Well now, didn't we say that Michael Oxley was more than just curious?
And that Barney Frank might have a bit of an agenda too?
That would, of course be Congressmen Oxley, R-OH and Frank (D-MA), Chairman
and Ranking Member respectively of the House Committee on Financial Services.
Rep. Oxley first caught
our attention in November 2004 when he wrote a letter to the Government
Accounting Office (GAO) which has, among its responsibilities, providing research
to Congress. The letter requested a lot of information on the size of the residential
real estate market, a comparison of the increase in housing prices to the
rate of inflation; what benefits, if any accrue to consumers from competition
in the real estate market and, 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? This
was followed in March, by a joint letter from Oxley and Frank to GAO requesting
more information, again about competition but also about technology issues and
their impact on competition.
It wasn't too hard to see where this was going. And last month it led directly
to HR 2066
, filed by Oxley and Frank in May; a bill that would
pave the way for banks to participate in the sale and management of
This is yet the latest battle in a war that dates back to 1999 when the Gramm-Leach-Bliley
Act passed Congress. The bill attracted interest at the time primarily
as legislation that would regulate the way financial institutions managed their
customers' personal information. You probably remember the flood of mail you
received a year or so later from every financial firm you dealt with - credit
card companies, banks, installment lenders - explaining in tedious detail their
policies regarding your privacy. This was the lead feature, at least as far
as the media was concerned, of this legislation and to this day if you Google
Gramm-Leach-Bliley, the privacy requirements are about the only information
that pops up.
There was, however, another important change imbedded in Gramm-Leach
as it is commonly known, (Bliley seldom gets billing) which authorized the Federal
Reserve and the U.S. Department of the Treasury to periodically update a list
of activities in which federally regulated financial holding companies and national
bank subsidiaries could legally engage. The Federal Reserve and the Treasury
Department accordingly promulgated regulations in 2001 that would allow holding
companies and subsidiaries (as opposed to the banks themselves, a fine legal
distinction) to engage in several financial activities including real
estate brokerage and property management activities.
Well you can just imagine. It didn't make the front pages because few
people beyond bankers and real estate agents either understood the issue or
gave a teakettle darn, but within the industry it was and continues to be a
very big deal.
The National Association of Realtors and the American Bankers Association and
other interest groups on both sides of the issue squared off. The real estate
industry has, to date, managed to hold off the bankers. Some type of law or
resolution has passed each year since 2001, usually attached to an appropriations
bill, which has barred the Treasury Department from expending any funds to implement
the proposal to permit banks to engage in real estate activities.
At the same time the Community Choice in Real Estate Act has
become a perennial entry into the House Hopper. The current bill, co-sponsored
by what the NAR describes as a "majority" of house members (we didn't count
them, but there are a load of sponsors) would prohibit national banking conglomerates
from engaging in real estate brokerage or property management. While the bill
has been introduced for several years, it has never made it to the floor for
a vote which seems strange for a bill with such an apparent broad base of support.
But back to Congressmen Frank and Oxley. On May 26 they introduced H.R. 2660.
The bill does little more than refine some definitions about financial activities,
but it could have far-reaching consequences.
HR 2660 seeks to amend the Bank Holding Company Act of 1956
to "clarify that real estate brokerage activities and real estate management
activities are authorized financial activities for financial holding companies
and financial subsidiaries of national banks and for other purposes." It then
goes on to define real estate and property management activities so as to cover
virtually every permutation of those activities.
On June 14, 2005 Frank and Oxley sent a letter to Rep Joe Knollenberg, Chairman
of the subcommittee with oversight of a number of departments and agencies such
as Transportation, Treasury, Housing and Urban Development, asking him to resist
any effort to include riders in the appropriations bills for any of the agencies
for which his committee has oversight which would block "proposed Federal
regulation authorizing financial holding companies and financial subsidiaries
of national banks to engage in real estate brokerage and management activities."
In other words, Frank and Oxley are trying to cut off at the pass any continued
temporary bar to implementation of provisions Gramm Leach. The letter cites
as justification the primacy of their own pending legislation and current actions
on the part of the Department of Justice's Antitrust Division and the
Federal Trade Commission to scrutinize the "anti-competitive practices
of large real estate conglomerates seeking to maintain their artificially high
commission structures by stifling competition for lower cost providers."
The latter refers to some "stuff" going on between the Department
of Justice and state regulators mainly in Texas and Oklahoma, some of which
we have discussed in this space.
The National Association of Realtors in the person of current president Al
Mansell testified before the House Financial Service Committee on June 15, 2005.
Mansell testified that allowing banks to enter the realm of commerce would result
in inevitable conflicts of interests such as a real estate broker being forced
to go to his competitor to obtain financing for a property he has sold, or bank
deposits being endangered if a subsidiary gets into trouble through real estate
activities. Mansell also questioned where it might end; should banks be allowed
to market jewelry, cars, or boats - commodities which it often finances.
Early reports indicate that few members of the House Financial Services Committee
presently support the Franks/Oxley bill and that it may not make it out of committee.
Still, Oxley has not yet received his answers from GAO and these, if they are
unfavorable vis a vis real estate commissions or industry control
of multiple listing accessibility, could tip the balance.