacon Act with me, 
he might have a different perception on exactly that kind of 
competition, which might not be such a good thing.
    I have heard the banks are very concerned about the bright 
line between primary and secondary markets. I have heard about 
them not wanting to compete back and forth. I have heard the 
concern from the banking industry about the size of our GSEs, 
and those are appropriate concerns. Basically, we are operating 
in a regulated market, and as we begin to talk about 
competition I think we should be very aware.
    In the oil and gas business, there is high, high, high 
pressure at a wellhead. There is a fascinating thing called a 
``one-way check valve.'' A one-way check valve allows all the 
pressure on one side and no pressure on the other side. So if I 
am going to look at this situation here, and we are talking 
about, we have heard discussions on barriers to entry, that we 
have a barrier to entry between banks and real estate, but I 
suspect if we turn the equation around and look backwards, the 
barriers to entry are more extreme.
    If I am a real estate agent, a single agent in business in 
Hobbs, New Mexico, where I come from, I suspect that the 
barriers to entry to banking are a little more severe than the 
barriers in the other direction. I think if I am going to 
organize a bank, and you have organized three, Ms. Duke, I 
suspect that you are going to need between $6 million and $8 
million of capital, and if I want to operate a real estate 
business, I probably can do it with a used 1957 Chevy that is 
parked in the backyard.
    I think that we throw this term ``competition'' around very 
loosely when there is only pressure that can be applied one way 
in the system. I hear Mr. Eastment saying he does not really 
get concerned with the banks being involved in the real estate 
business. But I am concerned when I look at Japan and I realize 
that the problem with Japan's economy is they built themselves 
an economy that is almost dead because they allowed banks to 
get into the business of loaning to real estate and being 
partners in the businesses and the manufacturing. The intent 
was to build an economy that simply dwarfed the rest of the 
world and it failed, and they felt like they were competitive.
    I worry that we would build a model here that would do the 
same thing in the name of competition. In truth, there is not 
competition from the real estate agent and the corner grocery 
store in Hobbs, New Mexico, backward toward the megabanks. I 
will tell you that if we make a mistake in this, that the life 
will be ground completely out of the rural economies because it 
will not be banks in Hobbs, New Mexico that compete for real 
estate in New York. It will be the banks in New York who come 
down and sell the real estate in Hobbs, New Mexico.
    We are in a regulated environment and we need to understand 
it and we need to be very judicious. I disagree with my 
colleagues who said that we had a carefully crafted compromise. 
I do not care how careful it was. If it was not correct, then 
we need to think about what we are doing very, very seriously 
because it is the rural pieces of this country that sustain a 
great percent of it. Everything that we do that goes large 
against small, urban against rural, is choking the lifeblood 
out of the small communities.
    My wife and I had a business with 50 employees. We were 
there when the banks began to merge, so that we had a New 
Mexico-owned bank merge to a larger bank and to a larger bank 
and to a larger bank. At the fourth transition, they did not 
know my name anymore and I took my 12 years of business back 
down to someone who knew me locally.
    So, Mr. Chairman, I appreciate the fact that you are trying 
to solve a problem. I think I am a little curious about the 
barriers to entry because they exist one way and they don't. 
The pressure in this situation is all going to move one way 
without the ability for small, independent real estate agents 
to compete backward toward banks. I will delete my question. I 
see I am out of time.
    Thank you, Mr. Chairman.
    Mr. Leach. Thank you for those thoughtful comments.
    Mr. Hinojosa?
    Mr. Hinojosa. Thank you, Mr. Chairman.
    I agree with many of the points that Congresswoman Biggert 
articulated. The reason is that the district that I represent 
has many, many small- and medium-sized entrepreneurs, an area 
that for 3 decades had a double-digit unemployment rate. It has 
taken creating lots of new businesses that are not capital-
intensive to be able to put a lot of people to work. I heard 
several of the Members of Congress here talk about the 
importance of real estate because it is very flexible, the 
flexible hours that realtors have. That is something that is 
extremely important in the region that I represent.
