WHO'S ON FIRST?
Focus on Real Estate Related Bills Before Congress
by Leigh W. Budlong, MAI
July 1, 2005

Politicians Want a Piece of the Real Estate Action – Take a Look at 4 Bills Being Discussed. If HR2660 Passes, watch out – it is a whole new ballgame in the world of real estate. But before you think BofA is going to be known as the local realtor, it will have to get by some heavyweights who will put up a fight. HR111/S98, the antidote to HR2660, has the backing of more legislators and one NAR – National Association of Realtors - the country’s largest trade organization. On other fronts, HR1295, that snazzy bill that cobbles mortgage brokers, predatory lenders and appraisers, is up against, HR1182, one of the few real estate related bills that actually may make sense. Read on…things are just starting to get interesting!

 – Leigh W. Budlong, MAI

Predatory and Consumer Lending Hocus Pocus

Both HR1295 and HR1182 have to do with predatory lending, a subject few legislatures reportedly know little of – but trying to “sell” the public on their willingness to take on the scary tactic of “predatory anything” sounds pretty worthwhile. It should be noted, these bills focus on residential property only, not commercial.

These bills pit the Center for Responsible Lending [CRL for HR1182] against the banks who want a Federal bill [HR1295], not state level of control to address predatory lending. HR1295 is co-sponsored by a Republican and a Democrat and also has the support of the Appraisal Institute [not necessarily all its members!] to stop “pressuring the appraisers.” What is a little group manipulation tactics, among friends anyway?

HR 1182 does not have the bi-partisan support, but it does have logic on its side. First, it is modeled after North Carolina’s program to curtail predatory lending that is already in place and works. Secondly, HR1182 is endorsed by the CRL. Thirdly, this bill stays “on message” focusing on the big threats of predatory lending: flipping, mandatory arbitration, preemptive state laws and assignee liability – it is a definite plus for realty appraisers… while HR1295 is another sham at centralization and control of the realty valuation industry, which is already the most regulated profession on Earth. It is most interesting that realty valuation organizations are in favor of HR 1295 – why?

Per Martin Eakes, CEO of CRL, is against HR1295 citing “it allows exorbitant fees to be rolled into the mortgage loan, allows for repeat refinances of the same mortgage until the equity is gone and prevents foreclosure after the lender has sold their loan.” Recognizing that in a heated debate, both sides will take extremes as their examples to garner attention, what Mr. Eakes says has some merit. HR1182 has protections against flipping for all home loans, not just those deemed “high risk” and uses the Home Ownership and Protection Act of 1994.

Take the homeowner [again, remember these bills are for residential assets only] who uses his home to pay for life’s little expenses by refinancing. Brokers, eager to please their clients [not to mention make more money], can and do structure loans to include “walking around money.” That cash represents equity being pulled out of the asset. If fraud is part of the picture, the homeowner could, unwittingly sign away the property’s equity in fees similar to the high check cashing fees notorious in lower income areas where people don’t have standard bank accounts.

Republicans usually favor greater state control instead of Federal, but HR1295 clearly runs counter to that… Of greater interest is the recent passage of the bankruptcy laws that could also have some influence. A recent Wall Street Journal article reports a rise in bankruptcies, but not by individuals – instead it is companies looking for protection before the new laws take effect October 17^th. 

Regarding HR1295 being able to garner bi-partisan support, my hunch is that because HR1295 has such a broad content that includes mortgage brokerage licensing, appraisal revamping and tackles the scary sounding “predatory lending” -- that it just can draw a crowd easier to the smoke and mirrors. Remember, though, no really understands what “predatory lending” means!

The Banking Cartel Slam Dunk Against
Coldwell-Banker, Re-Max, and C-21

Background Music, Maestro!

In early 2001, the Federal Reserve and the U.S. Department of the Treasury proposed to reclassify real estate brokerage and management as “financial in nature.” NAR [National Association of Realtors] has been fighting to stop this citing the Gramm-Leach-Bliley Act of 1999 and the Bank Holding Act of 1956, reporting these did not “authorize banking firms to provide non-financial activities in nature.” Nothing like the banking cartel taking away NAR’s book of business, is there?

To be or not to be, that is the question…

Is real estate a financial or commercial activity? – that depends on your definition of “is.”

