WASHINGTON, D.C. -- Concerns about predatory lending, dual agency, commissions, privacy, mortgage comparison shopping, the Real Estate Settlement Procedure Act (RESPA) and Truth-in-Lending Act (TILA), are all long-time concerns that predate the banks-selling-real estate issue and should be addressed first in Washington, according to Yonkers, NY-based Consumers Union.

"We also call on Congress to hold hearings on the real estate marketplace. In addition to RESPA/TILA and predatory lending, other issues warrant examination. Are consumers being treated fairly by real estate brokers? Are commissions priced fairly?" asked Consumers Union legislative counsel Frank Torres during testimony May 2nd before the U.S. House of Representative's Committee on Financial Services Subcommittee on Financial Institutions and Consumer Credit.

"Perhaps what we should be talking about is a Real estate Consumer Bill of Rights. Simply allowing banks into the marketplace won't be the solution to many of the problems consumers face in the marketplace today," said Torres.

"Consumers already face a tough time in the marketplace when they go to obtain a mortgage. Congress should not allow the regulators to change the rules in a way that could potentially harm consumers and offer no real benefit. Consumers could be harmed if appropriate safeguards are not put into place prior to those changes," he added in eight pages of testimony -- largely a litany of real estate industry ills.

The issue of banks selling real estate has been a heated one since the far-reaching and complicated Gramm-Leach-Bliley Financial Services Modernization Act of 1999 was enacted, primarily to free banks, securities firms, and insurance companies to affiliate and enter each other's businesses.

Drafted late last year by the Federal Reserve Board and the U.S. Treasury Department, a proposed rule would amend and clarify the Gramm-Leach-Bliley to allow banks to act as real estate brokers and property managers.

At stake is a slice of the $915.4 billion-a-year resale home business pie the banking industry would like to sink it's teeth into.

The proposal went into an extended public comment period, which was due to expire May 1. However, the real estate industry is against the rule and wading through its filibuster-like barrage of comments has caused further delays.

Delay is fine with CU, a nonprofit membership organization chartered in 1936 to provide consumers with information, education and counsel about goods, services, health, and personal finance. The organization, which helps to maintain and enhance the quality of life for consumers suggests Congress not rush to judgment on the "Should banks sell real estate?" question.

"We urge Congress to send a clear signal to the regulators that they should not move ahead with the rule making until there has been ample time to conduct additional investigations, including further hearings if necessary, into the questions raised by this proposal. Enough questions exist about the implications of the proposed rule, the mixing of banking and commerce, concerns about safety and soundness, competition in the marketplace, benefits (or lack of benefits) for consumers, concerns about increased loss of privacy, and the need for consumer safeguards -- that additional examination and scrutiny is prudent," Torres testified.

Joining CU at the hearing was Richard A. Mendenhall, National Association of Realtors president; Phillip M. Burns, chairman and CEO of Farmers & Merchants National Bank of West Point, NE representing the American Bankers Association, as well as others on both sides of the issue.

In addition to raising consumers' previous concerns about the real estate market, Torres questioned if Gramm-Leach-Bliley ever intended to include real estate as a banking activity.

"If the proposed rule is adopted it would seem that if a payment is made for a product or service that business would be considered "incidental" to banking and banks would be permitted to engage in that business. It would be hard to imagine any business activity that would not be fair game for the banks," Torres said.

Torres also testified that the consumer benefit of banks selling real estate would be questionable.

• Banks already provide a significant level of financial services related to the home buying process, including the exploding subprime market. The number of subprime mortgages originated by banks skyrocketed by 551 percent between 1993 and 1998.

• So-called "one-stop-shopping" claim is often little more than hype. Too often, promises of better quality at a lower cost for consumers don't materialize for most consumers. To the contrary, consumers face substantial burdens dealing with lenders who are already in the real estate marketplace.

• The proposed rule could erode consumers' ability to shop around because they could feel obligatged to sign loans offered by their agent-lender and they could feel as though their options are limited. There will be no incentive for the agent-lender to offer products from other lenders even though those loans may be better suited for the borrower.

• Banks have yet to provide concrete evidence that consumers will benefit through lower costs or better products. Enacted provisions in Gramm-Leach-Bliley have yet to yield financial industry promises of lower costs. ATM fees have increased substantially, credit cards are laden with more costs than ever and more products, like questionable credit life insurance, are being pushed with mortgages.

"Many consumer advocates are concerned that consumers in the subprime market may qualify for better priced loans. Those consumers are often never referred up the credit ladder, even if it is to an affiliate of the lender," Torres testified.

For more articles by Broderick Perkins, please press here.

Published: May 3, 2001

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.