If the nation’s largest banks become the nation’s largest real estate brokers, homebuyers will be much more likely to take out high risk interest-only loans, leaders of the National Association of Realtors testified last month at Congressional hearings.
“All the firewalls in the world won’t cool off the zeal of the money-center lenders trying to sell their most profitable loans to people who should not be taking such risks. If lenders were to become real estate brokers, nothing will stand in their way,” NAR President Al Mansell, CEO of Coldwell Banker Residential Brokerage in Salt Lake City, told the House Financial Services Committee.
Federal Reserve Chairman Alan Greenspan has expressed concern that the growing use of riskier new mortgages is helping push up home prices to “unsustainable levels” in some local markets. He stated, “The dramatic increases in the prevalence of interest-only loans, as well as the introduction of other relatively exotic forms of adjustable-rate mortgages, are developments of particular concern.”
Nearly a fourth of mortgage loans made this year nationally have been interest-only, according to LoanPerformance, which tracks loan originations. In the Washington area, more than a third of homebuyers are using interest-only loans, up from about 2 percent just five years ago.
Banking conglomerates have requested permission from the Federal Reserve Board and the Treasury Department to sell and manage real estate under the 1999 Gramm-Leach-Bliley Act.
For the past three years, Congress has denied financial holding companies and subsidiaries of national banks from taking over local real estate companies by denying yearly funds to finalize the proposed rule.
“Forcing independent real estate brokers to compete against the federally chartered megabanks would be like asking a cruise ship to compete against the U.S. Navy,” Mansell said. “Not only are their core competencies completely different, but also banks enjoy tremendous government-backed advantages that real estate brokers, even those with mortgage companies, do not.
“As megabanks seek to quench their thirst for ever-increasing powers, what will be next? There will be no winners if we allow banks to scale the wall to commercial activities. We’re on the edge of a very slippery slope that could lead to bank sales of automobiles, boats, jewelry and appliances. The conflicts of interest inherent in these transactions would be terrible for consumers.”
For the fourth year in a row, a majority of the U.S. House of Representatives has cosponsored legislation that would permanently prohibit big banking conglomerates from entering real estate brokerage or property management.
A total of 238 members of the House and 25 U.S. Senators have signed onto the Community Choice in Real Estate Act, H.R. 111/S. 98, since the legislation was reintroduced at the start of the 109th Congress by Reps. Ken Calvert (R-Calif.) and Paul E. Kanjorski (D-Penn.) and Sens. Wayne Allard (R-Colo.), Hillary Rodham Clinton (D-N.Y.) and Senate Banking Committee Chairman Richard Shelby (R-Ala.).
NAR recently launched a new consumer education campaign to help consumers, particularly those with credit problems, avoid the pitfalls of “toxic” loans and abusive lending practices. Realtors are working with existing programs and community groups to help consumers obtain information about financial literacy and how to avoid predatory lending.
“Realtors are the first stop for consumers in the real estate transaction. NAR has taken a strong stance against the practice of trapping consumers into toxic loans that benefit the lender, not the consumer,” Mansell said.