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PROTECTING CONSUMERS AND PROMOTING

COMPETITION IN REAL ESTATE SERVICES

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JUNE 15, 2005

Printed for the use of the Committee on Financial Services

Serial No. 109–37

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

ROBERT U. FOSTER, III, Staff Director 

(III)

C O N T E N T S 

Page 

Hearing held on: 

June 15, 2005 .................................................................................................... 1

Appendix: 

June 15, 2005 .................................................................................................... 53

WITNESSES 

WEDNESDAY, JUNE 15, 2005

Bliley, Hon. Thomas J., former Chairman, Committee on Commerce, U.S. 

House of Representatives .................................................................................... 11

Gramm, Hon. Phil, former Chairman, Committee on Banking, Finance, and 

Urban Affairs, U.S. Senate, delivered by Hon. Jeb Hensarling ....................... 5

Leach, Hon. James A., former Chairman, Committee on Banking and Financial Services, U.S. House of Representatives ..................................................... 8

Duke, Elizabeth A., Chairman, American Bankers Association .......................... 15

Eastment, George T. III, President, Long and Foster Financial Services on 

behalf of the Real Estate Services Providers Council, Inc. ............................... 19

Mansell, Al, President, National Association of Realtors ..................................... 17

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 54

Baker, Hon. Richard H. ................................................................................... 57

Bliley, Hon. Thomas J. ..................................................................................... 65

Gramm, Hon. Phil ............................................................................................ 106

Kanjorski, Hon. Paul E. ................................................................................... 60

Leach, Hon. James A. ....................................................................................... 61

Duke, Elizabeth A. ........................................................................................... 71

Eastment, George T. III, .................................................................................. 95

Mansell, Al ........................................................................................................ 112

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Oxley, Hon. Michael G.: 

Covington & Burling memo to American Bankers Association .................... 126

Kanjorski, Hon. Paul E.: 

Real estate market share chart ....................................................................... 140

American Bankers Association: 

Written responses to questions from Hon. Ginny Brown-Waite ................... 143

Written responses to questions from Hon. Stevan Pearce ............................ 151

National Association of Realtors: 

Written responses to questions from Hon. Stevan Pearce ............................ 147

(1)

PROTECTING CONSUMERS AND PROMOTING 

COMPETITION IN REAL ESTATE SERVICES 

Wednesday, June 15, 2005

HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10:04 a.m., in Room 

2128, Rayburn House Office Building, Hon. Michael Oxley [chairman of the committee] presiding. 

Present: Representatives Oxley, Leach, Baker, Pryce, Bachus, 

Castle, Lucas, Gillmor, Ryun, Biggert, Miller of California, Tiberi, 

Kennedy, Feeney, Hensarling, Brown-Waite, Renzi, Pearce, 

Neugebauer, Davis of Kentucky, McHenry, Frank, Kanjorski, Waters, Maloney, Gutierrez, Velazquez, Watt, Hooley, Sherman, 

Meeks, Lee, Moore of Kansas, Hinojosa, Crowley, Clay, Israel, 

Baca, Matheson, Lynch, Miller of North Carolina, Scott, Davis of 

Alabama, Green, Cleaver, Bean, Wasserman Schultz, and Moore of 

Wisconsin. 

The CHAIRMAN. Good morning. The committee will come to order. 

We have the honor of receiving testimony from the authors of one 

of the most significant pieces of financial legislation ever enacted 

by any Congress, the Gramm-Leach-Bliley Act, which repealed 

anti-competitive restrictions on our financial services industry that 

had been in statute since the Great Depression. 

These gentlemen have agreed to come before the committee this 

morning to explain the intent of this act and to highlight the reasons particular provisions were drafted in the manner that they 

were. Unfortunately, Chairman Gramm was unable to join us as he 

is tending to matters in Europe. In his place, however, I would like 

to thank our good friend and colleague, Representative Hensarling, 

a member of Chairman Gramm’s staff in a former life, for agreeing 

to deliver Chairman Gramm’s comments for the record. 

The Gramm-Leach-Bliley Act permitted financial holding companies to engage in activities that are financial in nature or incidental or complementary to the offering of financial services. The 

effect of this landmark legislation was that banking, insurance and 

security services could for the very first time be offered by a single 

entity. This act modernized our financial industry and did away 

with artificial barriers to competition in these markets. 

In their wisdom, the authors understood that the financial marketplace was an evolving one and that if this legislation was to 

stand the test of time it would have to be periodically updated. 

This flexibility was built into the act through a provision that permitted the Treasury Department and the Federal Reserve Board to 

2

determine, through the rulemaking process, that other activities 

are financial in nature or incidental to such activities. 

In 2001, the Federal Reserve Board and the Treasury Department exercised their authority under Gramm-Leach-Bliley by 

issuing a proposed regulation defining real estate brokerage and 

management services as financial in nature. The agencies have 

never been able to finalize their rule, however, because provisions 

have been inserted in every appropriations bill since 2001 at the 

behest of the National Association of Realtors prohibiting the 

Treasury Department from expending any funds to implement that 

regulation. I, along with the Ranking Member of the committee, 

have consistently objected to legislating on appropriations bills in 

this manner. 

To that end, the Ranking Member, Mr. Frank, and I have introduced legislation, H.R. 2660, which would amend the Bank Holding 

Company Act to state that real estate brokerage and management 

services are financial in nature. I regret that it has come to this, 

but this committee cannot sit idly by while the appropriators run 

roughshod over our jurisdiction and single-handedly frustrate the 

objective of financial modernization that the distinguished members of our first panel worked so long and hard to achieve. 

We will hear the arguments today that the offering of real estate 

brokerage and management services was specifically excluded 

under Gramm-Leach-Bliley because these services are commercial, 

not financial, in nature. The fact is that there is nothing in the act 

or in the legislative history of the act which speaks to the issue of 

real estate brokerage or management. On the contrary, while the 

act specifically prohibits bank subsidiaries from engaging in real 

estate development and investment, it is utterly silent on the separate issues of real estate brokerage and management. 

Moreover, particularly with housing prices at record levels, the 

purchase of residential real estate is for most Americans the most 

significant financial transaction that they will ever undertake. It is 

a transaction that often involves highly sophisticated financial instruments to finance it, and the vast majority of Americans’ net 

worth resides in the value of their homes. 

Additionally, credit unions, thrift institutions and State-chartered banks in over one-half of the States have long been permitted 

to offer real estate brokerage services. Excluding one class of depository institutions—national banks—from being able to compete on 

that same playing field is inconsistent with the goals of the 

Gramm-Leach-Bliley Act and with the fundamental principles that 

should govern free market economies. 

Indeed, free market competition is the hallmark of growth and 

innovation in our country. Man-made barriers to entry into markets result in monopolies that set the terms of the market and dictate the price. That is what we have today with regard to real estate. The consumer will benefit if free market principles are applied to real estate brokerage and management. Lower prices, improved services and greater access to affordable housing will be the 

result. 

Regardless of whether banks are eventually permitted to provide 

real estate brokerage, Congress needs a better understanding of 

whether the current rules for residential real estate brokerage are 

3

in the best interests of consumers. Few people understand how the 

NAR functions as a self-regulating organization. If its rules promote competition and consumers, why is the Justice Department 

suing the NAR over its rules blocking Internet brokers from displaying homes for sale on their Web sites? How are these rules consistent with a broker’s fiduciary duty to the home seller? 

Furthermore, what is the relationship between the NAR and 

State realtor associations? Could it possibly be in the interest of 

consumers for State realtor associations to ask State legislators 

and realty commissions to adopt requirements preventing realtors 

from rebating part of their fees to consumers or preventing consumers from choosing low-cost discount brokers? The Justice Department is suing the Kentucky Real Estate Commission over just 

such rules. 

On March 15th, Ranking Member Frank and I wrote to the Government Accountability Office asking it to survey the state of price 

competition in the market for real estate brokerage services. This 

follows my GAO request last November on whether there are barriers to electronic commerce in real estate. We need to look broadly 

at consumer protections for home buyers and sellers and this committee will continue to do so. 

Let’s forget about fighting among the various lobbyists and remember what is really important, and that is how we can get home 

buyers the best real estate services at the lowest possible prices. 

Competition is always the answer to that basic question. Choice is 

always the answer to that basic question. There is not enough competition in these real estate markets and that is what we seek to 

remedy. 

I look forward to hearing from the witnesses regarding the intent 

of Gramm-Leach-Bliley and the impact the increased competition 

could have on the marketplace and on consumers. 

I now recognize the gentleman from Massachusetts, Mr. Frank. 

Mr. FRANK. Thank you, Mr. Chairman. 

This is an institution where precedent counts for something. I 

trust you have set on in the fact that our colleague Mr. Hensarling 

is here to represent former Senator Gramm. Then-Congressman 

Gramm came to this institution about the same time that you and 

I did, 25 or more years ago. I like this precedent of our being able 

to designate a significantly younger surrogate and I trust it will be 

from time to time extended on a broader basis for those of us from 

that generation. 

I am in a situation in this hearing which I have read about, but 

not had previous experience. To some extent, I think some of us 

feel like children in a custody dispute, being asked to choose between mother and father. I value the contributions that realtors individually and the National Association of Realtors and the Massachusetts realtors have made in public policy. They have been, in 

my judgment, effective advocates for housing policies. 

When we did the question of credit a couple of years ago, the realtors were in my recollection among the most effective advocates 

of the consumer position. They understood the unfairness of arbitrary credit rulings which would have kept consumers from being 

able to buy housing. So I value that relationship. 

4

In my particular case, sponsoring this bill is not any indication 

of dissatisfaction with or unhappiness with realtors and the service 

they perform, but one very specific disagreement. I have generally 

taken the position that competition is a good thing. Unlike a lot of 

my colleagues early in the 1980’s, I was an advocate of repealing 

Glass-Steagall. It seemed to me it had been undermined substantially by technology, but I also think that the notion of competition 

is a good one. 

One of the metaphors we hear frequently discussed in America 

is that of the level playing field. We have a very interesting economic and physical phenomenon that is, as I listen to various businesses, every business, every single business in the financial services field, every single one of them is at a disadvantage to its competitors. We have what we would call in economics a constantly 

downwardly sloping playing field. I have never met a business that 

received any advantage in the law, only disadvantages. How that 

is possible, I do not entirely comprehend, but simply empirically I 

must report to you that that is what we are told. 

I have generally tried to promote competition. Now, I understand 

the concern and we have heard it from the realtors; we have heard 

it even more vigorously when we were dealing with this legislation 

from people in the securities industry, namely that the ability of 

the banks to make loans would give them leverage and they could 

tie that to other transactions and therefore get people to do business with them in other areas because of the fear that they would 

not get loans. I think it was incumbent upon us to look very closely 

at that. 

I have to say that the evidence I have seen so far does not show 

such a pattern. It is a legitimate concern, but it is certainly not allowed under the law and there are restrictions on it. In my own 

State of Massachusetts, banks have been allowed to do real estate 

brokerage. It is not my understanding that they have widely taken 

advantage of that. But I do want to make clear, to me this is a difference between two groups of very constructive participants in our 

financial system, both of whose work I value, both of whom make 

important contributions, both in particular to the consumers they 

serve and to the economy in general. In this particular case, I do 

think we are served better by competition with the constant need 

to impose restrictions against illegal tying. 

So with that, I am ready. I will apologize in advance. There is 

a constituent of mine who has been very unjustly imprisoned in the 

Peoples Republic of China. At 11:15, the new Ambassador from 

China will be in my office to discuss that. Having secured the appointment, I was not in a position to change it around, so I will 

be absenting myself. But I do want to again reiterate that for me 

this is a specific disagreement, particularly with regard to the realtors, with an organization and a structure that I think plays a very 

constructive role. It is in that context that I hope this goes forward. 

The CHAIRMAN. The gentleman’s time has expired. 

The Chair would indicate all members’ opening statements will 

be made part of the record. 

We would like to now turn to our distinguished panel. 

Without objection, the first panel will be excused after giving 

their statements so we can get to the second panel. 

5

Our first witness is the gentleman from Texas, Mr. Hensarling, 

testifying on behalf of Senator Gramm. 

STATEMENT OF HON. PHIL GRAMM, A FORMER SENATOR IN 

CONGRESS FROM THE STATE OF TEXAS, FORMER CHAIRMAN, COMMITTEE ON BANKING, FINANCE, AND URBAN AFFAIRS, U.S. SENATE, DELIVERED BY HON. JEB HENSARLING 

Mr. HENSARLING. Thank you, Mr. Chairman. 

Let me also thank you and my dear friend and mentor, Senator 

Phil Gramm, for asking me to read his testimony into the record. 

If I can make two observations, the testimony of Senator Gramm 

does not necessarily reflect that of his current employer and does 

not necessarily reflect my own views. Secondly, although the testimony is most insightful, it is not necessarily brief, Mr. Chairman. 

With that, I shall begin. 

Chairman Oxley, Ranking Member Frank and members of the 

committee, thank you very much for the invitation to testify before 

your committee today. 

Before continuing, Mr. Chairman, let me commend you and your 

colleagues for the leadership you exhibit on various issues within 

this committee’s jurisdiction. The past several years have been 

marked by events affecting the delivery of financial services to consumer investors, financial accounting and transparency, and the review of numerous issues arising from the implementation of the 

Sarbanes-Oxley Act. 

Under your leadership, this committee has exercised the highest 

standard of congressional oversight. So while the distance between 

our offices is now more than just across the Capitol Plaza, I remain 

keenly interested in your work and commend you for your diligence 

in protecting the public interest. The hearing you hold today is yet 

another example of this committee’s untiring efforts to address significant public policy issues. 

The subject of today’s hearing focuses on some of the most important provisions of the Gramm-Leach-Bliley Act, known as ‘‘the act,’’ 

clearly provisions serving as one of the pillars of financial reform, 

as my esteemed former colleagues, Chairmen Leach and Bliley will 

I think agree. Without the expansion of permissible financial activities, the removal of barriers to affiliation under the act is rendered 

meaningless. These provisions were topics of thorough debate and 

consideration and numerous meetings at which Chairmen Leach, 

Bliley and I were participants in 1999. 

I also must acknowledge the contributions of then-Ranking Member LaFalce. I am confident that Jim and Tom will agree with me 

that the final agreement of the conferees reached in this very room 

in late-October, 1999 evokes poignant, if not fond, memories. The 

agreement was announced by Chairman Leach and agreed to by all 

conferees, followed by a swift gavel signifying the conclusion of our 

proceedings at about 3 a.m. Upon reflection, I am inclined to believe that Chairman Leach quickly gaveled the conclusion of that 

meeting, not because of the lateness of the hour, but before anyone 

could have a change of heart. 

As a preliminary matter, let me be clear that my testimony solely reflects my personal views and not necessarily those of my current employer or fellow employees. 

6

Under the act, the Federal Reserve Board was granted umbrella 

regulatory powers over financial holding companies. The expended 

powers under the act may be engaged in by qualifying FHCs and 

by financial subsidiaries of national banks. The act reflects the wisdom of the Congress that none of us serving at the time could see 

into the future or judge what the full scope of financial activities 

would or should encompass. Rather, the act amended the Bank 

Holding Company Act and the revised statutes to create a process 

by which the list of financial activities could and would be expanded. 

I recall that in testimony before the Senate Banking Committee 

and before the then-House Banking Committee, Federal Reserve 

Board Chairman Alan Greenspan observed that the landscape of financial activities would change dramatically over the ensuing 5 to 

10 years. We are now 6 years into that forecast. I believe that 

Chairman Greenspan’s observation is accurate. I remain convinced 

that the Bank Holding Company Act and the revised statutes, both 

as amended by the Gramm-Leach-Bliley Act, create the proper 

framework for the determination of financial activities. 

Specifically, the act created new subsections K through O of section four of the Bank Holding Company Act addressing generally 

the following: financial activities; coordination between the Federal 

Reserve Board and the Secretary of Treasury; conditions for engaging in financial activities; conditions applicable for failure to meet 

certain requirements; and the retention of limited non-financial activities and affiliations. 

While new subsection 4(k)(4) enumerates activities determined to 

be financial in nature, section 4(k)(2) establishes a process of coordination and cooperation between the Federal Reserve Board and 

the Secretary of Treasury, allowing them to determine jointly that 

an activity is financial in nature or incidental to a financial activity 

and therefore permissible for FHCs. Neither agency may determine 

that an activity is financial in nature or incidental to a financial 

activity if the other agency indicates in writing that an activity is 

not financial in nature, not incidental to a financial activity, or not 

otherwise permissible. 

Section 121 of the act creates a parallel provision for the Secretary of Treasury to determine new financial activities or activities incidental to such activities for financial subsidiaries of national banks. Section 4(k)(3) requires the Federal Reserve Board to 

take into consideration certain factors in determining whether an 

activity is financial in nature or incidental to a financial activity. 

