Frequently Asked Questions: Banking Conglomerates Permanently Barred from Real Estate Activities by the FY 2009 Omnibus Appropriations Act
Q1. How did NAR finally succeed?
NAR worked hard to block the proposed rule ever since it was published in January 2001 by convincing Congress that the rule was inconsistent with banking law, bad for consumers, and bad for banking.
Q2. Why did NAR oppose National Banks entering the real estate brokerage and property management
If banks had been allowed to engage in real estate brokerage, it would have created anti-competitive and anti-consumer concentrations of power within the financial services sector, which would ultimately increase costs for homebuyers. Banking conglomerates with direct and indirect federal subsidies would:
(1) have been able to compete unfairly with real estate firms and their affiliates because they have access to cheap sources of capital (thanks to federal deposit insurance and loans from the Federal Home Loan Bank System) and
(2) have cross-subsidized their commercial operations.
Permitting banks to engage in commerce also would have compromised bank lending decisions and created conflicts of interest while restricting consumer choice and competition among mortgage lenders.
Q3. Do we still have to pass the “Community Choice in Real Estate Act” to keep banks out of real estate?
No. The provision in the FY 2009 Omnibus Appropriations Act is permanent. Congress can accomplish the same result in various ways, and it would be redundant to enact the “Community Choice in Real Estate Act.”
Q4. How long has NAR been fighting this battle?
Since 2001. The proposed Federal Reserve Board-Treasury Department rule was published for comment in January 2001 and NAR has worked to prevent its implementation ever since.
Q5. Is this victory really that important?
Yes. See the answer to Q2. The current financial crisis illustrates why it is so important to keep banks focused on banking and other financial activities. The last thing the economy needs is to allow banks to branch into commercial activities where they lack expertise.
Q6. Does this mean banks can NEVER get involved in Real Estate Brokerage?
Congress could, of course, change the law, but the new law prevents the Federal Reserve Board and the Treasury Department from allowing banking conglomerates from engaging in real estate brokerage and management activities, subject to several existing exceptions. Having settled this issue, Congress is extremely unlikely to reverse its decision.
National banks can engage in real estate brokerage and management activities with respect to properties they own (notably, properties acquired through foreclosure) and properties in trust that they administer for the beneficiaries.
Q7. Banks already own brokerages in my state will they have to sell them?
No. National bank conglomerates have not been permitted to own real estate brokerages. However, some states allow their state-charted banks to engage in real estate activities to varying degrees. NAR has not sought federal preemption of this state authority.
Q8. Does this mean credit unions have to stop doing real estate?
No. Under existing statute and regulation, credit unions may continue to engage in real estate brokerage activities, to a limited extent, through entities called credit union service organizations, or CUSOs. No such statutory authority exists for national banks, which is one reason NAR fought the proposed regulation.
A CUSO is defined in the credit union statute as “…any organization as determined by the National Credit Union Administration, which is established primarily to serve the needs of its member credit unions, and whose business relates to the daily operations of the credit unions they serve.” See 12 U.S.C. 1757(5)(D). Note that activities of CUSOs are not limited to financial activities. A CUSO must be at least 51% owned by one or more credit unions and must primarily (51%) serve credit union members. It may invest no more than 1% of its assets in CUSOs.
Q9. So now that real estate is a commercial activity can we finally stop worrying about banks?
NAR will never stop worrying about banks. Banks play an essential role in making the American economy work, including their role in providing mortgages to homebuyers. When banks have problems, the whole economy suffers. NAR will continue to support a healthy banking system that responsibly responds to the nation’s mortgage and other credit needs.
Q10. Will NAR be working closer with Banks to address foreclosures and short sales now that the Banks in Real Estate fight is over?
NAR has already been working with the Mortgage Bankers Association, the HOPE NOW Alliance, Fannie Mae, Freddie Mac, banks, and servicers to warn them that the short sales process is broken. We have many initiatives under way, but banks are spread very thin and staffing and training challenges remain serious. NAR is facilitating an MLS-Fannie Mae information sharing pilot to speed short sales decisions, promoting draft uniform short sales forms developed by the California Association of REALTORS®, making educational resources available for REALTORS®, and taking other steps to improve short sales.
For more information check out NAR’s new Foreclosure Prevention and Response Program at www.realtors.org/foreclosure.