    It seems to me that it is very appropriate to determine if 
the current structure provides the best protection for 
consumers, especially low- and moderate-income households 
outside the mainstream financial system. I represent about a 
360-mile geographic area from south Texas to central Texas. 
Many of the constituents I represent are listening very 
attentively to how Congress is going to resolve this debate 
that we are engaged in today. Unfortunately, a majority of the 
Hispanics fall into this category of low to- moderate-income 
households. I agree with Mr. Mansell that these individuals 
might not benefit from bundled realty services designed for 
bank clients with greater resources.
    The potential adverse affects of allowing banks, their 
subsidiaries, or financial holding companies to conduct the 
activities proposed by the Treasury Department and by H.R. 2660 
far outweigh any public benefits. Our job in Congress is to 
protect the consumer. We do so via regulatory oversight and 
through legislation, as was the case with the Gramm-Leach-
Bliley legislation and is the case today as we consider H.R. 
2660 and H.R. 111. Maintaining the separation of banking and 
commerce is one way to protect them. H.R. 111 will do just 
that. It is for these reasons and more that I became an 
original cosponsor of, and support to this day, H.R. 111, the 
Community Choice in Real Estate Act.
    I would like to ask a question of Mr. Eastment. Insurance 
agents were opposed to allowing banks to broker insurance. Now 
that banks can do this, what have been the effects?
    Mr. Eastment. Honestly, I have to say I do not know. We 
have a small insurance agency. We have had it for 30 years. 
That issue never reached our level, so I really have no comment 
on the effects of banks in the insurance business.
    Mr. Hinojosa. Okay. Then I will ask another question of Mr. 
Mansell. We have focused on the benefits to banks of owning 
real estate brokers. What, in your opinion, would be some of 
the negative effects on real estate brokers if real estate is 
considered to be financial in nature?
    Mr. Mansell. I think the biggest danger is just the size of 
the institutions and the risk for the federally insured deposit 
groups. Frankly, we are not very worried about the competition 
on the street. What does concern us is that their ability 
because of their financial strength to do some things would be 
quite dramatic compared to the rest of the real estate 
business.
    As was described earlier today, they could certainly, 
through various benefits that they could put together, I do not 
know that I want to call them ``tie-ins'' because I understand 
there are some anti-tying things in there that would prevent 
that, but certainly some benefits within that would make it 
very difficult for others to compete.
    Consequently, that is our biggest fear, is that you will 
drive down competition. I do not know how anybody can say the 
real estate industry, with 300,000 companies and 1.5 million 
licensed realtors, is not competitive in this Nation. It is 
probably as competitive as anything there is that I am aware 
of. So I think the biggest danger would be consolidation and 
eliminating choices for consumers by consolidating the services 
and eliminating members of the business.
    Mr. Hinojosa. Do you believe that the banks would take the 
lower profits while they drive out as many realtors as they 
can, and then bring up their prices or their costs?
    Mr. Mansell. I do not want to say. I do not know what the 
banks would do, but certainly that is a possibility. I guess I 
would look at the insurance industry and ask the question, have 
premiums gone down since banks got into the business? Has it 
gotten better? I know there was a request by, and I do not know 
who it was in the Congress, for a report on that very issue, 
about whether the change with banks in securities and insurance 
has been beneficial or negative to the consumer. As far as I 
know, and maybe Mr. Leach could tell us that, we have been 
unable to get that report back.
    Mr. Leach. The time of the gentleman has expired.
    Mr. Hinojosa. Thank you, Mr. Chairman. I appreciate the 
opportunity to ask those questions.
    Mr. Leach. Mr. Neugebauer?
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Just for the record, in my past I have worn two hats that 
are sitting at the table today. I have been a banker, did 
commercial and real estate lending, in fact even owned an 
interest in a bank, and then for over 33 years I have been a 
licensed broker in the State of Texas. Unfortunately, I do not 
get to come to this table wearing any hats. I am wearing the 
hat of the people.
    I think one of the questions that is before this hearing 
today--and I think it is appropriate that we finally have a 
hearing on this issue, I think it has been very productive--is 
whether real estate brokerage is a commercial activity or a 
financial activity. The legislation that was passed was silent 
on that. So I think it is appropriate that the chairman have 
this hearing.