Generally, the four factors specified in the law require the Federal Reserve Board to take into account the purposes of the Bank 

Holding Company Act and the act; changes or reasonably expected 

changes in the marketplace in which FHCs compete; changes or 

reasonably expected changes in the technology for delivering financial services; and whether the activity is necessary or appropriate 

to allow an FHC and its affiliates to compete effectively with any 

company seeking to provide financial services in the United States; 

efficiently deliver information and services that are financial in nature through the use of technological means; and offer customers 

available or emerging technological means for using financial services or for the document imaging of data. 

7

The act, at section 121, addresses the establishment of financial 

subsidiaries of national banks and establishes the same factors for 

consideration by the Secretary of Treasury for determining whether 

certain activities are financial in nature or incidental to such activities, and therefore permissible for the financial subsidiaries of 

national banks. Pursuant to section 4(k)(2) and section 5136(a), 

third parties are permitted to request that the Federal Reserve 

Board or the Secretary of Treasury determine that any activity is 

financial in nature or incidental to a financial activity. 

Acting under these provisions in December 2000, the agencies received a request for a determination that real estate brokerage and 

real estate management are financial activities. The agencies came 

to agreement that such activities are financial in nature. On January 3, 2001, they issued a joint proposed rule seeking public comment. Under the joint proposed rule, real estate brokerage is defined to mean acting as agent in a real estate transaction; listing 

and advertising real estate; providing advice in connection with a 

real estate purchase, sale, exchange, lease or rental; bringing parties together and negotiating on behalf of such parties. 

FHCs and financial subsidiaries would not be permitted to invest 

in or develop real estate as principal, or take any financial interest 

in real estate that they broker. Under the joint proposed rule, real 

estate management generally is defined to mean procuring tenants, 

negotiating leases, maintaining security deposits, billing and collecting rent payments, and inspecting and maintaining real estate. 

FHCs and financial subsidiaries would not be permitted to acquire 

a financial interest in real estate managed or directly repair or 

maintain real estate managed. 

Nothing in the act expressly or impliedly deems real estate brokerage or management activities to be impermissible for determination as financial activities. The only real estate-related activities expressly mentioned are those at section 121 of the act. In that 

section, financial subsidiaries of national banks are prohibited from 

engaging in ‘‘real estate development or real estate investment activities unless otherwise expressly authorized by law.’’ Section 121 

was the product of careful negotiation over a substantial period 

prior to its acceptance at a meeting of the conferees held in the 

Capitol in the fall of 1999. 

Thus, it appears that the agencies properly exercised their authority under the Bank Holding Company Act and the revised statutes to determine that real estate brokerage and real estate management are financial activities and to solicit public comments on 

the contours of their proposed regulation. It is my understanding 

that the process has not been completed since it was initiated in 

2001. 

It took Congress approximately 9 months to complete its work on 

the Gramm-Leach-Bliley Act, working with the Federal financial 

regulators, representatives of public interest groups, industry and 

certain State regulatory authorities. This, however, followed some 

6 decades of debate on the need for reforms to update our banking 

laws. The method established under the act for determining financial activities and activities incidental to financial activities was 

one arrived at after lengthy negotiations. In order for our financial 

industry to remain competitive domestically and globally, our statVerDate 0ct 09 2002 15:28 Aug 29, 2006 Jkt 029455 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 F:\DOCS\29455.TXT HFIN PsN: TERRIE
8

utory and regulatory regimes must be able to respond to changing 

market dynamics and to do so quickly and effectively. 

When we decided in 1999 upon the method for determining new 

financial activities going forward, we agreed to do so on the basis 

that it was imprudent to create a static, fixed definition in the law 

for permissible financial activities. Instead, we provided flexibility 

for the Federal Reserve Board and the Treasury to initiate their 

own proposals or to consider proposals from third parties for new 

financial activities. 

It is my hope that we can rely upon this framework and that it 

can be a sound and fair basis upon which our financial institutions 

evolve. The rulemaking process contains procedural safeguards, 

transparency and the opportunity for public comment. Hopefully, 

section 4(k) of the Bank Holding Company Act and section 5136(a) 

of the revised statutes will not become empty provisions of the law, 

but will be utilized to serve the interests of a competitive industry, 

the consumers of financial products and services, and the safety 

and soundness considerations of our financial regulators. 

Thank you again, Mr. Chairman, Ranking Member Frank and 

members of this committee, for the courtesy of your invitation and 

for your interest in my views. 

Mr. Chairman, that completes Senator Gramm’s testimony. 

[The prepared statement of Mr. Gramm can be found on page 

106 of the appendix.] 

The CHAIRMAN. Thank you. And I thank Chairman Gramm for 

his excellent testimony and your presentation of same. 

We now turn to the middle of the Gramm-Leach-Bliley provision, 

our good friend and the former chairman of this committee, Congressman Leach. 

STATEMENT OF HON. JAMES A. LEACH, A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF IOWA, FORMER CHAIRMAN, 

COMMITTEE ON BANKING AND FINANCIAL SERVICES, U.S. 

HOUSE OF REPRESENTATIVES 

Mr. LEACH. Thank you very much, Mr. Chairman and Mr. Frank, 

distinguished colleagues. I apologize I do not have a written statement, so I would request unanimous consent to revise and extend. 

The CHAIRMAN. Without objection. 

Mr. LEACH. The background, Mr. Chairman, for consideration of 

financial modernization legislation, what came to be called GrammLeach-Bliley, was competition between various private sector industries; competition within each of these industries; and competition between regulators of various entities. At issue today is a review of how Gramm-Leach-Bliley addresses the real estate issue. 

The subject surprisingly involves all three of the above-cited competitions. 

For instance, there is an obvious competition or potential competition between financial holding companies, banks and realtors, 

perhaps exaggerated because a few banking institutions are either 

desirous or good at offering real estate brokerage services. This is 

evidenced by competition within the banking industry itself. 

A number of States, such as my own, for a number of years have 

given State banks real estate brokerage powers. Few banks nationwide have made much of a dent in the market, in part because real 

9

estate brokerage activities are so competitive and in part because 

real estate brokering is anti-bank in culture. That is, real estate 

brokers are on the hoof; bankers prefer the shelter of brick walls. 

The two cultures do not well mix. 

Interestingly, however, a number of States have laws that automatically give State banks any powers a national bank has authorized, but there is no reverse law. That is why in the regulatory 

competition between State and national banks, the national bank 

regulator, the OCC, has a strong bent to attempt through regulation to give national banks whatever powers any State authorizes 

and if possible more authorities. 

Therefore with regard to garnering consensus support for bank 

modernization legislation, a number of the non-bank groups relented in opposition to opening up competition between the three 

principal industries, that is banking, securities and insurance, because the OCC had been making concerted efforts to unilaterally 

empower banks. 

The law in its final format was equalitarian, that is, GrammLeach-Bliley. Powers granted banks were also accorded securities 

firms and insurance companies. Competition, not turf protection, 

was the aim of the legislation. But we should be clear that the 

OCC activism was part and parcel of everything that had to do 

with garnering support for passage of bank modernization. 

Even though there appeared under prior law to be a more constraining standard of flexibility for regulatory power-granting, i.e., 

bank affiliates could only engage in activities closely related to 

banking, the OCC had begun to use a Supreme Court administrative law precedent called the Chevron case, which suggested that 

courts should give deference to Federal regulators as long as they 

did not operate capriciously to expand the powers of national 

banks. 

Given the State precedents on real estate brokerage activities, it 

was widely assumed that the OCC would authorize even greater 

powers for national banks. Indeed, when Gramm-Leach-Bliley was 

under consideration, the OCC had under consideration a national 

bank request to allow it to engage in real estate leasing activities 

as well as certain real estate investment activities. 

Therefore, in an industry-balancing scenario, what GrammLeach-Bliley did for the real estate industry was to statutorily proscribe banks from using federally insured deposit advantages for 

real estate investment and development. This was done in the context of the philosophical struggle then underway about the bill, 

whether commerce and banking should be breached itself. 

I want to diverge for a second on this subject for a couple of reasons. One is the import of the issue; and two, that the real estate 

industry played such a major role in consideration of the issue. 

That is, when Gramm-Leach-Bliley was under review, a large number of members of this committee, the majority of the leaders of 

both houses of Congress and of both parties in Congress, wanted 

to do a complete lifting of the ban between commerce and banking. 

What was at issue, in my view, was whether or not we would develop a system similar to Japan and Korea, that is to have what 

the Koreans called chaebols and what the Japanese called 

keiretsus; or what was the system in place in a country like Spain 

10

which involved the integration of commerce and banking. Whether, 

for instance, Citicorp could merge with Amoco and Wal-Mart, and 

whether this would be good for the economy or not. 

The realtors held, as I did, that this would be a mistake and that 

it would radically change the whole system of American finance, as 

it would change the whole nature of the real estate industry. As 

it worked out, and partly because bankers backed off a little bit in 

partial measure because in my view there are only 200 to 300 

Americans that actively wanted this, and they were all in largebank boardrooms and investment bank boardrooms. But the interesting phenomenon was that no bank in America, with the exception of one, was in the top 20 of American corporations in asset 

value based on stock exchange valuation, that is, market valuation. 

It was my belief, and I wrote the heads of every bank in America, that if this provision passed, in short order Chase and Citicorp 

would not be taking over the world. They would be the first to be 

taken over; that Amoco, Wal-Mart, etc., would buy out Chase and 

Citicorp and that the big banks would be the most vulnerable institutions in America to losing their independence. This view came to 

be talked about rather widely in the higher echelons of finance. I 

can only suggest to you the difficulty would have happened. At that 

time, Enron had a greater market capitalization than any bank in 

the United States of America. MCI-WorldCom had a greater valuation than all but one. 

The point is, I think all of these institutions would have taken 

over banks, and what would that have meant when these companies got in difficulty? I think it would have been a rather difficult 

scenario for the United States. 

I raise this in this context because the realtors, like others in 

American commerce, but the realtors more than anyone that I 

know of paid attention to this issue. They were adamantly opposed 

to mixing commerce and banking. It is no accident that they did 

not object to this bill’s passage. They understood that they were 

worse off without a bill and they would have been much worse off 

with a bill that was designed in a very different way. 

Finally, in terms of legislative history, the committee of jurisdiction chose to prohibit banks from engaging in real estate development investment, but allowed the legislation to be silent on brokerage activities. This was not an oversight. The first comprehensive 

version of Glass-Steagall reform that I introduced as chairman of 

the Banking Committee did reference the brokerage issue. 

But the banking community persuasively pointed out to committee members that not only was banking evolving, but so was the 

way real estate brokers conducted business. The banking industry 

argued that because sophisticated real estate brokers were also 

providing credit to clients by offering mortgage banking services 

themselves, it did not seem balanced to not allow or at least not 

preclude bankers from entering the business. 

The committee thus chose not to tilt in any direction on the issue 

and left decision-making up to the professional regulators. As one 

of the authors of the legislation, I have taken the position not to 

endorse any approach or give regulators any post-legislative advice. 

The law was intended to be flexible, adjusting to new times and 

new ways without congressional prejudice. 

11

Finally, a note about the regulatory competition. Gramm-LeachBliley was intended to seal the gaps of regulation by not only 

ensconcing functional regulation, but by establishing a primary 

regulator so accountability could not be ducked. It was also designed to make regulation more seamless and less competitive. On 

this issue, for instance, the Fed and the Treasury have shared authority so that the OCC, which regulates national banks and the 

Fed which regulates State banks as well as holding companies, 

apply together consensus judgment. From the real estate industry 

perspective, this was considered a significant plus. 

In conclusion, let me stress that the Gramm-Leach-Bliley Act 

was the product of many years of legislative debate. The final legislation was designed to ensure that the evolution of the financial 

services industry would not be impeded by protracted congressional 

interference. The process of defining new powers for banks and financial holding companies was by intent de-politicized under the 

act. 

In America, process is our most important product. It is process 

as much as outcome which Gramm-Leach-Bliley is about. In this 

case, the silence of the act on real estate brokerage activities 

makes it subject to review by regulators. This review, however, 

should not be one which assumes a congressional bias on result. 

There is nothing in the hearing record or report language which indicates the direction regulators should take, with the exception 

that any judgment of regulators would presumably have to accommodate anti-tying product guidelines. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Mr. Chairman. We appreciate your 

testimony. 

We now turn to the third witness, my good friend and former 

chairman of the Energy and Commerce Committee, the gentleman 

from Richmond. 

Mr. Bliley, good to have you back. 

STATEMENT OF HON. THOMAS J. BLILEY, A FORMER REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA, 

FORMER CHAIRMAN, COMMITTEE ON COMMERCE, U.S. 

HOUSE OF REPRESENTATIVES 

Mr. BLILEY. Thank you, Mr. Chairman. 

Chairman Oxley, Ranking Member Frank and members of the 

committee, thank you for inviting me here today to offer my views 

on consumer protection and competition in real estate services. It 

is good to see so many old friends, but let me assure those old 

friends that while much has changed in the 4 1/2 years since I left 

Congress, I have not lost my fondness for brevity. 

The enactment of the Gramm-Leach-Bliley financial modernization law in 1999 was a singular event in the Nation’s financial history. It did away with many of the rules and regulations that hampered economic growth in the financial services industry. One of, 

if not the, central aspects of the act was the creation of a new category of financial institutions known as financial holding companies, FHCs, the logical successors to simple holding companies 

under the Bank Holding Company Act. 

12

These new FHCs were given the authority to engage in a full 

range of activities; that is, ‘‘activities that are financial in nature 

or incidental to financial activity.’’ That was impermissible under 

Glass-Steagall. As our committee report said in 1999, permitting 

banks to affiliate with firms engaged in financial activities represents a significant expansion from the current requirement that 

bank affiliates may only be engaged in activities that are closely 

related to banking. 

Gramm-Leach-Bliley was supposed to put to final rest the issue 

of bank agency powers. Congressman Leach and I had numerous 

discussions in various forums on the mixing of banking and commerce. The collective wisdom of Congress in Gramm-Leach-Bliley 

was to generally prohibit any mixture of commerce and banking, to 

strictly limit certain activities with a significant underwriting risk, 

such as insurance underwriting and real estate development, and 

to allow banking competition in agency and brokerage activities. 

There is a reason that Congress specifically walled off real estate 

development investment. It is not that we forgot about real estate 

brokerage or had never heard from the realtors. No, we intentionally drew the line at financial activities that put bank capital 

at risk, while leaving brokerage activities open, fully expecting that 

real estate brokerage would ultimately be part of that group. This 

was a careful compromise as we went from allowing a basket of 

bank commercial activities to walling off each activity Congress did 

not want banks to engage in. 

In fact, Gramm-Leach-Bliley specifically directed the Federal Reserve Board and Treasury to periodically bring in new activities 

that are financial in nature or incidental to a financial activity, for 

example, because such activity is necessary or appropriate to allow 

a financial holding company to compete effectively with any company seeking to provide financial services in the United States. We 

knew it was coming and created the mechanism to keep the system 

dynamic. We could have outlawed any number of other activities. 

We did not. That is largely because we did not want the act to become outdated before the conference report was even signed. 

In an era of amazing technological innovation and change, we 

consciously chose to make the law flexible, to allow the functional 

regulators with appropriate statutory guidance to define what specific activities should be permissible. 

Thank you, Mr. Chairman, for the opportunity to be here today. 

I also want to thank you and the other members of the committee 

for seeking to uphold the deregulatory intent of Gramm-Leach-Bliley. 

[The prepared statement of Mr. Bliley can be found on page 65 

of the appendix.] 

The CHAIRMAN. Thank you, Mr. Chairman. 

And thanks to all of the witnesses. 

This is a rather unique hearing in that we have had an opportunity to hear from the authors of this historic legislation. Having 

participated in this as a subcommittee chairman under Chairman 

Bliley through the markup and through the conference, it is good 

to lay the predicate for this historic legislation as viewed by the authors. 

13

It is not very often that we have that opportunity to hear from 

such three distinguished witnesses as these authors. I want to 

thank you. 

The gentleman from Massachusetts? 

Mr. FRANK. I would just say people I think will be looking forward to 10 years from now when you and Senator Sarbanes play 

a similar role to even greater interest. 

The CHAIRMAN. Thank you all, gentlemen. Dismissed. 

While the other panel is getting set up, I would want to recognize 

the gentleman from Alabama for an opening statement as subcommittee chairman, and then Mr. Kanjorski. 

The gentleman from Alabama? 

Mr. BACHUS. Thank you, Chairman, for convening this important 

hearing. 

Obviously what precipitated this hearing was the bank regulators’ finding that real estate brokerage and management was a 

financial activity or was incident to a financial activity. 

Mr. FRANK. Would the gentleman suspend? Could people finish 

their business? We have someone speaking here. Can we delay 

some of this fussing around until Mr. Bachus is finished? It can 

really all wait until Mr. Bachus is finished. 

Mr. BACHUS. I will start over. 

