| Banks pushing high risk loans Original Source Link: (May no longer be active) http://www.westchestercbj.com/current_issue/071105wfoc03.htmlhttp://www.westchestercbj.com/current_issue/071105wfoc03.html
Bankers, Realtors fight over real estate business July 11, 05
If the nation's largest banks become the nation's largest real estate brokers, home buyers will be much more likely to take out high-risk interest-only loans, the National Association of Realtors (NAR) testified recently at hearings called by U.S. Rep. Mike Oxley (R-Ohio), an advocate of allowing banks into real estate.
"All the firewalls in the world won't cool off the zeal of the money-center lenders trying to sell their most profitable loans to people who should not be taking such risks. If lenders were to become real estate brokers, nothing will stand in their way," NAR president Al Mansell, chief executive officer of Coldwell Banker Residential Brokerage in Salt Lake City, told the House Financial Services Committee.
Recently, Federal Reserve Chairman Alan Greenspan expressed concern that the growing use of riskier new mortgages is helping push up home prices to "unsustainable levels" in some local markets.
He stated, "The dramatic increases in the prevalence of interest-only loans, as well as the introduction of other relatively exotic forms of adjustable-rate mortgages, are developments of particular concern."
Nearly a fourth of mortgage loans made this year nationally have been interest-only, according to LoanPerformance, which tracks loan originations. In the Washington, D.C., area, more than a third of home buyers are using interest-only loans, up from about 2 percent just five years ago.
NAR recently launched a new consumer education campaign to help consumers, particularly those with credit problems, avoid the pitfalls of "toxic" loans and abusive lending practices.
"Realtors are the first stop for consumers in the real estate transaction. NAR has taken a strong stance against the practice of trapping consumers into toxic loans that benefit the lender, not the consumer," Mansell said. "Should lenders control real estate brokerage and thus control the transaction from start to finish, consumers will have no one else to turn to for independent advice when they are being sold high-risk loans that may not be in their best interest."
Banking conglomerates have requested permission from the Federal Reserve Board and the U.S. Treasury Department to sell and manage real estate under the 1999 Gramm-Leach-Bliley Act.
For the past three years, Congress has denied financial holding companies and subsidiaries of national banks from taking over local real estate companies by denying yearly funds to finalize the proposed rule.
"Forcing independent real estate brokers to compete against the federally chartered megabanks would be like asking a cruise ship to compete against the U.S. Navy," Mansell said. "Not only are their core competencies completely different, but also banks enjoy tremendous government-backed advantages that real estate brokers, even those with mortgage companies, do not.
"As megabanks seek to quench their thirst for ever-increasing powers, what will be next? There will be no winners if we allow banks to scale the wall to commercial activities. We're on the edge of a very slippery slope that could lead to bank sales of automobiles, boats, jewelry and appliances. The conflicts of interest inherent in these transactions would be terrible for consumers," he testified.
For the fourth year in a row, a majority of the U.S. House of Representatives has co-sponsored legislation that would permanently prohibit big banking conglomerates from entering real estate brokerage or property management.
Meanwhile, the American Bankers Association told the congressional committee that if banks could offer real estate brokerage and management services, there would be more choices for buyers, sellers and real estate professionals alike.
Elizabeth A. Duke, an executive vice president of Wachovia Bank and chairman of the American Bankers Association, said banks entry into the real estate market would affect Realtors, but that no business should be immune from competition.
"Banks engaging in real estate services would compete with one another also, just as they do now for consumers' checking accounts and other banking needs," said Duke. "To listen to the National Association of Realtors, keeping banks out of the real estate brokerage industry is all about protecting customers. In reality, their campaign has been about protecting themselves from competition."
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