    I think the issue for me as I begin to look at it, and it 
is one of the pieces that I did not hear discussed today, and 
that is the issue of fiduciary. As a former banker, I had many, 
many occasions where my customers were coming to me and 
thinking about leasing a particular space in a shopping center 
or leasing a building for their operation or building a 
building for their operation or buying a building for their 
operation. They came to me for my counsel and my advice on 
whether that was a good overall strategy for their business as 
a small businessperson.
    I think the question today is if I am sitting in a loan 
officer's desk and there is a substantial commission involved 
in the brokerage, in that transaction, am I going to be able to 
give my customer the same objective information or advice that 
I would give them if I was an independent party?
    I go to the fact that the financial institutions, there is 
a precedent that this Congress has set about financial 
institutions, of them having a fiduciary responsibility. In 
fact, the last several Congresses have gone to great lengths to 
make sure that there is a firewall on certain kinds of 
activities. For example, in the securities business, those 
people that are underwriting certain issues should not be 
necessarily selling those and giving advice to customers to buy 
those.
    We have just looked at Sarbanes-Oxley, where we said to the 
accounting industry and others that we have to make sure that 
there is independence in the evaluation so that when that 
information and advice is given to the consumers and to the 
general public that there is protection for those people.
    So I think as we go forward in this debate, I think one of 
the things that we have to begin to say is, and the Japan 
example is a good model, is there a reason that when we look at 
the difference between a commercial activity and a financial 
activity, is there need for there to be that fiduciary piece of 
that to not only protect the soundness of the financial 
institutions, making sure that they are not making lending 
decisions based on real estate commissions, but they are making 
those based on sound banking principles.
    And are the individuals, the people that are relying both 
on the broker and the banker to give them clean, objective, 
independent advice on, is that transaction in their best 
interest? So as we move forward, I think we need to look at 
that particular issue. I love competition. I love to compete, 
but I like fair competition.
    One of the things that I think was interesting was that in 
this previous legislation that land development was taken out 
of the picture for that. As someone who was in the real estate 
business in the 1980's in Texas, I can tell you that was a very 
easy decision for the regulators to come up with because they 
had to come back and clean up a very ugly mess where lending 
institutions did get into a business that they knew little 
about, and risked huge amounts of capital of those institutions 
and in fact broke those banks, and also cost the American 
taxpayers a fairly substantial piece of change.
    So I think as we move forward if we are going to talk about 
competition, and I kind of associate myself with Mr. Miller, is 
if we are going to say that there should be very little 
differentiation between a financial and a commercial activity, 
then we should then open the doors up. We should have the Bank 
of Wal-Mart and we should say that there is no discrimination 
between what an entity or a corporation in America, the 
businesses they can get in. But we have chosen not to take that 
course.
    It is not just legislation that was passed 50 years ago. It 
is legislation that we continue to pass on a continuing basis 
where we say there has to be some transparency; that there have 
to be some firewalls; that there has to be some independence in 
certain kinds of transactions.
    One of the things as a former homebuilder I knew that I was 
sitting at a table with the single largest purchase that most 
families make in their life. We needed to make sure that what 
we were doing was in their best interest. So as we proceed on 
this legislation, I think what we need to do is be very, very 
careful that we make sure that we are doing what is in the 
people, the customers of both the realtor and both the banker, 
we are doing what is in their best interest.
    I yield back the balance of my time.
    Mr. Leach. Thank you very much, Mr. Neugebauer.
    I apologize for going in order, Mr. Davis. It would be Mr. 
Crowley.
    Mr. Crowley. Thank you, Mr. Leach.
    Welcome to all of you. It is good to see you here today and 
thank you for the conversation.
    I just want to follow up on Mr. Watt. I am coming from 
where he was coming from. What I take from the first panel is 
that, when I was able to decipher it, it ensures that the Fed 
was given under Gramm-Leach-Bliley the flexibility to determine 
what would constitute what is financial in nature; that if they 
considered something new in terms of finance in nature, then 
under Gramm-Leach-Bliley the banks may very well be able to 
enter into those activities.