Of course, the genesis of this hearing was the Treasury and the 

Federal Reserve making a finding that real estate brokerage and 

management was financial in nature, as opposed to commercial, I 

would suppose, because Gramm-Leach-Bliley in my mind kept the 

longstanding separation between commercial activities and financial activities. So to find real estate brokerage and management as 

permitted under the Gramm-Leach-Bliley, they would have to find 

that it was financial in nature, as opposed to commercial, I would 

think, or incidental thereto. 

I think you can make arguments on both sides of that issue. I 

think that the proper place to debate these issues is not in the appropriations process. It is in this committee. So I think that we are 

in the proper forum. I applaud the chairman for having this hearing. I am also aware that the majority of this Congress, the majority of the members of this Congress have introduced legislation, I 

think Mr. Calvert and Mr. Kanjorski introduced it, taking a position that real estate brokerage and management should not be permitted. I know the chairman of the full committee, and I have respect for his opinion, he has introduced legislation to reaffirm the 

determination of the Fed and the Treasury. 

Obviously, on record the majority of the members of this Congress have expressed reservations over allowing financial institutions or holding companies to participate in a real estate brokerage 

and management. So whatever the intent of Gramm-Leach-Bliley, 

and I will say this, I have looked at the bill. I have looked at the 

committee reports. I have looked at the debate on the floor and in 

this committee. It is silent on it. 

So if in fact there was an understanding that it would include 

real estate management and brokerage, the absence of any referral 

to that in the record, or in the legislation, particularly in that it 

is such an important industry, to me is sort of puzzling; that it 

would not be anywhere in the record, and in fact they did address 

14

real estate investment, and specifically excluded and walled that 

off. 

I will say this. I do not think it is a given that the Federal Reserve and the Treasury had the right to say this is financial in nature, because to do so they had to determine that it was not commercial in nature. If you determine that buying and selling homes 

or brokering them is financial and not commercial, where do you 

end up? I mean, automobile dealerships, where do we go? I think 

that the intent of Congress, at least in my mind, was to observe 

the separation. 

There are arguments on the other side. There are arguments 

that State charters permit this, although there is very little of this 

in practice. On the other hand, banks for decades have engaged in 

real estate management through their trust departments, and have 

managed assets under their supervision. I do believe that something this important ought to be addressed by this committee and 

that really in fairness if we are going to have legislation, we probably need to have up and down votes on all the legislation since 

this is a democratic body. 

But I look forward to hearing this next panel. I will conclude by 

saying this, the one thing that both parties say is that this will increase competition if we allow it. The banks say it will increase 

competition. The real estate brokers, the real estate companies, the 

realtors say it will decrease competition. I do have a problem with 

saying to an industry that has had so much consolidation. We 

heard last week that 1 percent of the companies in banks make 70-

some percent of the profits. We have had tremendous consolidation 

in banking, where real estate brokerage is still one of the most 

competitive businesses, I believe, in America. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Pennsylvania, Mr. Kanjorski? 

Mr. KANJORSKI. Thank you, Mr. Chairman, for convening this 

hearing on the pending regulatory and legislative proposals affecting real estate brokerage and management. 

Although I, like you, want to resolve these important matters, we 

have very different views on the appropriate solution. As part of 

the 1999 law to overhaul and modernize our Nation’s financial 

services industry, we created a framework that prohibits the mixing of banking and commerce, but which permits financial institutions to engage concurrently in banking, insurance and securities 

activities. 

During our lengthy consideration of this groundbreaking law, I 

very strongly supported maintaining the firewall separating the financial and commercial sectors. To underscore our concerns about 

the integration of banking and commerce, the 1999 law also specifically banned financial institutions from entering real estate development and investment services. 

Although real estate management and brokerage represent nonfinancial commercial activities, in one of their first acts of interpreting the Gramm-Leach-Bliley Act, regulators unfortunately 

issued an ill-conceived rule proposal that would allow national 

bank holding companies and their subsidiaries to engage in these 

pursuits. 

15

Because this proposal greatly concerned me, I began working to 

draft the Community Choice in Real Estate Act which I introduced, 

along with Congressman Ken Calvert. Our legislation would explicitly prohibit national bank holding companies and their subsidiaries from engaging in real estate brokerage and management. We 

first introduced the Community Choice in Real Estate Act in the 

107th Congress. We also reintroduced the bill in the 108th Congress and the 109th Congress. In every Congress since its introduction, our bill has gained the support of a bipartisan majority of the 

House. In the 109th Congress, for example, 238 members of the 

House have already backed H.R. 111 and we continue to add a few 

more cosponsors almost every week. 

Some parties involved in these longstanding debates have recently begun to suggest that we need to consider a compromise to 

resolve these matters. I can neither support a compromise that 

would fracture the firewall between banking and commerce, nor an 

arrangement that would undermine the leadership that our local 

communities generally need. 

Moreover, we should refrain from engaging in a lengthy and contentious debate on other legislative proposals in this area or yetto-be-developed compromises. We should instead consider H.R. 111 

as quickly as possible. The Community Choice in Real Estate Act 

already has the support of a majority in the House. It is the solution that my colleagues are ready to accept. 

In closing, Mr. Chairman, allowing banks to engage in real estate 

management and brokerage will only hurt consumers, communities 

and our economy. We are, as a result, seeking to stop a problem 

before it begins. I very strongly hope that we will therefore approve 

H.R. 111 before the end of the 109th Congress. 

[The prepared statement of Mr. Kanjorski can be found on page 

60 of the appendix.] 

The CHAIRMAN. The gentleman’s time has expired. 

We now turn to our panel. Let me introduce the witnesses for 

today: Ms. Elizabeth A. Duke, chairman of the American Bankers 

Association; Mr. Al Mansell, president of the National Association 

of Realtors; and Mr. George T. Eastment, III, president of Long and 

Foster Financial Services, on behalf of the Real Estate Services 

Providers Council, Inc. 

Ms. Duke, you may begin. 

STATEMENT OF MS. ELIZABETH A. DUKE, CHAIRMAN, 

AMERICAN BANKERS ASSOCIATION 

Ms. DUKE. Thank you, Mr. Chairman and also Ranking Member 

Frank and members of the committee, for inviting me here today. 

I want to particularly thank you, Mr. Chairman, for holding this 

hearing. 

My name is Betsy Duke. I am executive vice president with 

Wachovia Bank and current chairman of the American Bankers Association. I believe that the bankers and the realtors have more in 

common on this issue than the rhetoric suggests. We both believe 

that customers deserve to have the best possible service and we 

both want customers to have many choices so that they can seek 

out the agent or company they trust most. 

16

This is why we believe banks should be allowed to offer real estate services. Consumers would have more choices when buying or 

selling a home; real estate agents would have more choices of potential employers; and brokerage firms would have more choices of 

companies to partner with, providing new sources of capital and 

technology. Increased competition benefits consumers by encouraging innovation and increasing efficiency. 

Naturally, added competition would affect the realtors. No business is or should be immune from competition. Banks engaging in 

real estate services would compete with one another as well, just 

as they do today for consumers’ checking accounts and other banking needs. 

To listen to the National Association of Realtors, keeping banks 

out of the real estate brokerage industry is all about protecting 

consumers. In reality, their campaign has been about protecting 

themselves from competition. It is important to note that combining real estate brokerage and banking services is not a new or 

an unusual activity. Real estate firms do it. Insurance companies 

do it. Securities firms do it. And more than half the depository institutions in this country, including many of the largest banks, can 

do it. 

Yet banks that cannot offer real estate services lose customers to 

real estate firms that aggressively offer mortgages and insurance. 

This is because customers tend to choose mortgages and other 

products from the businesses that are associated with the first 

point of contact in the home buying process which is the real estate 

agent. The packages that many real estate firms offer provide valuable cost, convenience and service options. Such combinations of 

services are good for consumers and ABA believes that all banks 

should have the same opportunity to meet the needs of our customers and offer similar products and services, just as the real estate firms do today. 

To remove itself from the process of determining who should be 

able to offer what financial services, Congress in the GrammLeach-Bliley Act adopted a process whereby two knowledgeable 

agencies could make that determination. Realtors would reverse 

the progress embodied in the Gramm-Leach-Bliley Act and by 

precedent put Congress back in as the referee for all future competitive disputes. Having worked so hard to develop a mechanism 

to continually keep our financial system up to date, Congress 

should not be asked to choose between banks and realtors. This is 

a choice for consumers to make based on their own unique set of 

needs and preferences. 

Simply put, banking institutions should be allowed to offer real 

estate brokerage and management services for three key reasons. 

First, it is good for consumers. It means more choices, better services, competitive prices and greater convenience. Competition stimulates innovation and encourages effective uses of technology to 

better serve consumers. 

Second, it is fair. Since real estate firms offer banking and insurance services, it is only fair that banking institutions be allowed to 

provide real estate services. This is what the Gramm-Leach-Bliley 

Act is all about, promoting free and fair competition. 

17

Finally, it is safe. All consumer protections, including all State 

licensing, qualification, sales practices and continuing education requirements that apply to realtors today, along with strict privacy 

laws and anti-tying rules, would apply to all bank-affiliated real estate agents. Because brokerage and management are agency activities, they pose no risk to the bank. 

ABA appreciates the opportunity to testify, and I look forward to 

your questions. 

[The prepared statement of Ms. Duke can be found on page 61 

of the appendix.] 

The CHAIRMAN. Thank you very much. 

Mr. Mansell? 

STATEMENT OF AL MANSELL, PRESIDENT, NATIONAL 

ASSOCIATION OF REALTORS 

Mr. MANSELL. Thank you very much, Mr. Chairman and Representative Frank, Ranking Member. We appreciate the opportunity of being here today. 

My name is Al Mansell. I am the 2005 president of the National 

Association of Realtors. 

Before I begin, I would like to correct one thing that was said 

earlier, Mr. Chairman, in your statement. That was the fact that 

we were being sued by the Justice Department. Actually, what has 

taken place is we have been investigated by the Justice Department for the last 2 years and no action has been taken to date, unless you know something we do not know. I do not know about 

that, but to the best of our knowledge, we have never been sued. 

Let me continue, if I might. I am here today to testify on behalf 

of our more than 1.2 million members who represent all aspects of 

the residential and commercial real estate industry, including more 

than 300,000 real estate companies. I appreciate the opportunity to 

share our view on the prospect of big banking conglomerates operating real estate brokerage, leasing and property management 

businesses. 

As we have heard today, opinions about the intent of GrammLeach-Bliley may differ. To date, 238 members of the House of Representatives and 25 senators have shown they share NAR’s opinion 

by cosponsoring the Community Choice in Real Estate Act. Mr. 

Chairman, you have introduced legislation that takes an opposing 

view. I will not spend my time here debating those legitimate differences. 

The real issue here is determining what is the mix of commerce 

and banking. I want to focus more on what likely would happen to 

consumers, small businesses and the real estate industry if huge 

banking conglomerates are permitted to enter the real estate business. 

America’s housing system is working better than ever. We are in 

our fifth consecutive record-breaking year, with homeownership at 

the highest rates in history. The real reason this whole issue is before you today is because of that success. It is the same theme, follow the money. We have two very healthy industries, banking having record profits and real estate doing also record business. That 

continues to drive both our national and local economies. To make 

18

any changes to this vital market demands very careful consideration. 

Realtors believe there is no compelling market need to allow 

banks to enter the real estate business. We believe such a change 

would have profound negative consequences for consumers, businesses and the economy. Why is this change being considered? 

Bankers contend that small community banks seek this change so 

they can better compete with multi-service real estate firms. 

However, as the American Bankers Association states in its testimony, one-half of the States already allow their State-chartered 

banks to own real estate companies. Few of these banks have taken 

advantage of that authority to operate a real estate business. I believe it currently is in the number 18 in the Nation. 

This begs the question. If banks would reduce costs further, why 

have we not seen a natural growth in banks in real estate in States 

where this is permitted? In other words, why is this legislation 

forcing the creation of a market that is not emerging naturally at 

the State level? NAR believes this is a concentrated plan by large 

banking conglomerates to gain regulatory and legislative edge in 

the real estate market. 

This is not a new effort. Banks previously have sought to amend 

the Real Estate Settlement Procedures Act, known as RESPA, in 

a way that grants them unfair advantages over other service providers. They have sought to limit the abilities of Fannie Mae and 

Freddie Mac to compete with large banks in the secondary market. 

I reference the portfolio issue, which is about market share. 

They have pressed the Federal Reserve to finalize this rule on 

real estate to allow banks in the real estate business, and they 

have succeeded in getting regulators to preempt them, being all the 

Federal banks, from State consumer protection laws dealing with 

predatory lending. Now, they say they will abide by all the State 

licensing and regulatory licensing dealing with real estate at the 

State level. In the beginning, I am sure that will be true, at least 

until they persuade the regulator to preempt those laws. 

Yes, the largest megabanks will benefit most from an open entry 

into the real estate business. They will use their size and government-granted advantages to drive out competition. Forcing independent real estate brokers to compete against the federally chartered megabanks would be like asking a cruise ship to compete 

against the United States Navy in warfare. 

NAR asks committee members to look closely at the existing relationship between banks and real estate brokers before you proceed. Contrary to what big banks would have you believe, there is 

a very efficient and effective process through which consumers buy 

and sell their homes and obtain financing. In the written statement 

from the ABA, it states, it mentions that the real estate industry 

has the ability to provide loans and one-stop shopping. That is in 

fact true today. 

What they did not mention is that this is happening through a 

joint venture between banks and real estate companies. In other 

words, these services are being done jointly between the two 

groups. A good example of this is Prosperity Mortgage Company, 

a partnership between Wells Fargo and Long and Foster Real Estate. I would reference you about two-thirds back in the written 

19

statement to show, back to that page, which is the Long and Foster/Prosperity Finance page, talking about this, where it also references that this company is a partnership with Wells Fargo. 

Also, we have included in our statement a long list of these partnerships. We actually believe this is the proper role; that this gives 

consumers a very excellent opportunity to have one-stop shopping 

and also gives banks an opportunity to participate in that as partners with the real estate company to provide the consumers the 

very best product and opportunities. 

The CHAIRMAN. Could you sum up, please? 

Mr. MANSELL. Okay. 

It appears to us that in the market today when a real estate 

agent goes out and sells a house to a consumer, 75 percent of those 

mortgages produced in that transaction go to nonaffiliated mortgage companies. As we have checked around, that seems to be 

about the number, 75 percent or more go to nonaffiliated mortgage 

companies. 

That means the agents do not use their broker’s mortgage company, but rather they go outside because real estate agents uniquely want to do that. I would submit to you that if in fact the banks 

are allowed into the real estate industry, that will disappear because of the employee relationship that will exist there. 

So it is our hope that you will give us an opportunity to have a 

hearing on H.R. 111 and give us the opportunity to have that voted 

up or down. 

Mr. Chairman, we thank you for the opportunity of being here 

today. 

[The prepared statement of Mr. Mansell can be found on page 

112 of the appendix.] 

The CHAIRMAN. Thank you, Mr. Mansell. 

Mr. Eastment? 

STATEMENT OF GEORGE T. EASTMENT III, PRESIDENT, LONG 

AND FOSTER FINANCIAL SERVICES, ON BEHALF OF THE 

REAL ESTATE SERVICES PROVIDERS COUNCIL, INC. 

Mr. EASTMENT. Good morning, Mr. Chairman and members of 

the committee. My name, as you have heard, is George Eastment. 

I am president of Long and Foster Financial Services, a full-service 

real estate company headquartered in Fairfax, Virginia. 

Long and Foster has 230 residential real estate brokerage offices 

in Virginia, Maryland, West Virginia, Delaware, Pennsylvania, 

North Carolina, New Jersey and Washington, D.C. We have 17,500 

sales associates and employees of which 15,000 are licensed real estate agents. As you have heard, we offer mortgages through Prosperity Mortgage. We have an insurance company that does commercial and personal lines. We also have a title agency for settlements. 

Today, I am representing RESPRO, the Real Estate Service Providers Council. RESPRO is a national nonprofit trade association 

of approximately 260 companies, across industry lines, that united 

in 1992 to promote an environment that enables providers to offer 

diversified services to home buyers, better known as one-stop shopping. RESPRO’s membership includes real estate brokers, mortVerDate 0ct 09 2002 15:28 Aug 29, 2006 Jkt 029455 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 F:\DOCS\29455.TXT HFIN PsN: TERRIE
20

gage companies, title companies, home warranty companies, vendor 

management companies and home builders. 

RESPRO’s real estate broker members are not alone in providing 

diversified services for home buyers. According to a 2004 study, 88 

percent of the 350 largest real estate companies in the country 

offer mortgage services; 66 percent of those same 350 companies 

offer title or closing services. Since our creation in 1992, RESPRO 

has advocated a Federal and State regulatory environment that 

would allow any provider to offer the services that it believes would 

best meet the needs of its consumers, regardless of what industry 

or affiliation it has. 

