Posted by Jonathan J. Miller -Tuesday, February 28, 2006, 10:45 AM
I wonder if the NAR, in some respects is regretting the housing boom. With all the income the industry has generated, it has also generated attention that probably isn’t beneficial to the trade group in the long run. Commissions, multiple listing service data, statistical methodology, believability as a resource, etc.
In the article NAR: Pittsburgh Condo Deal Puts Banks into Residential Real Estate [RISMedia] the National Association of Realtors contends that banks are getting into real estate despite regulations that prohibit this activity.
In a letter delivered last week to the chief counsel of the Office of the Comptroller of the Currency, the president of the National Association of Realtors responded to the recent defense by the OCC of its approvals permitting national banks to engage in new real estate and commercial activities.
They are also fighting Wal-Mart Bank’s application Because It Mixes Banking and Commerce [NAR]. [They] will actively oppose the application for federal deposit insurance by Wal-Mart Bank, a proposed Industrial Loan Company (ILC) headquartered in Salt Lake City, and requested the opportunity to testify at upcoming hearings. The Federal Deposit Insurance Corp. has scheduled public hearings in April in the Washington, D.C., area, and the Kansas City, Mo., metro area on Wal-Mart Bankâ€™s application.
Since 2000, Realtors have opposed a pending regulation by the Federal Reserve and Treasury that would allow national banks to broker real estate and perform property management. Since 2002, Congress has blocked the regulation. It seems to be a matter of time before banks will have this option since every year this debate comes before Congress.
The NAR contends that by banks entering the real estate business, the safety and soundness of the banking system is at risk since it is a speculative investment. The idea posed is the the concentration of assets would be higher making the failure of one bank more critical to the financial system. NAR contends that the top 5 banks hold 45% of industry assets [Mortgage News Daily] and has a series of arguements why banks are a higher risk.
_Number of firms:_
Real estate – 98,000 to over 200,000 (depending on who is counting)
Banks – 8,000 to 10,000.
_Barriers to Entry:_
Real estate – usually less than $1,000 and a few weeks of studying time to obtain a license and enter the field;
Banking – large capital requirement.
_Taxpayer Risk and Historic Experience of Government Bailout:_
Real estate – none;
Banking – yes (historic evidence, S&L failures and RTC bailout.)
_Influence of Foreign Governments:_
Real estate – no;
Banking – large multinational corporations are subject to foreign government regulation.
_Consumer Data on Buying Habits and Possibility of Price Discrimination:_
Real estate – none;
Banking, -vast, often based on data mining of credit card purchase information.
_Cooperation with Competitors in the Sale of Products:_
Real Estate – yes, through MLS;
Banking – no.
_Degree of Regulation:_
Real Estate – minimal;
Banking – heavy.
_Social Promotion of Entrepreneurship, Women and Minorities, and Small Business:_
Real Estate – yes in every category;
Banking – yes in every category bus assessment is limited to owners of community banks.
Here’s a blog post on this issue from a banking perspective: ALERT: NARâ€™s New Threat from Mega-Banks – There they go again? There who goes again? [Inman] All I read into this most recent industry warning by the NAR is the voice of a threatened professional association that insists upon denying the consumer the choice of any other ownership structure for real estate brokerage other than the status quo â€“ Realtor-centric. Drill down and you will find a true fear that if banks were to be in the real estate brokerage business about the last professional association they would insist their operators belong to would be the NAR.
This is all very interesting and well-laid out on both sides except:
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NAR says that banks are not a good idea because they place a higher risk on the banking system by being more speculative.
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Banks (more than just the included post on Inman) say that NAR has a monopoly on home sales and keeping banks out of the process only extends broker control further.
Confused? Be glad you are not a regulator. Its tough to see through the spin. At the end of all this, I think the banking lobby will win out over the broker lobby. They seem to have the OCC and momentum on their side.