    It would appear to me that language in appropriation bills 
that prevent the Treasury from actually promulgating 
regulations and rules with respect to what constitutes again 
new financial activities flies in the face of GLB as far as I 
read that.
    Saying that, I also recognize the importance of the work 
and the contribution that many of my local realtors are engaged 
in. I believe, as I think Mr. Watt was saying, that there is 
some room here for compromise, not the Oxley-Frank bill nor the 
Calvert-Kanjorski bill, but a bill maybe in the middle ground 
that has yet to be determined. I think that we have the ability 
and we have an opportunity to continue in the spirit of what 
GLB was I think originally attempting to do.
    I just want to ask both Mr. Mansell and Ms. Duke whether or 
not you believe there really is any opportunity for any 
compromise at all here, or is this cut and dried with no 
ability for any compromise. Either one can go first.
    Ms. Duke. I will start. I will say that not only do we 
believe that there is room for compromise, but that is 
something that we would welcome. It is an uncomfortable 
position for the banking industry to be in an antagonistic 
position with the realtors. If we were not in industries that 
were closely aligned, we would not even be having this 
discussion.
    As far as experience, the experience I go on is the 
experience in the State of Virginia where we had a very similar 
situation and our legislators came to us and said, we do not 
want to be the arbiters of this fight; we want you to sit down 
and come to a conclusion and come to a bill that you can both 
support, which we did. That process has gone along very well. 
That passed 2 years ago.
    Since then there has been to my knowledge one bank that has 
affiliated with, and it is a local bank, affiliated with the 
two leading local real estate companies. As a further 
coincidence, that realtor was actually a member of my board and 
had been a long customer and a friend for a long time. He left 
our company and went to the company that had purchased a real 
estate company.
    The third thing I would say is that my current 
representative, the representative that I have in this 
Congress, is a realtor in Virginia who participated in that 
compromise and I think if you asked her she would say that it 
was a very good process.
    Mr. Crowley. Mr. Mansell?
    Mr. Mansell. Thank you. It is very difficult for us to say, 
yes, let's negotiate a compromise on something where you are 
actually giving up the tool before you ever start because for 
us to say, yes, we will let the banks into the real estate 
industry with these provisos, knowing full well that it is only 
a matter of when they come back and try and change some of 
those, that it is very difficult for us to sit down and say 
yes, in good conscience, we can do that.
    I guess I would say what we might work out is something 
where you leave this decision made for a period of time.
    Mr. Crowley. You leave--I am sorry?
    Mr. Mansell. You leave this decision unmade until the 
marketplace has a demand. As I look at the marketplace, I still 
have never been shown where the market pressure is for this 
change. What has changed in the market that is demanding this? 
The chairman said to create more competition. Well, you cannot 
have much more competition than we currently have in the real 
estate industry, and frankly I think you can make a better case 
that this will drive competition down.
    So the question I would have for you is, where do we start 
if the presumption is by agreeing to sit down and negotiate we 
are agreeing to allow the banks into the real estate business 
as a presumption of those negotiations. What might be smarter 
would be to say that this decision is not ripe enough yet and 
the marketplace is not ripe enough yet to make the decision so 
let's not do that now. You could make that case easier, I 
think, than the other one.
    Mr. Crowley. My time has expired.
    Thank you, Mr. Chairman.
    Mr. Leach. Thank you.
    Mr. Tiberi?
    Mr. Tiberi. Thank you. Thank you, Mr. Chairman.
    Thank you all for coming.
    Mr. Mansell, back in the 1990's as a State legislator, I 
led the fight to open up competition for the real estate 
industry for brokers to go into ownership of title insurance 
companies and mortgage lending. It was in the name of 
competition that I did that, with the Ohio association's 
support. It was also the opponents who claimed that real estate 
brokers would buy up all the businesses and title insurance 
companies would go away and lenders would go away. That has not 
happened, by the way, in Ohio. In fact, I think it has been 
good for the industry and good for consumers in Ohio, what we 
did.