RESPRO strongly believes that one-stop shopping offers potential 

consumer benefits such as convenience and lower costs. There have 

been several consumer surveys and economic studies over the last 

15 years that support this contention. The particulars of those are 

in my written statement. 

In 2002, RESPRO decided after careful deliberation to support 

the concept of financial holding companies and national bank subsidiaries entering the real estate brokerage business. The reason 

that RESPRO decided to enter into this debate is simply because 

we believe it is more important to promote one-stop shopping for 

home buyers than to keep banks out of our business. Also, we were 

often being viewed as hypocritical by being in the financial services 

business without letting financial services firms compete with us in 

the real estate brokerage business. 

This latter view was a misperception of RESPRO’s position. 

Frankly, the majority of RESPRO’s real estate broker members do 

not believe that the entry of financial holding companies or national banks into our business would fundamentally change the nature of the marketplace. Over the last 20 years, a number of financial conglomerates have entered the real estate brokerage business, 

namely Berkshire-Hathaway, General Motors, Prudential, Merrill 

Lynch, Sears and Metropolitan Life. Their entry concerned many 

independent real estate brokerage firms at the time, but we eventually found that this concern was unfounded. Some of these financial conglomerates have sold their real estate operations and others 

have remained in the business, but the basic character of the real 

estate brokerage business has not changed. 

In addition, State-chartered banks in approximately 28 States 

have been able to engage in real estate brokerage over the years. 

For example, in southern Virginia, Long and Foster competes with 

a large bank-owned real estate company with no discernible market effect. 

As you know, the debate over banks in real estate has been occupying Congress, the banking industry, and the real estate industry 

for over 4 years with no final resolution. RESPRO believes it would 

be useful for the parties in this debate to enter into discussions to 

resolve our differences and we would willingly participate in any 

such discussion in good faith. 

We expect that the discussion will revolve around, at least in 

part, ways to protect the safety and soundness of the federally insured deposits of banks affiliated with real estate firms and to ensure that real estate brokers and agents who are affiliated with financial holding companies are subject to the same licensing reVerDate 0ct 09 2002 15:28 Aug 29, 2006 Jkt 029455 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 F:\DOCS\29455.TXT HFIN PsN: TERRIE
21

quirements that apply to all real estate agents and brokers. 

RESPRO would certainly support provisions in any law or regulation that would accomplish these goals. 

In summation, I would want to make four quick points. Number 

one, consumers want one-stop shopping. Number two, real estate 

brokers want to and need to stay in the mortgage, title and other 

affiliated businesses. We think that if financial institutions are not 

permitted in the brokerage business, that the reverse may start to 

occur. 

Third, if banks enter the real estate business, we are not afraid 

of the competition. As was said by Congressman Leach earlier, the 

brokerage business is an entrepreneurial local business. It is very 

different than the banking business. While I would not want to 

compete with the national banks by opening a bank, I certainly 

think that we can deal with them quite handily in the real estate 

brokerage business. 

Fourth, I think that the main point is that all of the parties to 

this debate should get together and try to resolve their differences 

of opinion. 

Mr. Chairman, thank you for this opportunity to testify. 

[The prepared statement of Mr. Eastment can be found on page 

95 of the appendix.] 

The CHAIRMAN. Thank you, Mr. Eastment. 

Thank you to all of our witnesses. 

Mr. Mansell, you indicated in your statement that certain banking groups were pressuring the Federal Reserve to issue that rule. 

Is that correct? 

Mr. MANSELL. I believe my testimony was that they had been 

wanting to get that passed, yes. 

The CHAIRMAN. You used the word ‘‘pressure.’’ Do you have any 

evidence that any banking group was pressuring the independent 

Federal Reserve? 

Mr. MANSELL. Well, it was through the banking groups that the 

request was made and I assume they would like to get it taken 

care of. That would be the only thing I could say about that. I personally cannot speak to when and how. 

The CHAIRMAN. So you do not think that the word ‘‘pressure’’ was 

particularly appropriate? 

Mr. MANSELL. I do not know whether that is the right connotation or not, to be honest with you. I cannot speak to that, Mr. 

Chairman. 

The CHAIRMAN. You were present at the testimony of Gramm, 

Leach and Bliley, were you not? 

Mr. MANSELL. I was. 

The CHAIRMAN. Did you notice any disagreement among the authors of that legislation on its intent? 

Mr. MANSELL. No, I think they all had basically the same intent. 

The CHAIRMAN. And what do you think that intent was? 

Mr. MANSELL. I think their intent was to give regulators the authority to regulate what banks could do. 

The CHAIRMAN. And when NAR was participating in the debate 

which became Gramm-Leach-Bliley, your association successfully 

lobbied for inclusion of a provision in the act that would prohibit 

real estate development and investment activities. Is that correct? 

22

Mr. MANSELL. I assume that is correct. I was not there, Mr. 

Chairman. 

The CHAIRMAN. In addition to seeking to prevent banks from engaging in real estate development and investment, NAR also urged 

Congress to explicitly state in the legislation that real estate brokerage and property management activities were not permissible 

activities for banks. Is that correct? 

Mr. MANSELL. I cannot speak to that because I was not there. 

Evidently, the record is not very clear on that. 

The CHAIRMAN. No, the record is very clear on that. The record 

is very clear on that. As a matter of fact, let me quote you from 

the NAR’s testimony before the Senate Banking Committee during 

the 106th Congress. NAR ‘‘urged that the legislation expressly declare that real estate brokerage and related activities, including 

property management and counseling, are not financial activities.’’ 

Mr. MANSELL. Okay. 

The CHAIRMAN. Did the version of financial modernization legislation that passed the Senate during the 106th Congress include a 

declaration that real estate brokerage and management were not 

permissible activities for the banks? 

Mr. MANSELL. To the best of my knowledge, nothing that has 

passed either body had anything that said that it would not be permissible. 

The CHAIRMAN. Can you cite for the committee any reference in 

the legislative history of the Gramm-Leach-Bliley Act during the 

106th Congress, whether it be a House or Senate committee report, 

House-Senate conference committee report, House or Senate floor 

debate or anything else, that supports the National Association of 

Realtors’ current contention that Congress intended to preclude 

real estate brokerage and real estate management from ever being 

defined as financial in nature? 

Mr. MANSELL. I do not think that was ever put in the record, Mr. 

Oxley. 

The CHAIRMAN. In light of the specific prohibition in GrammLeach-Bliley on bank subsidiaries engaging in real estate development and investment, can you explain to the committee why the 

authors of that legislation chose not to include a similar prohibition 

on real estate brokerage and management? 

Mr. MANSELL. I think what you are looking at here is trying to 

get a bill through, and the consensus was that is what you could 

get through. I think that is the reason, because they had to reach 

a consensus. I think that is true of any legislation that runs 

through this body, is you have to find a way to get consensus and 

that is how they chose to get consensus. On the other hand, we 

have a bill sitting out there that has 238 members that have said 

their consensus is that it should not be included. 

The CHAIRMAN. A lot of those same members, of course, voted for 

Gramm-Leach-Bliley. It was pretty clear from the testimony of the 

authors of the legislation, and my memory, having been a member 

of the conference committee, that was established. So you are basically saying that in spite of the Gramm-Leach-Bliley Act and the 

consensus among the sponsors and the desire of the regulators who 

are the experts in this area, that NAR wishes to essentially reopen 

23

Gramm-Leach-Bliley and reverse what was passed in the act 6 

years ago? 

Mr. MANSELL. I am saying that since it does not specifically address that, we would like to specifically address it. 

The CHAIRMAN. It sounds to me as if NAR spoke on that issue 

and precisely proposed that, but it was at some point rejected because it was not in the Act. 

Mr. MANSELL. I think that is absolutely accurate, Mr. Chairman. 

It was rejected because you had to get consensus on a bill to get 

the bill through. 

The CHAIRMAN. Did the NAR support passage of Gramm-LeachBliley? 

Mr. MANSELL. At the end, they did support passage of GrammLeach-Bliley because we thought that passage of the bill was important. We also believed that we would not be sitting in this position and have a request within the first 6 months after the passage 

of Gramm-Leach-Bliley since it requires a change in the market or 

a change in technology, which neither one took place in those 6 

months. 

The CHAIRMAN. You heard Mr. Eastment’s testimony about providing one-stop shopping for people who are intending to buy 

homes. Do you support that concept? 

Mr. MANSELL. Absolutely. 

The CHAIRMAN. So how do you differ then from Mr. Eastment, 

who in fact supports the passage of Gramm-Leach-Bliley and supports banks into real estate? 

Mr. MANSELL. I think the only difference is how those services 

are provided. We support what Mr. Eastment has done in his company, and that is to partnering with banks so that both industries 

have value in that mortgage piece. 

The CHAIRMAN. He is not alone, of course, in that. There are several members of RESPRO that provide that kind of service. Is that 

correct? 

Mr. MANSELL. In our written testimony, there are two or three 

pages of them that we have provided for you that do that. 

The CHAIRMAN. So you support that concept? 

Mr. MANSELL. Absolutely. And we have supported it. We believe 

it is a good concept to merge the two together. 

The CHAIRMAN. And yet you do not support the concept that the 

Fed and Treasury, under the law, have to determine what is financial in nature? 

Mr. MANSELL. I do not know that I don’t support the concept. I 

do not support the finding that they have come up with. 

The CHAIRMAN. Ms. Duke, do you have any comments on that? 

Ms. DUKE. We do not think that real estate brokerage services 

would constitute commercial activities. We think they are financial 

in nature. Before joining Wachovia, for most of my career I was a 

community banker. I can tell you that for nearly all of my customers, the primary component of their net worth was the equity 

in their homes. It is one of the ways that the American consumer 

builds wealth. It is also the largest financial transaction that many 

of our customers would engage in their lifetimes. So for that reason, we think it is financial. 

24

Secondly, we would draw the line in that we would not own the 

real estate. This is not development or ownership and selling something that we own. This is merely bringing together buyers and 

sellers in an agency relationship. 

The CHAIRMAN. Precisely, which was excluded under the provisions of the Gramm-Leach-Bliley Act. 

Ms. DUKE. Correct. 

The CHAIRMAN. Mr. Mansell, isn’t it true that all consumer protections, including all State licensing qualifications, sales practices, 

continuing education requirements that apply to realtors, plus 

strict privacy laws and anti-tying rules, would apply to bank-affiliated real estate agents? 

Mr. MANSELL. I think that would be true in the beginning, yes, 

Mr. Chairman. I do not believe it would be true long term because 

I believe the OCC would preempt State law, just like they did with 

predatory lending laws. 

The CHAIRMAN. What makes you think that would be the case? 

Mr. MANSELL. Because there is nothing that makes me think it 

would not be the case, is more accurate. 

The CHAIRMAN. Have you seen any evidence in the 28 States that 

permit banks into real estate, do you know of any abuses, consumer protection issues, or any other violations that you know of? 

Mr. MANSELL. In that regard? 

The CHAIRMAN. Yes. 

Mr. MANSELL. I do not know of any. 

The CHAIRMAN. Mr. Eastment, you mentioned the fact that you 

provide full service, and indeed that was the essence of GrammLeach-Bliley, wasn’t it? 

Mr. EASTMENT. Yes, sir, it was. 

The CHAIRMAN. And you have been the embodiment of that, 

along with other RESPRO representatives, and indeed I congratulate you on that because I think that is precisely what we tried to 

do. It seems that Mr. Mansell basically is in favor of a one-way 

street, but not a two-way street. Would you speak to that? 

Mr. EASTMENT. I think it may even go past RESPRO members. 

As I said in my testimony, 88 percent of the largest 350 brokers 

in the United States are in the mortgage business. I think the only 

area where Mr. Mansell and I disagree is that if banks were to get 

into the brokerage business, we do not see that as the end of the 

world. 

I can remember in 1978 when Merrill Lynch came to us and told 

us they were going to put us out of business. Well, they exited that 

business in about 5 years and we are still in it. I do not think that 

the largeness or the financial capacity of financial holding companies threaten our business. Our business is basically a low capitalintensive business and we feel we can compete. 

The CHAIRMAN. Let me ask each of you, since I participated in 

that as a subcommittee Chair and a member of the conference committee, and as Mr. Mansell said, there were obviously compromises 

made along the way. We worked for probably 60 years to repeal 

Glass-Steagall and get an undergirding for the new financial services marketplace. 

I think it is also safe to say that not everybody got everything 

they wanted in that legislation. I would assume that includes the 

25

banks. Is it appropriate in that context, when you have historic legislation like that, to come back after the Deal is struck and try to 

reopen and change and to basically get what you did not get the 

first time around? Let me ask you that, Mr. Mansell. Do you think 

that makes any sense from a public policy standpoint? 

Mr. MANSELL. I think it must be appropriate when we have 238 

members of the House that agree with us. 

The CHAIRMAN. Do they agree with you that we ought to reopen 

Gramm-Leach-Bliley and change the basic context of that legislation? 

Mr. MANSELL. I think they agree that we should restrict banking 

conglomerates from getting into the real estate business. 

The CHAIRMAN. In spite of the fact of what Mr. Eastment has 

talked about and providing full service real estate, or what Ms. 

Duke has testified to, in spite of all of that, and in spite of the legislative history. Let me ask you this. Do you think that your representatives missed the boat during the conference committee? 

Mr. MANSELL. I honestly cannot speak to that. That may be a 

fair conclusion from where you are sitting, but I cannot speak to 

that because I was not here. I do not know if they were included 

in the last day of discussions. 

The CHAIRMAN. Of course they were. 

Mr. MANSELL. Some of those final things were done in those wee 

hours. 

The CHAIRMAN. It was right in this very room as a matter of fact. 

And you say that the NAR was not represented? 

Mr. MANSELL. I did not say that. I said I do not know if they 

were. 

The CHAIRMAN. Okay. Believe me, they were. The agreements 

were made, and it was not long after that agreement and passage 

of that historic act that NAR sought to overturn the intent of that 

act. I think that is why we are here today, and the only reason we 

are here today. 

Mr. MANSELL. Correct. 

The CHAIRMAN. The gentleman from Pennsylvania? 

Mr. KANJORSKI. Mr. Chairman, I, too, was here in 1999. I did not 

get the impression we were writing the Bible. Is that what that act 

encased, a biblical act of some sort that something left 

uninterpreted would later be interpreted and always against the 

interest of the argument? The argument today, as I understand it, 

was a matter of banking and commerce, and I was one of those and 

still am adamantly opposed to mixing of banking and commerce. 

The fact of the matter is that as the history was repeated by our 

first panel of witnesses, there was no mention for the purposes of 

making sausage of brokerage and management. It was left unsaid. 

If the history, as I understand it, is the application was by the 

banking industry to their regulator to allow them to engage in that 

and to define special new categories and changes that would allow 

them to define brokerage and management as financial activity. 

Now, maybe I am remiss in my recollection, but that is the best 

recollection I have. 

What we are really here today is considering an issue that was 

ignored by this committee and the Congress because it was too contentious to come to compromise to pass a new regulatory act, H.R. 

26

11. Now, we are reexamining whether that should be done. As I 

understand the hearing, it is based on the Oxley-Frank bill which 

in fact is now making a definition that clearly brokerage and management is under the act, the original act. 

The bill pending, H.R. 111, my bill and Mr. Calvert’s bill, is to 

the effect that we want to now delineate very clearly that it was 

not the intent of Congress and we have 238 members of the sitting 

House of Representatives that agree with us, and I believe there 

are two sponsors to the Oxley-Frank bill at the present time. But 

that is not the point. The question is: Should we mix banking and 

commerce? What will be the impact on the industry? 

Let me ask Ms. Duke, the top 10 banks in the United States, 

what is the share of the banking industry that they are concentrated? How much of the banking industry do they have? Do 

you have any idea? 

Ms. DUKE. I do not have it on the top 10. I know on the top 3, 

it is about 17 percent. 

Mr. KANJORSKI. On the top 3, 17 percent. 

Ms. DUKE. The top 3, about 17 percent. As we understand it, 

within the real estate industry, the top 3 would account for 56 percent of the business. 

Mr. KANJORSKI. Oh, I have figures before me that the top 10 

have only 10.5 percent. I do not know where you get your figures. 

But as a result of that, if I may, Mr. Chairman, I would like unanimous consent to offer in the record something that was denied, I 

think, entering into the record now as an exhibit showing the top 

75 firms and the statistical analysis on the concentration of market 

share of these firms. 

The CHAIRMAN. Without objection. 

Mr. KANJORSKI. Mr. Mansell, you represent 1.2 million regulators, realtors. 

Mr. MANSELL. Yes. 

Mr. KANJORSKI. Regulators, sometimes it is like 1.2 million regulators. 

Mr. MANSELL. There are that many sometimes, I think. 

Mr. KANJORSKI. How many banks are there in the country, Ms. 

Duke? 

Ms. DUKE. About 7,000. 

Mr. KANJORSKI. 7,000. There used to be about 15,000 just a short 

while ago, about 7 or 8 years ago. A lot of people just decided there 

was not any profit in the banking business, or did they consolidate? 