In 2003, residential real estate represented 16% of GDP, or $1.8 trillion. If commercial real estate were included, it would be more like 22% of GDP. These statistics are from NAR, the largest trade association in America with over “one million members.” Standing in front of their newly built 12-story office building in Washington DC, NAR has been stumping support for HR111/ S98, the bill that is up against HR2660. Remember the devastated economy post September 2001? NAR likes to remind the politicians that it has been the real estate agents – those hardworking, entrepreneurs with the most capitalist of capitalists’ hearts – who rescued the US economy! Now that we’ve been through the Dark Ages, where is the ticker-tape parade?

But remember, the legislators behind the banks started in early 2001, prior to the September 2001 tragedy, to push their agenda. It is a brave new world in real estate…

HR2660 would allow national bank subsidiaries and financial holding companies to own real estate brokerage, leasing and management firms. Reportedly, state banks already have the power that Oxley’s bill is proposing and few choose to exercise it. Why? Perhaps because the smaller banks know that to really get the most out of a business, you don’t try to do it all. Allowing others in the community to have a career [and one that I might add is harder to outsource to India, purely because flying in every time you need to drive clients around might get expensive…] is good for their business. It is the eco-system concept.

How real estate should be classified is the root to arguing the viewpoint for either bill. However, NAR has made some important points and has political capital. Additionally, NAR is painting a picture that if HR2660 is passed, real estate agents will not be able to compete as effectively as the banker who has the money to lend and the listing.

We still haven’t touched on the real issues – that in an artificially priced and controlled market, arbitrarily changing rules mid-stream to fulfill the needs of one group will impact other areas, mostly unforeseen. Then, the real problems begin.

HR2660 also protests brokers’ commissions, which Oxley says are too high. I am certain that the banks are not going to offer discount brokerage services – they will want the full commission deal!

Imagine the gall for someone in Oxley’s position to claim that when just reviewing a Congress person’s compensation package complete with full benefits for retirement, no regular social security for our finest in DC, is rather ultra-plush in contrast to anything the average American can ever hope to obtain…

So far, 240 House Members have co-sponsored the HR111/S98 bill while no other legislators have joined Oxley/Frank for HR2660. It may feel cold and lonely for those two right now but I suspect they’ll have supporters…

For fun, let’s try following the logic poised by Mike Oxley: if real estate is a financial activity like a stock trade then:

• Transactions should have greater transparency.

• Sarbannes-Oxley rules and regulations would pertain.

• Appraisers would be treated like stock analysts. Think of Ms. Jessica Reif Cohen, top media research analyst with Merrill Lynch. She didn’t see the value of Warner Music Group in the same light as the bankers and “told her firm’s senior bankers [at Merrill Lynch] that they were overpricing the shares.” This opinion was reportedly the reason Merrill Lynch was not part of the public launch of Warner Music Group last month. It turns out the I.P.O. didn’t go over well in the market and shares were priced $17 per share from $22 to $24. Put one in the column for the independent analyst!

If HR2660 passes along with HR1295 it will further centralize controls over mortgage brokers, appraisers and real estate agents. They [the banks] can and will change the rules at their whim, including to decide to use only automated valuation models [AVMs] in making their real estate deals, in-house agents and their own currency to make deals. And the consumer…where does Mr. or Ms. Average Joe fit into all this? These are the folks that just get stuck paying the extra freight similar to any crisis or calamity, Americans are asked to contribute to [and it isn’t a voluntarily choice]...

What’s on Second?

Trying to Draw Parallels Between the Players is Tough
– Allegiance to Party Lines is Limited

The research doesn’t show a strong correlation between the legislators who back the two bills, but they all seem to have something in common [few exceptions]. They all serve on the House Committee of Financial Services Committee with Mike Oxley serving as cushy chair.

Appearing in Alphabetical Order…the Stars of the Bills. The following was researched and gathered on www.congressmerge.com and www.govtrack.us/congress.