    Interestingly enough, I think you and I would agree that in 
your testimony you mentioned you have 1.2 million members. I 
think you and I would agree that is the strongest asset that 
NAR has today, its members, its 1.2 million members in each of 
our congressional districts.
    I was a member of NAR in the 1990's and still have friends 
in Ohio who are members of NAR. People in the offices that I 
worked in were always concerned mostly about the three-way 
agreement. I am not going to go down that road today. You and I 
know what we are talking about. Members on this side of the 
fence mostly do not know what I am talking about.
    But your group, NAR, is a grassroots group. I have heard 
over and over from members in this body and from NAR that this 
is an issue that is coming from the grassroots. I find it 
pretty interesting because of the friendships that I have back 
in Ohio, this is not the top issue. I find it ironic that even 
after great work on your behalf, your national office's behalf 
in Ohio, through advertising, direct communications with 
members, members of your organization, and even pre-printed 
letters, and as of this week, NAR staff going into my district, 
meeting with NAR members in my district, that it is ironic that 
it is really not a grassroots effort, but it is a top-down 
effort to stir up my membership as a former member of the 
association.
    What is difficult for me and that I have not understood, 
and I would love your thought on it, is, as I said, I led the 
effort back in Ohio to open up the marketplace and competition 
was what we talked about. You mentioned consolidation today. 
The second-largest owner-broker in my marketplace is a Coldwell 
Banker owner that is not locally owned, by the way, that is now 
a group office and has many great members and friends of mine. 
It is the combination of three formerly locally owned offices 
and now Cendant owns that.
    Most consumers do not know that. Most purchasers do not 
know that. Most sellers do not know that it is not locally 
owned. And yet in my community, the Coldwell Banker affiliate 
which is not locally owned is very active in the community, and 
has not done some of the things that opponents of consolidation 
in the market have said it was going to do with respect to the 
real estate business.
    What I cannot cross, what has been difficult for me 
philosophically as a person who was making your arguments, 
NAR's arguments for competition, for allowing real estate 
brokers to diversify, sitting across from the title insurance 
and a mortgage lender saying this is not bad for the industry; 
you are still going to be part of this industry; this is good 
for the consumer; real estate brokers are not going to gobble 
up everything. Then coming here, and suddenly the talking 
points for the real estate brokers are different from the 
talking points that I had not only as a realtor, but as a free 
market person arguing for the real estate broker back in Ohio.
    So I have not been able to come to grips with the argument 
that I made before, that it was okay to have competition. It 
was okay for a real estate broker to be a title insurance owner 
with proper disclosure. It was okay for a real estate broker to 
be in the mortgage lending business with proper disclosure. You 
know as well as I do that we, realtors, are the first person to 
interact with the consumer. We represent the buyer. We 
represent the seller.
    You mentioned it earlier, the title insurance comes later. 
The mortgage lending comes later. We are the trusted one up 
front. When I signed as a buyer or when I signed as a seller an 
agreement with my realtor, that realtor in many cases, whether 
it is Coldwell Banker or a Real Living agent or a Re-Max agent 
says, oh, by the way, I have to tell you about our title 
insurance company that we are affiliated with and our mortgage 
lending service that we are affiliated with, proper disclosure. 
Why is that okay for me and you, but not okay for the banker 
down the street to do the same thing?
    Mr. Leach. I would like to ask the gentleman to respond 
relatively briefly because his time has expired.
    Mr. Mansell. Which part do you want me to answer first, the 
first part of your statement or the second? I am trying to 
remember the first part.
    You talked about the grassroots effort and you talk about 
this being a top-down effort. I can tell you that we did some 
surveying to make sure that was not the case. Our membership 
came back to us at 94 percent saying this was very important to 
them. It is true that here in Washington with our staff, they 
have to do a lot of things and make some decisions and go out 
and notify people about what is going on here. But had you been 
at our board of directors meeting here in May and gotten the 
sense of how our board, which are grassroots folks coming in, 
how they feel about this issue, you would have no doubt that 
this is not top-down. This is bottom-up.