Ms. DUKE. There has been quite a consolidation, but there are 

actually about 1,200 new charters chartered every year, so there 

are additional banks. 

Mr. KANJORSKI. I wonder why there are so many community 

banks that are started up every year in all these communities? 

Why would people want to start with a new bank if the present existing banking system is providing such luxurious service to so 

many communities in America. Well, that is a rhetorical question. 

I am not going to ask you to answer that. 

I am going to ask you to answer this, though. One of the reasons 

I support H.R. 111 has little to do with banking, quite frankly. It 

has to do with community service and leadership. I am disturbed 

in my community, my district and my State, at the loss of particiVerDate 0ct 09 2002 15:28 Aug 29, 2006 Jkt 029455 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 F:\DOCS\29455.TXT HFIN PsN: TERRIE
27

pation of leadership from the banking community because of consolidation. 

When I first came to Congress 20 years ago, we put competition 

on for the Saturn project in my district. I called up a very good 

friend of mine who was a banker. I said, Rica, will you call the 

leadership of the community together so we could organize? And he 

did. We went to the local club. I was not a member, but he was, 

as most bankers were, but members of Congress are not, and we 

had our meeting. At that meeting, 40 bank presidents were there, 

40. I was impressed. And they worked diligently, hard to make this 

fight for about 6 months. We lost the fight. 

Today, if I wanted to call that regional fight together and I called 

Rica up, he is retired now, but if I said Rica, get all the presidents 

of all the banks together at the club so we can discuss this fight, 

we could not get 6 presidents because there aren’t any. Now, I am 

sympathetic to industries being competitive, but competition is also 

that you have a presence in communities, that you participate in 

community leadership. The consolidation of the banking industry 

does not afford that opportunity today. 

So one of the strong efforts for the realtors, they are about the 

last group of leaders in my community that when I call and want 

to do something for the Boy Scouts, for the United Fund or for economic competition or development, the realtors are the largest 

group that show up now because they are still private individual 

business people. 

Now, if we pass the chairman’s bill, I think you may even be able 

to make a strong argument that the price may go down in some 

services. I do not really care, because the price to my communities, 

to Pennsylvania, and I think to rural America is that, you know, 

we give at the office. When you ever go to a contribution, the office 

is usually New York or Houston or Miami or somewhere. It is not 

in rural, it is not in small, it is not in middle-size America. 

So this is as much a sociological problem of determining whether 

or not we are going to have further concentration in this country, 

not only of wealth, not only of power, but of leadership. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Iowa, Mr. Leach? 

Mr. LEACH. I will pass. Thank you. 

The CHAIRMAN. The gentleman passes. 

The gentleman from Alabama? 

Mr. BACHUS. I thank the chairman. 

Mr. Eastment, do you think there is a lot of competition in real 

estate brokerage today? 

Mr. EASTMENT. It is very competitive. I thought there were 

80,000 firms. I heard earlier there were 300,000 firms. Nevertheless, it is a very competitive business. While there has been some 

consolidation, for every consolidation the cost of entry is quite low, 

and we have people going out and starting up business. So I think 

it is very competitive. 

Mr. BACHUS. And you do not see that ending? 

Mr. EASTMENT. No, I do not. 

Mr. BACHUS. Okay. One of the reasons advanced for allowing, for 

Congress in debating whether or not to affirm what the Federal 

28

Reserve and the Treasury has done is that it will increase competition, but it is a very competitive market today. Is that so? 

Mr. EASTMENT. Yes, it is. 

Mr. BACHUS. In the banking industry, have you seen a lot of consolidation? 

Mr. EASTMENT. Yes, I have. 

Mr. BACHUS. Okay. I know there has been a lot of talk about 

that in certain State banks, the State-regulated banks are into real 

estate, but we do not have any large-scale banks that you know of 

doing real estate brokerage and management nationwide, do we? 

Mr. EASTMENT. Not nationwide, just locally in southern Virginia 

where we compete. 

Mr. BACHUS. But if this regulation went into effect, then we 

would have our large national banks at least would have the opportunity, the so-called megabanks, to get into real estate brokerage 

and management, would they not? 

Mr. EASTMENT. Yes, they would have that opportunity. 

Mr. BACHUS. Are there different talents needed to broker and to 

manage property than, say, to lend money? Those are two different 

basic businesses, are they not? 

Mr. EASTMENT. I think they are very different businesses. Banking is highly structured. As was said, the local banks have 

branches. Our people are out in the street and it is very entrepreneurial. It takes very different skills. 

Mr. BACHUS. I noticed back in the 1970’s when the banks started 

sponsoring these real estate investment trusts, do you recall what 

happened to those? 

Mr. EASTMENT. I am not familiar. 

Mr. BACHUS. Okay. Most of them collapsed with large losses. 

There has been some concern expressed by the president of the 

Federal Reserve in Minneapolis that as banks become more diversified and getting into fields that they have not normally done that 

is riskier behavior because it is not the business that they are as 

adapted to do and they have experience. Do you agree with, I think 

it was, Governor Stern? 

Mr. EASTMENT. I just feel that there just should not be legislation. I think the marketplace should take care of that. If the banks 

would get into the business and succeed and build a better mousetrap, that is fine for them. If they fail, real estate firms fail every 

day, too. It is the marketplace. 

Mr. BACHUS. Is there not a difference in a federally insured institution? 

Mr. EASTMENT. Yes. But as I understand the proposal, there 

would be firewalls and we would support that. In addition, a real 

estate brokerage business that was owned by a bank should conform to all the applicable State and Federal regulations. 

Mr. BACHUS. But a failure of a wholly-owned subsidiary could 

domino into an effect on the federally insured institution, could it 

not? 

Mr. EASTMENT. I do not necessarily agree that would happen, 

though. 

Mr. BACHUS. But you just said, I thought you said, let them get 

in the business; if they fail, they fail. 

29

Mr. EASTMENT. We are talking, as I understand it, about large 

banks competing in the real estate marketplace. 

Mr. BACHUS. I guess we have to assume that if they get in the 

business, they could fail. 

Mr. EASTMENT. I think if anyone gets into a business, they can 

fail. 

Mr. BACHUS. I am not saying they will, but if they did then it 

would have a financial effect on the bank and the banks are federally insured by the taxpayers, by depositors, and it would have an 

effect on our deposit insurance fund, could it not? 

Mr. EASTMENT. I support appropriate firewalls to protect that 

from happening. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentlelady from California, Ms. Waters? 

Ms. WATERS. Thank you very much, Mr. Chairman. 

Let me just state for the record so that there is no misunderstanding about where I stand on support of the real estate industry. I have been very clear. I have been outspoken. I share my colleague Mr. Kanjorski’s feelings. I support H.R. 111. I will be an advocate in every way that I possibly can for the real estate brokers 

and their ability to do what they do so very well, without being literally overtaken by the banks that are consolidating more and 

more, and I guess swooping up more and more industries into their 

net. 

I want to ask Mr. Eastment about the joint venture. Could you 

tell me, what does it mean to have a joint venture with a bank? 

Does it mean that you have a responsibility to make sure that you 

give that bank that you have the joint venture with the opportunity to finance the mortgage? What does that joint venture 

mean? 

Mr. EASTMENT. Our mortgage company, Prosperity Mortgage 

Company, is 50 percent owned by Long and Foster and 50 percent 

owned by Wells Fargo Mortgage. It is jointly run by the two of us. 

Ms. WATERS. So what is your responsibility to Wells Fargo? 

Mr. EASTMENT. Our mutual responsibility is to serve the customers at Long and Foster with one-stop shopping. We make loans 

available to them if they wish to take it, and then we try to do the 

best possible job to get them the proper loan and get to the closing 

table. 

Ms. WATERS. And does your mortgage company have the same 

products as Wells Fargo? Do you have like products or are your 

products different? 

Mr. EASTMENT. We have identical products. 

Ms. WATERS. Do you have more subprime loans than in the Wells 

Fargo portfolio? 

Mr. EASTMENT. We do not have any more or any less. We have 

the same product line from A to Z that they do. 

Ms. WATERS. So all of your customers are kind of geared to either 

your mortgage company or to Wells Fargo? 

Mr. EASTMENT. Could you repeat that please? 

Ms. WATERS. All of your customers are directed to your mortgage 

company or to Wells Fargo? 

30

Mr. EASTMENT. Our mortgage company is full-service. We have 

450 people who originate the loans; who process the loans; and who 

close them. And once they are closed, they are sold to Wells Fargo. 

Ms. WATERS. I have been handed something that talks about 

your need to disclose. When you are dealing with customers, they 

have the right to know that they do not have to use your mortgage 

company or they do not have to use Wells Fargo. Is that correct? 

Mr. EASTMENT. That is correct. They are handed a disclosure at 

settlement that is required under RESPA that discloses any ownership that we have in the mortgage, the title or the insurance company. 

Ms. WATERS. Well, for any of you on the panel, let me just say 

what I like so much about the industry the way it works now. It 

was alluded to by my colleague that the real estate industry is 

truly entrepreneurial. What I like about it is the fact that you have 

these brokers and you have these real estate agents, and they operate in ways that, you know, many women, for example, are in this 

business. They operate sometimes part-time. They can design their 

lives how ever they want to design them, to work a few hours, to 

work more hours. I like this industry because you have so many 

entrepreneurial opportunities. I do not want to see it consolidated 

under the auspices of big banks. 

For example, the purchase of a house or a home really does create opportunities in so many ways, the escrow agent, the appraisers, the inspectors, the insurance companies. I like all of them at 

work, all of them at work doing what they do best, competing, offering their services and just really creating opportunities. What is 

it about either the joint venture or the opposition of the banks or 

the desire of the banks to include real estate services? What is it 

that you can consider creates more competition and more opportunity than the way it operates now? 

The CHAIRMAN. The gentlelady’s time has expired. The witness 

may respond. 

Ms. WATERS. I will direct that to Ms. Duke. 

Ms. DUKE. A couple of things. First of all, the characterization 

of all banks as the large banks that have been consolidated, there 

are probably 50 banks that would be considered large banks, and 

there are 7,000 community banks. Those community banks are 

working just as hard to compete with those large banks every day 

and are showing up in their communities, along with other bankers 

from banks of all sizes. 

Ms. WATERS. Until you all buy them up. 

Ms. DUKE. Excuse me? 

Ms. WATERS. Until you purchase them. Go ahead. 

Ms. DUKE. Well, I have myself started two banks and have myself been purchased and started again. 

To the question of the realtors and their entrepreneurialism, I 

would expect that banks entering the real estate business would do 

so by hiring the best realtors in the marketplace. It would be not 

to our advantage to go into the marketplace without the right professionals there. If those same entrepreneurial realtors decided 

that the proposition offered by bank-owned agencies as employers 

was better than another agency as an employer, I think that is a 

win for that entrepreneurial agent. 

31

The CHAIRMAN. The gentlelady’s time has expired. 

The gentleman from Oklahoma? 

Mr. LUCAS. Thank you, Mr. Chairman. 

If I could use Ms. Duke and Mr. Mansell more as a conduit to 

pass some concepts along to your association people, from my perspective it is time for both parties to sit down and work this out. 

Bring your bright policy people together somewhere and come up 

with a compromise that no one will necessarily like, but can live 

with and get on with it. 

I was a junior member of this committee when this bill was written. Yes, this and a few other things have been interesting quirks 

since then that have come to light. Obviously, when this was put 

together, the bankers’ policy people were either very skillful or very 

bright. To my realtor friends, obviously on this particular moment 

on that day, your policy people were not awake at the switch, but 

the circumstances are where they now are. We have 28 States, according to testimony here, that allow State-chartered banks to do 

this. The barn door is open. We cannot return to where we were. 

Set your policy people down and come up with something that all 

of you can live with. 

I have had all the bankers and all the realtors to my town meetings that I would ever care to have. You are all wonderful people. 

But the sandbox that you are playing in, you are doing no good by 

throwing sand in each other’s eyes constantly. Sit down and sort 

this out for your own benefit and for the benefit of all of our customers and constituents. Sort this out. 

Thank you, Mr. Chairman. 

The CHAIRMAN. I thank the learned gentleman from Oklahoma. 

The gentlelady from New York? 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Ms. Duke, as you know, minorities continue to lag behind nonminorities in achieving homeownership. Do you believe permitting 

banks to engage in real estate activities will help close this gap? 

Ms. DUKE. Yes, ma’am, I do. Banks have a number of outreach 

programs that go into all manner of communities, and particularly 

low-to moderate-income communities and minority communities in 

order to make mortgage loans and to make lending available. I 

think combining that with real estate services would be a positive 

for those communities. 

Ms. VELAZQUEZ. Mr. Eastment, when you answered Mr. Bachus, 

you talked about the competitive nature of your business, or the 

real estate industry. Typically, 6 percent of the home purchase 

price goes to real estate agents. Do you believe permitting banks 

to engage in real estate activities will impact this fee? 

Mr. EASTMENT. I think that fee is being impacted as we speak, 

even without banks. The marketplace is very competitive and is 

forcing commission rates now. I believe banks, if they had a significant market share, would add to that pressure. 

Ms. VELAZQUEZ. Mr. Mansell, over the last decade the financial 

service industry has tended toward greater consolidation. At this 

point at the end of 1984, there were more than 15,000 banks. At 

the end of 2003, there were less than 8,000. With regard to the real 

estate industry, it is populated by independently owned small businesses. If banks were permitted to engage in real estate activities, 

32

how would this impact the competitive landscape of both industries? 

Mr. MANSELL. Thank you for the question. We believe that the 

competitive nature of the real estate industry would be less, not 

more, because of consolidation. Right now, the largest company in 

the Nation has 4.8 percent of the market. Everybody else is in the 

1 percent range. Our friends at Long and Foster have 1.1 percent 

of the national market, and they are the third largest company in 

the Nation. After you get to the fourth one, nobody has even .05 

percent. As you look at that, what could be more competitive? 

The other thing that is interesting in the real estate side, 5 years 

ago we had 700,000 members of the real estate industry. Today, we 

have 1.2 million. Can you show me any other industry that has 

grown so much to stay competitive with so many people out there 

trying to participate in the business and this competitive and wonderful market that we have been involved in? Frankly, that is what 

has driven it, but it has stayed extremely competitive. I think by 

this consolidation that would take place, and I do believe it would 

take place, that you would have less opportunities and less competitiveness. 

Ms. VELAZQUEZ. And Ms. Duke? 

Ms. DUKE. We think we would make it more competitive. In addition to adding just a number of competitors, I think the banking 

industry does bring some advantages of technology as well as capital. You may not see large numbers of banks racing to get into the 

real estate business. I do not think you will see banks going into 

that business unless they believe that within their business model 

and their customer base that they have a better proposition, that 

they can provide better services or services not currently provided 

at a competitive price. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

The CHAIRMAN. The gentlelady from Illinois, Ms. Biggert. 

Mrs. BIGGERT. Thank you, Mr. Chairman. 

In 1999, I sat down in the front desk. I was not at the kiddie 

table at that time, for those of you who remember the kiddie table. 

There were three of our members there. So I was very proud that 

I had a desk. 

I came to this committee thinking that I had served on financial 

services in the State legislature and this was going to be an issue 

about banking versus insurance. Was I ever naive. This was a real 

education in financial institutions. So many of the members that 

were here then had spent most of their congressional service talking about this issue and working on the Gramm-Leach-Bliley as 

the title came to be. 

My point is that there are so few of us remaining who are here 

and were really involved in this dialogue in 1999. I was asked 

when this real estate bill came out to sign onto it every year. I said 

that I really could not sign onto a bill if it was going to be heard, 

would come up in this committee, and to make a decision prior to 

the discussion of the bill I thought was wrong. I had to keep an 

open mind. I have an open mind right now. 

In my former life, I was a real estate attorney and worked on 

that. Illinois is a little bit different because we have a case which 

says that real estate transactions must have a lawyer. It is very 

33

lucrative for those that were in the real estate practice to be involved in that. But I have an open mind. 

What my concern is that when I said I could not sign on as a 

cosponsor, I had ads run against me in my district. And that, I 

think, was wrong. I wonder how many people that happened to in 

this body that had ads run against them, because I think for us 

to make this decision to decide whether the regulators should go 

forth with that decision or whether it should be something in Congress, I do not know. I have not heard anything yet in this discussion that makes me have a firm view one way or the other. 

I do think and I do agree with Mr. Lucas that the bodies need 

to get together. I would hope that they would sit down and discuss 

this issue so that then whether we need to do this or whether the 

regulators, because Gramm-Leach-Bliley was I think a bill that 

came out that I was very proud to have been here at this time. I 

think to reopen all of what went on before is wrong, but I also 

think that the bill was made so that there can be, as the market 

changed, the place changes, that there can be accommodation. But 

I think if the parties would get together first and make those decisions, rather than having this fight between the two bodies is bad. 

