Bankers want to become real estate brokers; Realtors say 'no way'
By Holden Lewis • Bankrate.com

Big banks want to become real estate brokers so you can seal a deal with an agent, then cross the hallway to apply for a mortgage.

So banks have asked federal regulators to let them get into the real estate brokerage business. Right now, federal rules forbid them to.

The issue pits two titanic lobbying forces in Washington: banks vs. Realtors. Both combatants claim to fight for consumers.

Banks contend that house-buyers want a one-stop shopping experience in which they can visit a real estate agent and a mortgage lender in the same office. They say houses and mortgages would become more affordable if banks were allowed to own real estate brokerages.

Balderdash, says the National Association of Realtors: The banks, according to Realtors, simply want to diversify so they won't lose as much money in economic downturns. And they say that consumers would end up paying more for mortgages if banks owned real estate agencies.

In this dispute, the same banks that routinely charge $2 ATM fees say that they are battling to reduce house-buying costs. And the same Realtors who argue that national banks shouldn't own real estate brokerages say that it's OK for giant mortgage lenders to own them.

Whatever happens, the advice remains: Always shop around for a mortgage. Don't assume that a mortgage lender will give you the best deal just because it shares ownership with a real estate brokerage.

Feeding frenzy
It started with the 1999 restructuring of banking law called the Gramm-Leach-Bliley Act. Among other things, the law tore down legal walls that separated banking from insurance from securities brokerages. The new law allowed these types of companies to share common ownership, and banks began buying up brokerages and insurance companies.

Big banks fattened up on securities brokerages and, to a lesser extent, insurance companies. When the first feeding frenzy ended, the biggest banks began sniffing the air for more game. In December 2000 they persuaded regulators to allow banks to collect finder's fees to bring buyers and sellers together (buyers and sellers of businesses, mostly).

The next logical step was to get permission to operate real estate brokerages. After all, isn't a real estate broker someone who collects a finder's fee for bringing a buyer and seller together?

The banks pushing this proposal count among the biggest and most powerful, including J.P. Morgan Chase, Citigroup, Fleet Boston, Bank One, First Union and Wells Fargo. The American Bankers Association and Financial Services Roundtable back the rule change, too. The Federal Reserve and Treasury Department will decide whether to change the rule after a public comment period ends in March.

Jim McLaughlin, director of regulatory affairs for the American Bankers Association, points out that banks already provide mortgages, title insurance and property insurance, and they service loans. Banks take part in every part of the house-buying process except the real estate brokerage, and it's high time that they get to compete in that business, too, McLaughlin says.

Cross selling
Realtors say banks are just looking out for themselves, and don't have consumers' best interests in mind.

"We're very concerned about higher costs for consumers, and we're concerned about a potential conflict of interest when the broker and lender are essentially the same company," says Steve Cook of the National Association of Realtors. "At stake here is who will be at the center of the transaction: an independent broker who succeeds or fails by how well he serves the consumer, or a broker that has mixed loyalties."

Cook worries that bankers would regard their real estate brokerages as just another way to cross-sell; that house buyers would be sold only the bank's mortgage products, even when other lenders' products would be more appropriate.

The banking industry contends that regulations would prohibit banks from treating customers so cavalierly, and that competition would strengthen the real estate brokerage industry.

Follow the leader
The banks argue that they just want to do what other corporate giants do. They point out that Cendant Corp. owns Century 21, Coldwell Banker and ERA -- the McDonald's, Burger King and Wendy's of the real estate brokerage world -- as well as Cendant Mortgage, the sixth- or seventh-biggest mortgage originator in the country.

And the banks point out that General Motors owns GMAC Real Estate, which has 1,400 real estate brokerage offices nationwide, and GMAC Mortgage, which boasts that it's the country's "sixth largest residential mortgage servicer."

Integrated real estate firms such as Cendant and GMAC "get the first shot at the customer," says McLaughlin of the banker's association. "They get to provide all the other services as well."

So, he asks, why isn't it all right for banks to do so, too?

Cook says it's a question of competition: "We're talking about Chase and Wells Fargo entering this on a national level and devoting considerable resources to this business," he says. "We see them doing it by acquisition. If it were a level playing field, where we were competing with companies that don't have a federal charter, we would have no problem with that."

Asked if there's a difference between what Cendant does and what banks want to do, McLaughlin snorts. "Of course not," he says.

At least three states -- Iowa, Kentucky and New Jersey -- allow state-chartered banks to own real estate brokerages. "That's not a concern of ours because these are smaller institutions and they work on a different level," Cook says.

Anti ties
Even if the Federal Reserve and Treasury Department decide to change the rule and allow national banks to own brokerages, they will restrict the kinds of deals they can offer. Regulations called anti-tying rules would prohibit banks from refusing to extend credit just because the buyer or seller uses a real estate agent working for another company.

The same rules would require a national bank to give you a mortgage "on market terms" -- meaning that the bank couldn't cut you an extra-sweet deal in exchange for using its real estate brokerage.

There are 770,000 Realtors in the United States, Cook says, "and I don't think there are that many banks. I doubt it's harder to find a Realtor than to find a bank to provide these services. I doubt that it's a crying need."

Actually, there is such a need, especially in rural areas where real estate brokers are few and far between, McLaughlin says: "We have heard from community bankers over the years that they would like to be able to serve as real estate brokers because there are no brokers there," he says. "And who best knows those areas than the local banker?"