    I will grant you that in Ohio, we probably have had a 
slower process of penetration and getting the masses moving 
there simply because of the chairman of this committee, because 
they did not want to irritate him. I think if you go back and 
check with the leaders of the association there, it would be 
very interesting today to see how they are feeling.
    Mr. Tiberi. Just to say, most realtors in my district do 
not even know who the chairman is. They are not paying 
attention to the politics.
    Mr. Eastment. May I make a comment on that question?
    Mr. Leach. Briefly. Mr. Davis has been waiting, but please.
    Mr. Eastment. I would echo the comment that this is not a 
grassroots issue. The vast majority of Long and Foster's 15,000 
realtors, when I talk to them, do not even know about it or do 
not care about it. They are concerned with whether there are 
not enough listings; how they are going to get this first-time 
home buyer into a home because of price appreciation; how they 
are going to get him a loan. Those are the issues that they 
care about. The ones I talk to that even know about the issue 
see this as up on cloud nine and not really affecting them.
    Mr. Leach. Thank you.
    Mr. Davis?
    Mr. Davis of Alabama. Thank you, Mr. Chairman.
    Let me, having the dubious distinction of being the only 
thing separating you all from your cars and your taxis, let me 
try to cover several different areas quickly, filling in some 
of the blanks that may have been left by this hearing.
    Ms. Duke, let me start with you. One of the words that we 
have heard over and over today is competition. We have heard 
arguments about the value of competition, and I think on both 
sides of the aisle as an abstraction. We like the idea of 
competition, but I want to scratch the surface a little bit and 
ask a separate question.
    I am always concerned when I look at these issues as to 
whether or not there is a class of consumers or a class of 
potential home buyers who are not being well-served by the 
current real estate structure and market in this economy; who 
somehow would be served if banks were given this new authority 
to push into this area. So I want to ask you briefly, because 
of our time, to tell me if there is any identifiable class or 
category of consumers or would-be home buyers who are not being 
served by the current market who the banks think they would 
reach.
    Ms. Duke. First of all, I would say that the banks will not 
even go into the business if they do not believe that there is 
an unserved market there that they can serve better than the 
existing ones.
    Mr. Davis of Alabama. Again, I do not mean ``market'' in 
the sense of customers that we do not have that we want. I mean 
identifiable categories of people who are not being served.
    Ms. Duke. To your point, I think it would be the same group 
that we target with our CRA outreach activities. These are low- 
to moderate-income areas, and banks have numerous, numerous 
programs to outreach both in terms of lending and in terms of 
education. Those areas, I think, would be well-served as well 
by the banks' activities in real estate.
    Mr. Davis of Alabama. Let me ask you the logical follow-up 
that comes from that. I recognize that the CRA as it is 
currently structured involves only lending activity by banks 
and that real estate activity does not neatly fit in that 
category. Given what you have just said, given that you think 
that banks would have an ability to reach this class of 
consumers who are covered by the CRA missions of banks, would 
the banking industry be willing to take on CRA-like obligations 
with respect to its real estate activities?
    Ms. Duke. I think it is certainly something that we should 
talk about. All of it gets down to details and gets down to 
structure and the cost versus the benefit.
    Mr. Davis of Alabama. Let me stop you there for a second, 
because I think that is an important point that I have not 
heard your industry previously make. I think that would be 
important, and it sounds like you are agreeing with me that if 
the banks were ever given the authority to push into the area 
of real estate, that there would be a willingness to take on 
some responsibility to weigh the values of community 
reinvestment. Do you agree with that?
    Ms. Duke. I agree with that in concept.
    Mr. Davis of Alabama. Okay, because that is important.
    Ms. Duke. As long as we understand that we need to get to 
the details.
    Mr. Davis of Alabama. Okay. Let me move, and Mr. Mansell, 
do you kind of agree with that? Do you kind of agree that if 
the banks are given this new authority to push into the area of 
real estate that they ought to be obligated to take on some 
CRA-like obligations?
    Mr. Mansell. To be honest with you, I have not ever given 
any thought to that.