With that, I really do not have a question, but I will ask Mr. 

Eastment, because you seem to be kind of in the middle of this 

process, what would it take to get the real estate industry to the 

negotiating table? Am I correct that there are some useful models 

that have been developed by State legislatures across the country 

for addressing potential conflicts of interest and other issues that 

arise when banks engage in real estate brokerage? 

Mr. EASTMENT. I totally support the comments about how we 

ought to all get in a room and hammer this out. I think the only 

area where the National Association of Realtors and RESPRO really disagree is the fact that we do not think the world would end 

if banks get in the business. RESPRO represents real estate companies that provide over 50 percent of the real estate transactions 

in this country. The majority of RESPRO’s members do not feel 

that the world will come to an end. 

So I would like everyone to get into the room together. As far as 

a model for that, the Commonwealth of Virginia several years ago 

passed a bill to allow State banks into the business. It was a compromise that was reached between the bankers and the realtors in 

the State. As a result of that bill, there is at least one bank who 

has bought a real estate company. I think that could be referenced 

as a model. 

The CHAIRMAN. The gentlelady’s time has expired. 

Mrs. BIGGERT. Thank you. 

The CHAIRMAN. The gentleman from Illinois, Mr. Gutierrez? 

Mr. GUTIERREZ. Thank you, Mr. Chairman. 

Ms. Duke, if national banks are permitted to engage in real estate activities, what laws would govern their activities? Would they 

be licensed and regulated by the States, since there are no Federal 

laws in this area? Would the State Attorneys General have jurisdiction over them? 

Ms. DUKE. The real estate activities would be licensed and governed by the State laws. However, the banks would also be governed by Federal laws which address things like privacy and antiVerDate 0ct 09 2002 15:28 Aug 29, 2006 Jkt 029455 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 F:\DOCS\29455.TXT HFIN PsN: TERRIE
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tying. So there would be a combination of the two, but the real estate activities themselves would be governed by State laws. 

Mr. GUTIERREZ. If they are to be governed by State laws, why are 

you not subject to State laws governing your other subsidiary activities? I would think that mortgages are local as well and are tied 

to property. 

Ms. DUKE. Actually, the insurance business is still governed by 

State law, rather than a national law. 

Mr. GUTIERREZ. In other words, if I hear you correctly, if banks 

were to engage in real estate activities, locally you would be regulated by States and come under the jurisdiction of the local attorneys general. So if you sold me a home and then I imagine your 

banks are going to give the mortgage, why wouldn’t that mortgage 

that you give tied to that loan be regulated by the same State 

agencies? 

Ms. DUKE. The brokerage business, which is regulated by the 

States, in the case of real estate and insurance, are governed by 

the State. The Federal laws, particularly on disclosure on mortgage 

lending, do govern. They are enforced in some cases with national 

banks enforced by Federal regulators and with State banks enforced by State regulators as well as Federal regulators. 

Mr. GUTIERREZ. Yes, and as I heard my colleague suggest earlier, 

but there is no anti-predatory law there. 

Ms. DUKE. I am sorry? 

Mr. GUTIERREZ. There would be no anti-predatory laws there. 

Ms. DUKE. No anti-predatory laws in the real estate business? 

Mr. GUTIERREZ. If you are not regulated, if your one activity has 

nothing to do with the Federal Government, right, that is the side 

of your activity that has to do with mortgages, right, there is nothing at the Federal level to prohibit that. 

Ms. DUKE. I believe the Comptroller of the Currency is the one 

that regulates lending activities of national banks. 

Mr. GUTIERREZ. Right. That is my point. So there would be no 

anti-predatory lending laws governing that activity. So you would 

have two activities. It just seems to me that as we have a marketplace, you would be put at a particular advantage. That is to say 

that State banks regulated by State and local banks versus national banks would have two different areas in which they would 

compete. 

One would be regulated by the State both for the real estate license division, which you say you would be covered by the State, 

but on the other hand they would also be on the mortgage end, 

that is on the lending end, but you would not be on the lending 

end. You said earlier you would only be covered by Federal regulators. 

Ms. DUKE. On the issue of predatory lending, there are numerous 

laws that govern the lending. On the issue of the competitiveness 

of the mortgage market, the vast majority of mortgages, whether 

they are originated by banks or they are originated by independent 

mortgage companies, are sold into the secondary market and are 

governed by those market forces. 

Mr. GUTIERREZ. Yes, but somebody sells them. There has been a 

lot of conversation today about fair competition. Aren’t there similar concerns about competition is not fair if national banks are not 

35

subject to the same State laws and regulations as State banks currently are? Doesn’t that question need to be answered first before 

we move forward into the area of allowing our national banks to 

sell real estate? 

Ms. DUKE. I am not sure even in the case of independent mortgage companies, that they are regulated by other State or Federal 

regulations. 

Mr. GUTIERREZ. I am talking about banks, since you represent 

the banks, and not so much the independent mortgage companies, 

since we want a level playing field for everyone. So in other words, 

if I have a State bank, that is regulated, according to your testimony, by both the State and the Federal governments. But the national banks would not be regulated by the Federal Government in 

terms of giving out mortgages because, as you said, that is only 

Federal regulations on them. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from California, Mr. Miller? 

Mr. MILLER OF CALIFORNIA. Thank you, Mr. Chairman. 

Many people in this House disagree on many issues we vote on 

each and every day. Chairman Oxley is, I think, a great man. I 

have tremendous respect for Chairman Oxley, but when you look 

at members of this committee who go to the floor and vote, one 

press is red and one press is green. It does not mean that one is 

necessarily right and one is necessarily wrong, but we have a difference of opinion. 

When Gramm, Leach and Bliley worked on this bill, they were 

all good men. They really had the best of intentions. They tried to 

come up with the best product that they possibly could come up 

with. There are certain areas within the law, Gramm-Leach-Bliley, 

that are not prohibited. There are areas that are silent. Powers 

were given to the Federal Reserve and the Treasury and those are 

subject to review by the regulators, which are the regulators. But 

when we talked about GSE reform, many of us had huge concern 

with the Treasury Department taking oversight over GSEs because 

of their lack of expertise, we believed, in housing. 

Now, one of my favorite individuals as a comedian was W.C. 

Fields. He one time said, ‘‘I spend far too much time searching 

through the Bible trying to find loopholes.’’ 

You know, I guess maybe if it is not prohibited and subject to 

review, that might be considered a loophole by some people. As a 

Christian, I know I read the Old Testament and the New Testament. One says one thing, ah, God changes his mind and he has 

a New Testament. Something else happened. We are all the time 

around here passing laws because we are changing laws we previously passed that we think need to be changed. 

Now, something keeps being said that there is a need for competition. I have been a developer for over 30 years. I have tremendous respect for lenders because if it was not for lenders, I could 

not have built houses. We had one-stop shops. We built houses. We 

had a realtor sell the house. We provided a lender to make the 

loan. Usually, the guy who made me the construction loan, I tried 

to give them the take-out if I could. We used escrow companies and 

we provided title policies, but I did not own any of those. I was just 

the builder out there. 

36

Now, if competition is good and if real estate is considered financial activities, I guess you would say where does that end? Because 

things have changed in the development industry today. We have 

a lot of publicly held corporations out there building homes, KB, 

Lennar, and many other ones. In some way, they have an advantage over the old private ma and pa construction company because 

they go to the stock market and raise huge amounts of money. 

Now, if competition is just what we are concerned about, I really 

think banks could probably be more competitive building houses 

than I could as an independent guy because you have more money 

than we do. You can take those risks we can’t. I mean that in a 

good way, not a bad way. Do I think you should? No, I do not think 

you should. 

But if I am looking for competition, I will bet you Bank of WalMart could probably make me a good loan out there and save me 

10 or 15 percent. I used Bank of America. I have used them since 

it was Security Pacific, for 30-some years. But I will bet you Bank 

of Wal-Mart would probably make me a good deal when I went in 

there to buy my pretzels and whatever I buy at Wal-Mart. I will 

bet you Bank of Wal-Mart auto mall could probably save me a lot 

of money, too, because they would probably work on a smaller margin than many good friends of mine who have auto malls and sell 

at dealerships. 

So if we are purely looking at competition, that opens up an area 

that is so broad in and of itself that I think we need to be very, 

very, very cautious. Even the founders who wrote the Constitution 

amended it because there were certain things that they thought 

needed to be changed as time went along. I see a problem with this 

industry being opened up to banks. It is not that I have anything 

against banks. I have huge respect for banks. I deal with a lot of 

bankers, but I deal with a lot of realtors, too. 

I think there is a huge conflict of interest if banks could be a onestop shop for real estate and title work. To give you an example, 

a title company guarantees the title to a piece of property. If a 

bank could do that and there was a problem on the title guarantee, 

who does the person who owns a home go to? Not only did they borrow the money from the bank, the bank guaranteed the title to 

make the loan to buy the house. Is there a conflict of interest 

there? I think there is. That is my perspective. I have never owned 

a title company. I have never owned a bank. I am not a realtor 

today, but I see inherent conflicts in those areas. 

I think banks see a huge conflict with Wal-Mart getting involved 

in the banking industry because they could do everything. Next 

thing you know they will be building the houses. They will be providing the realtors out there. They will be providing the title insurance. They will be providing the loan. Wal-Mart really works on a 

competitive, very small margin out there. 

And then are we going to consolidate our entire housing industry 

and financial industries in a very few people? I think we could do 

that. 

The CHAIRMAN. The gentleman’s time has expired. 

Mr. MILLER OF CALIFORNIA. So I commend the chairman for having the hearing so we can at least talk about the issues, and sometimes we just disagree. 

37

Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman from North Carolina? 

Mr. WATT. Thank you, Mr. Chairman. 

I will call Mr. Miller and raise him. He quoted W.C. Fields. I 

have an even more famous philosopher that I think this situation 

calls for, and that is Yogi Berra. 

He said when you reach the fork in the road, take it. 

The banks feel like we reached the fork in the road when we 

passed Gramm-Leach-Bliley, and we took it. The realtors think we 

ought to go back to that fork in the road and take it again. So I 

kind of feel like Barney Frank on this. I actually love these disputes because they remind me of the telecommunications debate. 

All of the parties are so well-financed and have the best lobbyists 

in America and they are in here fighting with each other and 

throwing stones at each other, and exposing some of their own 

vulnerabilities in the process. 

One vulnerability was referred to by Mr. Gutierrez for the banking industry. It is hard for the banks to say we are going to be regulated by State and local real estate laws, when the Federal regulators have preempted the Federal banks from predatory lending 

laws at the State level. That is a real problem. 

It is hard for the realtors to be in here talking about this as competition. I am not sure it is about competition on either party’s 

side. It is about who gets the advantage of competition. But it is 

hard for realtors to say that with a straight face when they have 

some issues with online real estate people. 

I did learn a lot today. I was in the room when we did GrammLeach-Bliley and I thought I knew what was going on until I heard 

Mr. Leach testify. 

Then I realized that a whole different discussion was going on. 

I was over there fighting Senator Gramm on whether he was going 

to crack down on community groups when they opposed bank mergers. We were trying to get some language there, and a whole different discussion was going on at a much, much higher and different level, but it is wonderful. 

I love this debate because it is totally bipartisan: Oxley and 

Frank on one side; Kanjorski and Bachus on the other side. I 

mean, that is about as bipartisan as you get. 

Now, you notice I do not have a question. 

I am just getting all this out of my system. 

Mr. LEACH. Will the gentleman yield? 

Mr. WATT. No, no, no, no. Oh, to Mr. Leach? Yes, definitely, I will 

yield. 

Mr. LEACH. I just wanted to explain to you. I thought the logic 

of the Phil Gramm statement was something today that I recognized completely. The tone was not. 

Mr. WATT. I think I could certainly concur with that. The logic 

of everything that everybody testified today was brilliant, but my 

recollection is we just kind of punted this issue to the regulators 

because we were afraid to deal with it. It was going to blow up the 

whole Gramm-Leach-Bliley discussion. This was a good way to put 

it off to a future time. Maybe that time has come, which is why 

the Yogi Berra comment seems to me to be applicable. 

38

There is no question in my mind that real estate brokerage is incidental to financial services. I mean, just about anything you could 

think of would be incidental to financial services. I think the question is, should it be financial or shouldn’t it be, and so then we get 

to the question of who should be making that decision. Should it 

be legislators or should it be regulators? 

We are back to the box we were in when we were dealing with 

Gramm-Leach-Bliley. We are going to have to bite this bullet and 

not blame whatever the regulators decide at some point. Should it 

be this committee or should it be the Appropriations Committee? 

I do not have any question where I come down on that. 

I hope one lesson will be learned by all parties from this discussion today, however, and that is one that all of the parties learned 

in the telecommunications debate. You can spend a lot of money 

fighting about this, but at some point you all are going to have to 

get together and sit down and talk about it and try to reach some 

meeting of the minds, and then perhaps you can get all of us off 

the hook, because right now we are having to make some tough decisions. Do we love real estate people and hate banks? Or do we 

love banks and hate real estate people? None of us really fall into 

either one of those categories, in my opinion. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Texas, Mr. Hensarling? 

Mr. HENSARLING. Thank you, Mr. Chairman. 

I do not with to take up the committee’s time with this, but perhaps after our hearing the gentleman from Iowa can inform me inasmuch as I failed to capture Chairman Gramm’s tone, whether 

that is praise or criticism. I am not sure. 

Mr. WATT. You need to be a lot more surly, young man. 

Mr. HENSARLING. Thanks for your guidance. 

Mr. Chairman, before I get into my line of questioning, I would 

like to make one observation. I notice that a number of my colleagues, members of this committee, have shown a lot of consternation over bank consolidation. For those of us, myself and my friend 

Mr. Moore from Kansas and others who are working on regulatory 

relief legislation for our financial institutions, have heard very compelling testimony that the regulatory burden on our financial institutions is one of the top drivers of bank consolidations. I hope that 

as we work on that legislation, Mr. Chairman, that my colleagues 

will recall their enthusiasm for wanting to deal with the problem 

or the challenge of banking consolidation and embrace our legislation. 

Mr. Mansell, I would like to ask you a couple of questions and 

make sure I really understand exactly where your association, how 

they feel on this issue. Number one, is there an objection to the 

Gramm-Leach-Bliley process in determining the definition of financial activities? Or do you just feel that the Fed and Treasury got 

it wrong here? 

Mr. MANSELL. I think I would have to say we think they got it 

wrong. You might ask yourself, are those the two right parties that 

should be making that decision? Or should maybe one of them be 

eliminated and have Commerce be the other one, so that you have 

two sides of the argument in the regulator side that can also make 

the determination. As it is, you have a pretty lopsided regulator. 

39

In fact, you could ask the question, is it a regulator or is it a permitter? 

Mr. HENSARLING. So the answer to the question might be both, 

some concern with the process and certainly you believe they got 

it wrong here. 

In your testimony, I think a couple of times you used the phrase 

‘‘huge banking conglomerates’’ in speaking of your fear of what 

they would bring to the marketplace. One of my colleagues brought 

up the specter of Wal-Mart, if you will. Would you be against WalMart being in the business of competing in real estate brokerage? 

Are they viewed as a conglomerate or banking? Or is the fear merely huge? 

Mr. MANSELL. I do not know that I would particularly like to see 

them in the banking business. They would certainly be huge, but 

there would be nothing to prevent them from doing that. 

Mr. HENSARLING. So your association would not necessarily advocate legislation that would prohibit them getting involved in real 

estate brokerage merely because they are large? 

Mr. MANSELL. No, it would not be, because they are commercial 

in nature and we believe we are commercial in nature. And so 

there would be nothing there that would prevent that. 

Let me add that Wal-Mart sells assets or a product, so they are 

commercial in nature. Real estate brokers sell product or assets. 

What makes the real estate broker any different than the WalMart when you are defining which one is financial in nature? I 

think you have it just backwards in the consideration, and that is 

the sale of the home and the finding of the home is generally the 

first thing that takes place. 

The financing comes after. I believe that was the testimony of 

Ms. Duke. I would agree with that. So which one is incidental? It 

seems to me that the financing is the incidental part of the real 

estate transaction and 20 percent of all the homes that are sold 

have no bank financing on them. They are either cash or seller-financed. 

Mr. HENSARLING. If I could, my time is starting to draw to a 

close here. 

The portion of your testimony that I would tend to feel most compelling, I am very sensitive to arguments that someone is 

leveraging a government-provided benefit to unfairly compete in a 

different arena. However, in my own survey, it appears that the 

mortgages that banks are offering are typically within a few basis 

points of those offered by real estate-affiliated mortgage lenders. If 

they have all of these advantages, why don’t I see a greater disparity in the mortgage rates that are offered? How are they 

leveraging their benefits, be it their FDIC insurance or the other 

benefits that you elucidate in your testimony? 

Mr. MANSELL. I do not know that they are leveraging them. I 

think they are using them to the highest profit possible. Therefore, 

they are letting the market determine where that pricing is, rather 

than using that advantage. 

