Back in November we reported that Congressman Michael Oxley
Chairman of the House Committee on Financial Services had written a letter to
the General Accounting Office (GAO) asking for information on the competitiveness
of the real estate industry. He was, at that point, focusing on technology - specifically,
it appeared, at the role of Multiple Listing Service
in real estate and
the effect that private ownership of that tool might have on the marketplace.
At the time we asked whether Mr. Oxley had an agenda, or was just curious.
Now Mr. Oxley has been joined by Rep Barney Frank
the Ranking (minority) Member in yet another letter to GAO.
The letter, dated March 15, stated that the Committee is continuing its oversight
of the Nation's housing market and potential barriers to home ownership, and
asked the GAO to survey the state of price competition in the market for real
estate brokerage services. Specifically, the two asked GAO to address four
issues. Hint: there may be an agenda here too.
- What is the size of the residential real estate market in this country as
measured by the number of closings last year; the cumulative value of those
closings; and the number of licensed real estate agents currently operating
in the country?
- Please compare the increase in housing prices with the rate of inflation
in the U.S. over the past five years.
- In those states that have authorized state-chartered depository institutions
to engage in real estate brokerage and settlement services, have any negative
effects on competition or consumers been observed?
- What benefit, if any, is there for consumers from competition in the residential
real estate brokerage market?
Extra credit if you spotted Number 3. A perennial fixture in every legislative
session for the last five or six years have been bills to make permanent a ban
on federally chartered banks entering into the real estate business. This year
they are HR 111 and SR 98, each with an impressive list of co-sponsors from
either side of the aisle. This bill is very important to the National Association
of Realtors which lobbies heavily on its behalf and is a thorn in the side of
the American Bankers Association whose members would like to broaden the list
of services it can provide to its customers.
Needless to say, The National Association of Realtors (NAR) rushed to assure
its members that it will be meeting with GAO staff to "provide information
that aims to show that the real estate industry is one of the most competitive
in the country." The American Banking Association is probably knocking
on GAO's door too, but its industry activities are harder to track (a subscription
to its newsletter carries a stratospheric price tag).
One cannot give a brief history of this real estate/banking issue. In the late
1990's the Federal Reserve signaled its intention to broaden the meaning
of financial services to include ancillary activities which might include stock
trading, insurance, and real estate management and brokerage. Ever since then
the real estate industry (probably the insurance and stock brokerage lobby as
well, but we can't pay attention to everyone) has been fighting to keep
banks off of its turf.
The issue has roots stretching all the way back to Depression and the Glass-Steagall
Act of 1933 with major changes in 1956 (Bank Holding Company Act) and 1999 (Gramm-Leach-Bililey
Act.) Anyone who really wants to know more about the minutia surrounding this
issue can Google the last reference and emerse himself in hours of legislative
But, back to the original topic - the letter. Oxley and Franks are both
well versed in America's financial systems (Oxley is one of the writers
of the Sarbanes-Oxley Act of 2002 which now regulates a wide range of accounting
practices of major corporations in the wake of Enron, WorldCom, etc.) and Frank
has been engaged in banking regulation at least since the New England banking
crisis of the early 1990s. It will be interesting to follow along with the results
of this letter and even more interesting if these leaders from two different
parties come down on the same side. Assuming, of course, that the real estate
industry/banking industry controversy is really the impetus behind their letter.