    Mr. Davis of Alabama. Okay. I will move on to another 
question since our time is limited.
    Let me ask you, Ms. Duke, this set of questions. I think 
Mr. Neugebauer had a very good line that he was pursuing around 
the question of conflict of interest. His comments were very 
powerful, but I am not sure you all ever got a chance to 
address them. So let me briefly ask you, recognizing that in a 
lot of these transactions, there would almost be an implicit 
kind of conflict of interest woven into the arrangement.
    Give us some legislative advice. What could Congress 
legislatively do to make sure that there was not just an ethic 
in place, but practical safeguards for consumers who might be 
caught in the middle of this dual interest if real estates move 
into this area? Briefly.
    Ms. Duke. I am not sure I can come up with a mechanism, but 
I would say that in terms of the agency role, the agent's 
responsibility is to do what is in the best interest of the 
consumer. And whether the conflict comes from the lure of the 
real estate commission or the lure of the profit on the sale of 
the mortgage loan, there might have been a point in history 
where you could have determined it was not advisable to combine 
in the same company the agency activities of real estate with 
the activities of making loans. But the fact of the matter is 
that takes place. It takes place every day in real estate 
companies. It takes place and can take place in insured 
institutions, savings institutions, credit unions and State-
chartered banks.
    So I could make the case that those two did not belong 
together, but the fact is that they are. Since they are, if you 
put those two in an insured, regulated, examined depository 
institution at least you have examinations going on with people 
in the bank on a regular basis looking to ensure that they are 
complying with every one of those regulations.
    Mr. Davis of Alabama. Let me make just one last point 
because my time is up. It strikes me that as we are in a 
commercial world that is becoming more and more complex, and as 
mortgage lending is becoming more and more complex, the whole 
business of transaction real estate is becoming more and more 
complex. One of the things that we know as an institution is 
that a lot of even very sophisticated consumers do not know 
what they are signing or understand the implications of it.
    I do not want to see us move into a world where there is 
more conflict of interest woven into the transaction without, 
frankly, greater information being dispensed to consumers. That 
is frankly the reason that I am on one bill and not the other 
one, while I am probably more sympathetic to Mr. Mansell's 
position because I think Mr. Neugebauer got it about right, 
that you are in every single transaction and would have some 
layer of conflict. Yes, good, prudent people would try to avoid 
it; good, prudent people in the industry would try to avoid it, 
but it would be there.
    I do not see a mechanism that would regularly inform and 
educate consumers about how to navigate through this. Again, 
the final point I will make, the reason we are struggling with 
subprime in this economy right now and mis-uses of subprime is 
because there is no ethic in place or that we have found a way 
to underwrite in the financial services world that you deliver 
the best product to the consumer after measuring that 
consumer's interest. That is the ethic in lawyering. That is 
the ethic in doctoring. It is not the ethic, unfortunately, in 
the world that you deal in. I think that is a huge problem.
    My time is out.
    Mr. Leach. I want to thank you for those prescient 
observations.
    Let me bring this to an end and simply thank Ms. Duke. I 
thought that was a splendid defense of the banking position.
    Mr. Mansell, you are in a real minority position today and 
you conducted yourself with great aplomb. I think your 
perspective has to be considered.
    As far as Long and Foster, you are one of the great realty 
companies in the country. I am impressed with your testimony, 
sir. We are honored you are with us.
    Mr. Eastment. Thank you, sir.
    Mr. Leach. I think this committee has a greater 
understanding of the depth of this issue. It is a very 
difficult one and it is one that reflects strong feelings in 
many different camps and good logic on both sides of the 
argument. So we thank you all.
    The committee is adjourned.
    Oh, excuse me. Before adjourning, Chairman Oxley wanted, 
and I would request unanimous consent to place in the record a 
first-class memo of Covington and Burling on the history of the 
legislation as it relates to real estate. Without objection, so 
ordered.
    The committee is adjourned.
    [Whereupon, at 1:06 p.m., the committee was adjourned.]


                            A P P E N D I X



                             June 15, 2005


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