Mr. HENSARLING. I appear to be out of time, Mr. Chairman. 

Mr. LEACH. [presiding] Excuse me? Fine. 

Mr. Sherman? 

Mr. SHERMAN. Thank you, Mr. Chairman. 

40

I note that the majority of Congress is cosponsoring H.R. 111, yet 

only one of our witnesses is taking that position. So I am going to 

make a number of observations, and then ask Mr. Mansell to respond to these observations. 

First, I would note that current law undoubtedly allows a combination of mortgage banking and real estate. The issue before us 

here is whether we are going to combine federally insured banking 

with real estate brokerage. Another observation is that GrammLeach-Bliley, we are talking about whether we should open it up. 

Well, the supporters of H.R. 111 think Gramm-Leach-Bliley needs 

to be clarified. The supporters of Oxley-Frank want Gramm-LeachBliley clarified. So there is simply no doubt that it ought to be 

clarified. If that is opening it up, I do not know. 

But the Gramm-Leach-Bliley provision says that we are going to 

have a list of financial services and then we are going to add new 

ones as there is a change in technology. I have yet to figure out 

what happened in the 6 months after we passed Gramm-Leach-Bliley so that there is a sudden new change. The last I thought, I 

thought real estate brokerage existed in 1999 and is not a new invention created for the new century. 

One observation made by Mr. Gutierrez is we are asked whether 

these banks are going to be subject to the same realtor-agent licensing and consumer protection laws. Keep in mind, these same 

Federal bank regulators have already exempted their charges, their 

banks from the State predatory lending consumer protection laws. 

So no doubt if we let banks into real estate, we will have a 

chance to have an agent who is exempt from all the State licensing 

laws and all the State consumer protection laws on real estate 

agents, and he can sell or she can sell you a home that might have 

some defects in it because, well, those consumer protection laws do 

not apply. And they can set up with a loan which under your State 

law is deemed a predatory loan, but don’t worry about that, the 

Federal regulators have exempted them. 

Japan shows us the disaster of mixing banking and commerce, 

but we are told that it is okay for banks to go into real estate for 

two reasons. First, financing is important to the consumer on a 

house, except those houses where there is no financing; and second, 

that the family is acquiring an important and valuable asset for 

the family portfolio. Well, let’s apply that to some other areas and 

we will see that these arguments open up a Pandora’s box. 

In order to purchase an auto, it is very important to get a loan. 

Poor people, they get a loan or they do not get a loan. That means 

they get a car or they do not get a car. And that auto is the most 

valuable family asset in the portfolio of many renters in my district. So that means banks should be selling cars and I would assume manufacturing them as well? Gold is a financial asset, so 

banks will be in the gold mining business. 

It is not the house, I hate to tell a real estate panel this, it is 

not the house that is the most valuable asset for most American 

families. It is the education and the enhanced earning capacity of 

the people who live in that house. And of course, students need 

loans. So banks can own proprietary technical schools. The arguments in favor of letting banks into real estate lets them into everything from auto manufacturing to appliance stores to boat manVerDate 0ct 09 2002 15:28 Aug 29, 2006 Jkt 029455 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 F:\DOCS\29455.TXT HFIN PsN: TERRIE
41

ufacturing. We are opening Pandora’s box. I think it ought to be 

closed. 

But the real reason that I am cosponsoring H.R. 111 is that this 

one-stop shopping idea with federally insured deposits, the whole 

idea is you will have the bank as realtor and the bank as lender. 

My fear is people who do not deserve loans will get them. When 

I say ‘‘don’t deserve,’’ I mean these are hard-working people, but 

I want the Federal insurance system protected by a banker who 

can say no. Well, it is much harder to say no when the very day 

that the deal closes, the bank as an entity gets 6 percent right 

there. That is a huge incentive to say yes. 

Now, the consumer will understand this. The consumer will say, 

I have shaky credit. A bank, using its best thinking, would not 

make me a loan. Let’s go to a realtor who is part of a bank and 

I will get a loan, and will instinctively understand 6 percent right 

off the top. And who bears the risk of that? Well, if a series of these 

transactions go well, the holding company does well. Its real estate 

agency does well. The lending agency does well. Everybody makes 

a lot of money. But if a bunch of these transactions go poorly, it 

is the taxpayer who steps in and says, oh gee, the bank made a 

lot of loans they should not have made. It looks like they got too 

turned on by that 6 percent and we, the taxpayer, get stuck holding the bag. 

Mr. Mansell, do you have some comments about my observations? 

Mr. MANSELL. I think your observations are pretty good. I really 

do. I think there is a way to actually determine the difference between banking and commerce, and I might suggest that to you. I 

would suggest that you call both the banks and the realtors at 8:00 

Saturday night. The one that answers is commerce and the one 

that does not is banking. 

Mr. SHERMAN. Believe it or not, I know some bankers and certainly some real estate lenders that are available that late. I do not 

want to characterize one group in this room as harder-working, 

more meritorious, or even a greater pillar in the community as another. But I would say that if you are selling a physical asset, that 

is going to be used, whether it is a car. You know, this shirt, I got 

through a banking transaction. 

Mr. MANSELL. Did you use a credit card? 

Mr. SHERMAN. Absolutely. And I am not sure that I could have 

afforded this shirt if banks had not helped me at the time. But I 

do not expect to see blue size 16 1/2 shirts there at the bank for 

sale. So I just do not understand why selling a house is financial, 

but selling a car, a boat, a houseboat, a boat big enough to have 

a house, an RV I could live in, a car big enough for me to sleep 

in, is somehow a financial transaction. 

With that, I yield back. 

Mr. LEACH. Mr. Pearce? 

Mr. PEARCE. Thank you, Mr. Chairman. 

All this is a stunning amount of information I am trying to process here. I have got notes everywhere. I will make some scattered 

observations, but I will close with one question just in case the witnesses might want to go to sleep on me. 

42

The idea of competition is basically one of pressure and pressure 

is both a good thing and a bad thing. Being a small businessman, 

buying a small business with four employees and competing with 

an international competitor that tried to grind the financial life out 

of my wife and me actually exposed me to many of the plusses and 

minuses of competition and of pressure. 

When I hear the terms of competition used today, I am stunned. 

I am overwhelmed. I hear the ranking member say that he is all 

for competition; that competition is a good thing. I suspect if I ask 

him to cosponsor the Davis-Bacon Act with me, he might have a 

different perception on exactly that kind of competition, which 

might not be such a good thing. 

I have heard the banks are very concerned about the bright line 

between primary and secondary markets. I have heard about them 

not wanting to compete back and forth. I have heard the concern 

from the banking industry about the size of our GSEs, and those 

are appropriate concerns. Basically, we are operating in a regulated market, and as we begin to talk about competition I think we 

should be very aware. 

In the oil and gas business, there is high, high, high pressure at 

a wellhead. There is a fascinating thing called a ‘‘one-way check 

valve.’’ A one-way check valve allows all the pressure on one side 

and no pressure on the other side. So if I am going to look at this 

situation here, and we are talking about, we have heard discussions on barriers to entry, that we have a barrier to entry between 

banks and real estate, but I suspect if we turn the equation around 

and look backwards, the barriers to entry are more extreme. 

If I am a real estate agent, a single agent in business in Hobbs, 

New Mexico, where I come from, I suspect that the barriers to 

entry to banking are a little more severe than the barriers in the 

other direction. I think if I am going to organize a bank, and you 

have organized three, Ms. Duke, I suspect that you are going to 

need between $6 million and $8 million of capital, and if I want 

to operate a real estate business, I probably can do it with a used 

1957 Chevy that is parked in the backyard. 

I think that we throw this term ‘‘competition’’ around very loosely when there is only pressure that can be applied one way in the 

system. I hear Mr. Eastment saying he does not really get concerned with the banks being involved in the real estate business. 

But I am concerned when I look at Japan and I realize that the 

problem with Japan’s economy is they built themselves an economy 

that is almost dead because they allowed banks to get into the 

business of loaning to real estate and being partners in the businesses and the manufacturing. The intent was to build an economy 

that simply dwarfed the rest of the world and it failed, and they 

felt like they were competitive. 

I worry that we would build a model here that would do the 

same thing in the name of competition. In truth, there is not competition from the real estate agent and the corner grocery store in 

Hobbs, New Mexico, backward toward the megabanks. I will tell 

you that if we make a mistake in this, that the life will be ground 

completely out of the rural economies because it will not be banks 

in Hobbs, New Mexico that compete for real estate in New York. 

43

It will be the banks in New York who come down and sell the real 

estate in Hobbs, New Mexico. 

We are in a regulated environment and we need to understand 

it and we need to be very judicious. I disagree with my colleagues 

who said that we had a carefully crafted compromise. I do not care 

how careful it was. If it was not correct, then we need to think 

about what we are doing very, very seriously because it is the rural 

pieces of this country that sustain a great percent of it. Everything 

that we do that goes large against small, urban against rural, is 

choking the lifeblood out of the small communities. 

My wife and I had a business with 50 employees. We were there 

when the banks began to merge, so that we had a New Mexicoowned bank merge to a larger bank and to a larger bank and to 

a larger bank. At the fourth transition, they did not know my name 

anymore and I took my 12 years of business back down to someone 

who knew me locally. 

So, Mr. Chairman, I appreciate the fact that you are trying to 

solve a problem. I think I am a little curious about the barriers to 

entry because they exist one way and they don’t. The pressure in 

this situation is all going to move one way without the ability for 

small, independent real estate agents to compete backward toward 

banks. I will delete my question. I see I am out of time. 

Thank you, Mr. Chairman. 

Mr. LEACH. Thank you for those thoughtful comments. 

Mr. Hinojosa? 

Mr. HINOJOSA. Thank you, Mr. Chairman. 

I agree with many of the points that Congresswoman Biggert articulated. The reason is that the district that I represent has many, 

many small- and medium-sized entrepreneurs, an area that for 3 

decades had a double-digit unemployment rate. It has taken creating lots of new businesses that are not capital-intensive to be 

able to put a lot of people to work. I heard several of the Members 

of Congress here talk about the importance of real estate because 

it is very flexible, the flexible hours that realtors have. That is 

something that is extremely important in the region that I represent. 

It seems to me that it is very appropriate to determine if the current structure provides the best protection for consumers, especially low- and moderate-income households outside the mainstream financial system. I represent about a 360-mile geographic 

area from south Texas to central Texas. Many of the constituents 

I represent are listening very attentively to how Congress is going 

to resolve this debate that we are engaged in today. Unfortunately, 

a majority of the Hispanics fall into this category of low to- moderate-income households. I agree with Mr. Mansell that these individuals might not benefit from bundled realty services designed for 

bank clients with greater resources. 

The potential adverse affects of allowing banks, their subsidiaries, or financial holding companies to conduct the activities proposed by the Treasury Department and by H.R. 2660 far outweigh 

any public benefits. Our job in Congress is to protect the consumer. 

We do so via regulatory oversight and through legislation, as was 

the case with the Gramm-Leach-Bliley legislation and is the case 

today as we consider H.R. 2660 and H.R. 111. Maintaining the sepVerDate 0ct 09 2002 15:28 Aug 29, 2006 Jkt 029455 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 F:\DOCS\29455.TXT HFIN PsN: TERRIE
44

aration of banking and commerce is one way to protect them. H.R. 

111 will do just that. It is for these reasons and more that I became 

an original cosponsor of, and support to this day, H.R. 111, the 

Community Choice in Real Estate Act. 

I would like to ask a question of Mr. Eastment. Insurance agents 

were opposed to allowing banks to broker insurance. Now that 

banks can do this, what have been the effects? 

Mr. EASTMENT. Honestly, I have to say I do not know. We have 

a small insurance agency. We have had it for 30 years. That issue 

never reached our level, so I really have no comment on the effects 

of banks in the insurance business. 

Mr. HINOJOSA. Okay. Then I will ask another question of Mr. 

Mansell. We have focused on the benefits to banks of owning real 

estate brokers. What, in your opinion, would be some of the negative effects on real estate brokers if real estate is considered to be 

financial in nature? 

Mr. MANSELL. I think the biggest danger is just the size of the 

institutions and the risk for the federally insured deposit groups. 

Frankly, we are not very worried about the competition on the 

street. What does concern us is that their ability because of their 

financial strength to do some things would be quite dramatic compared to the rest of the real estate business. 

As was described earlier today, they could certainly, through various benefits that they could put together, I do not know that I 

want to call them ‘‘tie-ins’’ because I understand there are some 

anti-tying things in there that would prevent that, but certainly 

some benefits within that would make it very difficult for others to 

compete. 

Consequently, that is our biggest fear, is that you will drive 

down competition. I do not know how anybody can say the real estate industry, with 300,000 companies and 1.5 million licensed realtors, is not competitive in this Nation. It is probably as competitive as anything there is that I am aware of. So I think the biggest 

danger would be consolidation and eliminating choices for consumers by consolidating the services and eliminating members of 

the business. 

Mr. HINOJOSA. Do you believe that the banks would take the 

lower profits while they drive out as many realtors as they can, 

and then bring up their prices or their costs? 

Mr. MANSELL. I do not want to say. I do not know what the 

banks would do, but certainly that is a possibility. I guess I would 

look at the insurance industry and ask the question, have premiums gone down since banks got into the business? Has it gotten 

better? I know there was a request by, and I do not know who it 

was in the Congress, for a report on that very issue, about whether 

the change with banks in securities and insurance has been beneficial or negative to the consumer. As far as I know, and maybe Mr. 

Leach could tell us that, we have been unable to get that report 

back. 

Mr. LEACH. The time of the gentleman has expired. 

Mr. HINOJOSA. Thank you, Mr. Chairman. I appreciate the opportunity to ask those questions. 

Mr. LEACH. Mr. Neugebauer? 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

45

Just for the record, in my past I have worn two hats that are 

sitting at the table today. I have been a banker, did commercial 

and real estate lending, in fact even owned an interest in a bank, 

and then for over 33 years I have been a licensed broker in the 

State of Texas. Unfortunately, I do not get to come to this table 

wearing any hats. I am wearing the hat of the people. 

I think one of the questions that is before this hearing today—

and I think it is appropriate that we finally have a hearing on this 

issue, I think it has been very productive—is whether real estate 

brokerage is a commercial activity or a financial activity. The legislation that was passed was silent on that. So I think it is appropriate that the chairman have this hearing. 

I think the issue for me as I begin to look at it, and it is one 

of the pieces that I did not hear discussed today, and that is the 

issue of fiduciary. As a former banker, I had many, many occasions 

where my customers were coming to me and thinking about leasing 

a particular space in a shopping center or leasing a building for 

their operation or building a building for their operation or buying 

a building for their operation. They came to me for my counsel and 

my advice on whether that was a good overall strategy for their 

business as a small businessperson. 

I think the question today is if I am sitting in a loan officer’s 

desk and there is a substantial commission involved in the brokerage, in that transaction, am I going to be able to give my customer 

the same objective information or advice that I would give them if 

I was an independent party? 

I go to the fact that the financial institutions, there is a precedent that this Congress has set about financial institutions, of 

them having a fiduciary responsibility. In fact, the last several 

Congresses have gone to great lengths to make sure that there is 

a firewall on certain kinds of activities. For example, in the securities business, those people that are underwriting certain issues 

should not be necessarily selling those and giving advice to customers to buy those. 

We have just looked at Sarbanes-Oxley, where we said to the accounting industry and others that we have to make sure that there 

is independence in the evaluation so that when that information 

and advice is given to the consumers and to the general public that 

there is protection for those people. 

So I think as we go forward in this debate, I think one of the 

things that we have to begin to say is, and the Japan example is 

a good model, is there a reason that when we look at the difference 

between a commercial activity and a financial activity, is there 

need for there to be that fiduciary piece of that to not only protect 

the soundness of the financial institutions, making sure that they 

are not making lending decisions based on real estate commissions, 

but they are making those based on sound banking principles. 

And are the individuals, the people that are relying both on the 

broker and the banker to give them clean, objective, independent 

advice on, is that transaction in their best interest? So as we move 

forward, I think we need to look at that particular issue. I love 

competition. I love to compete, but I like fair competition. 

One of the things that I think was interesting was that in this 

previous legislation that land development was taken out of the 

46

picture for that. As someone who was in the real estate business 

in the 1980’s in Texas, I can tell you that was a very easy decision 

for the regulators to come up with because they had to come back 

and clean up a very ugly mess where lending institutions did get 

into a business that they knew little about, and risked huge 

amounts of capital of those institutions and in fact broke those 

banks, and also cost the American taxpayers a fairly substantial 

piece of change. 

So I think as we move forward if we are going to talk about competition, and I kind of associate myself with Mr. Miller, is if we are 

going to say that there should be very little differentiation between 

a financial and a commercial activity, then we should then open 

the doors up. We should have the Bank of Wal-Mart and we should 

say that there is no discrimination between what an entity or a 

corporation in America, the businesses they can get in. But we 

have chosen not to take that course. 

It is not just legislation that was passed 50 years ago. It is legislation that we continue to pass on a continuing basis where we say 

there has to be some transparency; that there have to be some firewalls; that there has to be some independence in certain kinds of 

transactions. 

One of the things as a former homebuilder I knew that I was sitting at a table with the single largest purchase that most families 

make in their life. We needed to make sure that what we were 

doing was in their best interest. So as we proceed on this legislation, I think what we need to do is be very, very careful that we 

make sure that we are doing what is in the people, the customers 

of both the realtor and both the banker, we are doing what is in 

their best interest. 

I yield back the balance of my time. 

Mr. LEACH. Thank you very much, Mr. Neugebauer. 

I apologize for going in order, Mr. Davis. It would be Mr. Crowley. 

Mr. CROWLEY. Thank you, Mr. Leach. 

Welcome to all of you. It is good to see you here today and thank 

you for the conversation. 

I just want to follow up on Mr. Watt. I am coming from where 

he was coming from. What I take from the first panel is that, when 

I was able to decipher it, it ensures that the Fed was given under 

Gramm-Leach-Bliley the flexibility to determine what would constitute what is financial in nature; that if they considered something new in terms of finance in nature, then under Gramm-LeachBliley the banks may very well be able to enter into those activities. 

It would appear to me that language in appropriation bills that 

prevent the Treasury from actually promulgating regulations and 

rules with respect to what constitutes again new financial activities 

flies in the face of GLB as far as I read that. 

Saying that, I also recognize the importance of the work and the 

contribution that many of my local realtors are engaged in. I believe, as I think Mr. Watt was saying, that there is some room here 

for compromise, not the Oxley-Frank bill nor the Calvert-Kanjorski 

bill, but a bill maybe in the middle ground that has yet to be determined. I think that we have the ability and we have an opportunity 

47

to continue in the spirit of what GLB was I think originally attempting to do. 

I just want to ask both Mr. Mansell and Ms. Duke whether or 

not you believe there really is any opportunity for any compromise 

at all here, or is this cut and dried with no ability for any compromise. Either one can go first. 

Ms. DUKE. I will start. I will say that not only do we believe that 

there is room for compromise, but that is something that we would 

welcome. It is an uncomfortable position for the banking industry 

to be in an antagonistic position with the realtors. If we were not 

in industries that were closely aligned, we would not even be having this discussion. 

As far as experience, the experience I go on is the experience in 

the State of Virginia where we had a very similar situation and our 

legislators came to us and said, we do not want to be the arbiters 

of this fight; we want you to sit down and come to a conclusion and 

come to a bill that you can both support, which we did. That process has gone along very well. That passed 2 years ago. 

Since then there has been to my knowledge one bank that has 

affiliated with, and it is a local bank, affiliated with the two leading local real estate companies. As a further coincidence, that realtor was actually a member of my board and had been a long customer and a friend for a long time. He left our company and went 

to the company that had purchased a real estate company. 

The third thing I would say is that my current representative, 

the representative that I have in this Congress, is a realtor in Virginia who participated in that compromise and I think if you asked 

her she would say that it was a very good process. 

Mr. CROWLEY. Mr. Mansell? 

Mr. MANSELL. Thank you. It is very difficult for us to say, yes, 

let’s negotiate a compromise on something where you are actually 

giving up the tool before you ever start because for us to say, yes, 

we will let the banks into the real estate industry with these provisos, knowing full well that it is only a matter of when they come 

back and try and change some of those, that it is very difficult for 

us to sit down and say yes, in good conscience, we can do that. 

I guess I would say what we might work out is something where 

you leave this decision made for a period of time. 

Mr. CROWLEY. You leave—I am sorry? 

Mr. MANSELL. You leave this decision unmade until the marketplace has a demand. As I look at the marketplace, I still have 

never been shown where the market pressure is for this change. 

What has changed in the market that is demanding this? The 

chairman said to create more competition. Well, you cannot have 

much more competition than we currently have in the real estate 

industry, and frankly I think you can make a better case that this 

will drive competition down. 

So the question I would have for you is, where do we start if the 

presumption is by agreeing to sit down and negotiate we are agreeing to allow the banks into the real estate business as a presumption of those negotiations. What might be smarter would be to say 

that this decision is not ripe enough yet and the marketplace is not 

ripe enough yet to make the decision so let’s not do that now. You 

could make that case easier, I think, than the other one. 

48

Mr. CROWLEY. My time has expired. 

Thank you, Mr. Chairman. 

Mr. LEACH. Thank you. 

Mr. Tiberi? 

Mr. TIBERI. Thank you. Thank you, Mr. Chairman. 

Thank you all for coming. 

Mr. Mansell, back in the 1990’s as a State legislator, I led the 

fight to open up competition for the real estate industry for brokers 

to go into ownership of title insurance companies and mortgage 

lending. It was in the name of competition that I did that, with the 

Ohio association’s support. It was also the opponents who claimed 

that real estate brokers would buy up all the businesses and title 

insurance companies would go away and lenders would go away. 

That has not happened, by the way, in Ohio. In fact, I think it has 

been good for the industry and good for consumers in Ohio, what 

we did. 

Interestingly enough, I think you and I would agree that in your 

testimony you mentioned you have 1.2 million members. I think 

you and I would agree that is the strongest asset that NAR has 

today, its members, its 1.2 million members in each of our congressional districts. 

I was a member of NAR in the 1990’s and still have friends in 

Ohio who are members of NAR. People in the offices that I worked 

in were always concerned mostly about the three-way agreement. 

I am not going to go down that road today. You and I know what 

we are talking about. Members on this side of the fence mostly do 

not know what I am talking about. 

But your group, NAR, is a grassroots group. I have heard over 

and over from members in this body and from NAR that this is an 

issue that is coming from the grassroots. I find it pretty interesting 

because of the friendships that I have back in Ohio, this is not the 

top issue. I find it ironic that even after great work on your behalf, 

your national office’s behalf in Ohio, through advertising, direct 

communications with members, members of your organization, and 

even pre-printed letters, and as of this week, NAR staff going into 

my district, meeting with NAR members in my district, that it is 

ironic that it is really not a grassroots effort, but it is a top-down 

effort to stir up my membership as a former member of the association. 

What is difficult for me and that I have not understood, and I 

would love your thought on it, is, as I said, I led the effort back 

in Ohio to open up the marketplace and competition was what we 

talked about. You mentioned consolidation today. The second-largest owner-broker in my marketplace is a Coldwell Banker owner 

that is not locally owned, by the way, that is now a group office 

and has many great members and friends of mine. It is the combination of three formerly locally owned offices and now Cendant 

owns that. 

Most consumers do not know that. Most purchasers do not know 

that. Most sellers do not know that it is not locally owned. And yet 

in my community, the Coldwell Banker affiliate which is not locally 

owned is very active in the community, and has not done some of 

the things that opponents of consolidation in the market have said 

it was going to do with respect to the real estate business. 

49

What I cannot cross, what has been difficult for me philosophically as a person who was making your arguments, NAR’s arguments for competition, for allowing real estate brokers to diversify, 

sitting across from the title insurance and a mortgage lender saying this is not bad for the industry; you are still going to be part 

of this industry; this is good for the consumer; real estate brokers 

are not going to gobble up everything. Then coming here, and suddenly the talking points for the real estate brokers are different 

from the talking points that I had not only as a realtor, but as a 

free market person arguing for the real estate broker back in Ohio. 

So I have not been able to come to grips with the argument that 

I made before, that it was okay to have competition. It was okay 

for a real estate broker to be a title insurance owner with proper 

disclosure. It was okay for a real estate broker to be in the mortgage lending business with proper disclosure. You know as well as 

I do that we, realtors, are the first person to interact with the consumer. We represent the buyer. We represent the seller. 

You mentioned it earlier, the title insurance comes later. The 

mortgage lending comes later. We are the trusted one up front. 

When I signed as a buyer or when I signed as a seller an agreement with my realtor, that realtor in many cases, whether it is 

Coldwell Banker or a Real Living agent or a Re-Max agent says, 

oh, by the way, I have to tell you about our title insurance company that we are affiliated with and our mortgage lending service 

that we are affiliated with, proper disclosure. Why is that okay for 

me and you, but not okay for the banker down the street to do the 

same thing? 

Mr. LEACH. I would like to ask the gentleman to respond relatively briefly because his time has expired. 

Mr. MANSELL. Which part do you want me to answer first, the 

first part of your statement or the second? I am trying to remember 

the first part. 

You talked about the grassroots effort and you talk about this 

being a top-down effort. I can tell you that we did some surveying 

to make sure that was not the case. Our membership came back 

to us at 94 percent saying this was very important to them. It is 

true that here in Washington with our staff, they have to do a lot 

of things and make some decisions and go out and notify people 

about what is going on here. But had you been at our board of directors meeting here in May and gotten the sense of how our board, 

which are grassroots folks coming in, how they feel about this 

issue, you would have no doubt that this is not top-down. This is 

bottom-up. 

I will grant you that in Ohio, we probably have had a slower 

process of penetration and getting the masses moving there simply 

because of the chairman of this committee, because they did not 

want to irritate him. I think if you go back and check with the 

leaders of the association there, it would be very interesting today 

to see how they are feeling. 

Mr. TIBERI. Just to say, most realtors in my district do not even 

know who the chairman is. They are not paying attention to the 

politics. 

Mr. EASTMENT. May I make a comment on that question? 

Mr. LEACH. Briefly. Mr. Davis has been waiting, but please. 

50

Mr. EASTMENT. I would echo the comment that this is not a 

grassroots issue. The vast majority of Long and Foster’s 15,000 realtors, when I talk to them, do not even know about it or do not 

care about it. They are concerned with whether there are not 

enough listings; how they are going to get this first-time home 

buyer into a home because of price appreciation; how they are 

going to get him a loan. Those are the issues that they care about. 

The ones I talk to that even know about the issue see this as up 

on cloud nine and not really affecting them. 

Mr. LEACH. Thank you. 

Mr. Davis? 

Mr. DAVIS OF ALABAMA. Thank you, Mr. Chairman. 

Let me, having the dubious distinction of being the only thing 

separating you all from your cars and your taxis, let me try to 

cover several different areas quickly, filling in some of the blanks 

that may have been left by this hearing. 

Ms. Duke, let me start with you. One of the words that we have 

heard over and over today is competition. We have heard arguments about the value of competition, and I think on both sides of 

the aisle as an abstraction. We like the idea of competition, but I 

want to scratch the surface a little bit and ask a separate question. 

I am always concerned when I look at these issues as to whether 

or not there is a class of consumers or a class of potential home 

buyers who are not being well-served by the current real estate 

structure and market in this economy; who somehow would be 

served if banks were given this new authority to push into this 

area. So I want to ask you briefly, because of our time, to tell me 

if there is any identifiable class or category of consumers or wouldbe home buyers who are not being served by the current market 

who the banks think they would reach. 

Ms. DUKE. First of all, I would say that the banks will not even 

go into the business if they do not believe that there is an unserved 

market there that they can serve better than the existing ones. 

Mr. DAVIS OF ALABAMA. Again, I do not mean ‘‘market’’ in the 

sense of customers that we do not have that we want. I mean identifiable categories of people who are not being served. 

Ms. DUKE. To your point, I think it would be the same group that 

we target with our CRA outreach activities. These are low- to moderate-income areas, and banks have numerous, numerous programs 

to outreach both in terms of lending and in terms of education. 

Those areas, I think, would be well-served as well by the banks’ activities in real estate. 

Mr. DAVIS OF ALABAMA. Let me ask you the logical follow-up that 

comes from that. I recognize that the CRA as it is currently structured involves only lending activity by banks and that real estate 

activity does not neatly fit in that category. Given what you have 

just said, given that you think that banks would have an ability 

to reach this class of consumers who are covered by the CRA missions of banks, would the banking industry be willing to take on 

CRA-like obligations with respect to its real estate activities? 

Ms. DUKE. I think it is certainly something that we should talk 

about. All of it gets down to details and gets down to structure and 

the cost versus the benefit. 

51

Mr. DAVIS OF ALABAMA. Let me stop you there for a second, because I think that is an important point that I have not heard your 

industry previously make. I think that would be important, and it 

sounds like you are agreeing with me that if the banks were ever 

given the authority to push into the area of real estate, that there 

would be a willingness to take on some responsibility to weigh the 

values of community reinvestment. Do you agree with that? 

Ms. DUKE. I agree with that in concept. 

Mr. DAVIS OF ALABAMA. Okay, because that is important. 

Ms. DUKE. As long as we understand that we need to get to the 

details. 

Mr. DAVIS OF ALABAMA. Okay. Let me move, and Mr. Mansell, 

do you kind of agree with that? Do you kind of agree that if the 

banks are given this new authority to push into the area of real 

estate that they ought to be obligated to take on some CRA-like obligations? 

Mr. MANSELL. To be honest with you, I have not ever given any 

thought to that. 

Mr. DAVIS OF ALABAMA. Okay. I will move on to another question 

since our time is limited. 

Let me ask you, Ms. Duke, this set of questions. I think Mr. 

Neugebauer had a very good line that he was pursuing around the 

question of conflict of interest. His comments were very powerful, 

but I am not sure you all ever got a chance to address them. So 

let me briefly ask you, recognizing that in a lot of these transactions, there would almost be an implicit kind of conflict of interest woven into the arrangement. 

Give us some legislative advice. What could Congress legislatively do to make sure that there was not just an ethic in place, 

but practical safeguards for consumers who might be caught in the 

middle of this dual interest if real estates move into this area? 

Briefly. 

Ms. DUKE. I am not sure I can come up with a mechanism, but 

I would say that in terms of the agency role, the agent’s responsibility is to do what is in the best interest of the consumer. And 

whether the conflict comes from the lure of the real estate commission or the lure of the profit on the sale of the mortgage loan, there 

might have been a point in history where you could have determined it was not advisable to combine in the same company the 

agency activities of real estate with the activities of making loans. 

But the fact of the matter is that takes place. It takes place every 

day in real estate companies. It takes place and can take place in 

insured institutions, savings institutions, credit unions and Statechartered banks. 

So I could make the case that those two did not belong together, 

but the fact is that they are. Since they are, if you put those two 

in an insured, regulated, examined depository institution at least 

you have examinations going on with people in the bank on a regular basis looking to ensure that they are complying with every one 

of those regulations. 

Mr. DAVIS OF ALABAMA. Let me make just one last point because 

my time is up. It strikes me that as we are in a commercial world 

that is becoming more and more complex, and as mortgage lending 

is becoming more and more complex, the whole business of transVerDate 0ct 09 2002 15:28 Aug 29, 2006 Jkt 029455 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 F:\DOCS\29455.TXT HFIN PsN: TERRIE
52

action real estate is becoming more and more complex. One of the 

things that we know as an institution is that a lot of even very sophisticated consumers do not know what they are signing or understand the implications of it. 

I do not want to see us move into a world where there is more 

conflict of interest woven into the transaction without, frankly, 

greater information being dispensed to consumers. That is frankly 

the reason that I am on one bill and not the other one, while I am 

probably more sympathetic to Mr. Mansell’s position because I 

think Mr. Neugebauer got it about right, that you are in every single transaction and would have some layer of conflict. Yes, good, 

prudent people would try to avoid it; good, prudent people in the 

industry would try to avoid it, but it would be there. 

I do not see a mechanism that would regularly inform and educate consumers about how to navigate through this. Again, the 

final point I will make, the reason we are struggling with subprime 

in this economy right now and mis-uses of subprime is because 

there is no ethic in place or that we have found a way to underwrite in the financial services world that you deliver the best product to the consumer after measuring that consumer’s interest. That 

is the ethic in lawyering. That is the ethic in doctoring. It is not 

the ethic, unfortunately, in the world that you deal in. I think that 

is a huge problem. 

My time is out. 

Mr. LEACH. I want to thank you for those prescient observations. 

Let me bring this to an end and simply thank Ms. Duke. I 

thought that was a splendid defense of the banking position. 

Mr. Mansell, you are in a real minority position today and you 

conducted yourself with great aplomb. I think your perspective has 

to be considered. 

As far as Long and Foster, you are one of the great realty companies in the country. I am impressed with your testimony, sir. We 

are honored you are with us. 

Mr. EASTMENT. Thank you, sir. 

Mr. LEACH. I think this committee has a greater understanding 

of the depth of this issue. It is a very difficult one and it is one 

that reflects strong feelings in many different camps and good logic 

on both sides of the argument. So we thank you all. 

The committee is adjourned. 

Oh, excuse me. Before adjourning, Chairman Oxley wanted, and 

I would request unanimous consent to place in the record a firstclass memo of Covington and Burling on the history of the legislation as it relates to real estate. Without objection, so ordered. 

The committee is adjourned. 

[Whereupon, at 1:06 p.m., the committee was adjourned.] 

(53)

A P P E N D I X

June 15, 2005

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