	Barney Frank [Democrat from Massachusetts] has been in Congress since 1981 and is a career politician acting as ranking minority leader on the Financial Services Committee. This appears to be the only committee he is now serving. Frank is pro-1182 and HR2660, but has ties to Mike Oxley, and is in the position to benefit from the Oxley “slush fund”.
	Bradley Miller [Democrat from North Carolina] is pro HR1182 and wants to retain the semblance of a working program from his home state, not replace it with a federal mandate.
	Paul Kanjorski [Democrat from Pennsylvania] is active on House Committee on Financial Services, House Subcommittee Financial Institutions & Consumer Credit and the House Subcommittee on Government Management Finance and Accountability. He along with Ken Ney developed HR1295 thus making it a bi-partisan bill. He is also being the NAR sponsored bill HR111/ S98.
	Bob Ney [Republican from Ohio], is the co-sponsor for HR1295 and serves with Oxley, Frank and Miller on the House Committee of Financial Services and the House subcommittee on Housing & Community Opportunity. He is currently under scrutiny by Citizens for Responsibility and Ethics in Washington [CREW] for questionable issues of conduct regarding contributions and their use for a trip to play golf in Scotland. A request for the Ethics Committee to look into this matter was filed May 16, 2005. Should this gain greater momentum, it could be a blow to the bills he backs. He is dubbed the “Mayor of Capital Hill” and has oversight for the Department of Housing and Urban Development [HUD] and all federal housing issues. He serves on 8 committees, many with ties to finance and banking. His professional experience started as “Records Manager, Ohio State Bureau of Motor Vehicles, 1976-77.” I wonder if has read the Mel Martinez Hotseat?
	Mike Oxley [of the Sarbanes-Oxley fame] teamed up with Barney Frank to promote HR2660 to give banks the green light to get into real estate. Oxley has strong influence, serving as chair of the House Committee on Financial Services. Nice work if you can get it!
	Melvin Watt [Democrat from North Carolina] is on 8 committees including the top 2 for involvement on the 4 bills outlined: House Committee on Financial Services and Sub committee on Financial Institutions and Consumer Credit. He is a proponent of HR1182.
	Calvert [Republican from California] is not on any of the usual banking and finance committees, but has a focus on water and armed forces. He backs HR 111/ S98 and wants to keep the banks out of real estate.

I Don’t Know is On Third?

In addition to these bills, there are overall changes in the wind
or the sense that something is in the air.
“The Winds of War” or “Gone With The Wind”?

Mike Oxley was able to recently get the $600 million “Slush fund” aka “The Affordable Housing Fund” passed. Per the Wall Street Journal, allowing Fannie Mae and Freddie Mac to take on more risk [in addition to their shaky accounting that is still being sorted out] shot this recently approved legislation into the Hall of Fame for “the worse Congressional legislation ever.” Anyone looking beyond the seemingly innocuous title sees that this is a trading favor campaign and acts as the mortar that allows these politicians to oppose some bills and then “find a way to get back in each other’s favor by trading favors.” Representative Oxley, fueling Fannie Mae and Freddie Mac at this juncture is political suicide! 

Christopher Cox recently stepped in as the new Securities Exchange Commissioner. This Republican was serving on Homeland Security. He replaces William H. Donaldson, known for embracing independence on Wall Street including filing a complaint against Citibank’s asset management arm and its in-house mutual fund operation. Cox is seen as “pro business” and will likely not take the risks that Donaldson did to bring law and order to the Street.

Gary Miller [Republican California] is a name that cropped up as pro-HR1295 and was an easy tie to Bob Ney, both serving on the Subcommittee of Housing & Community Opportunity, as well as with Paul Kanjorski, serving with him on the House Committee on Financial Services. His background is “real estate executive” and he is backed by the National Association of Home Builders. Finally, it was easy to find a link to HR1295 and a supporter! Next we may find Representative Miller in support of the Home Builders be given free real estate brokers licenses and real estate appraisers licenses so they can sell and appraise in-house for the new revamped banking cartel running this real estate bubble collecting their own appraisal fees and sales commissions! 

But the big story is the one with New York Attorney General Eliot Spitzer getting sued by the Office of the Comptroller of the Currency [OCC]. Apparently, Mr. Spitzer is interested in investigating possible mortgage lending abuses by national banks and their operating subsidiaries – these are the same that want to run the real estate per HR3424. The suit “seeks a court order barring the Attorney General from ordering the banks to provide information about their lending practices.” That’s a typical ploy on Capitol Hill circumventing the Rule of Law.

Spitzer is credited with cleaning up the Wall Street analysts’ role -- research analysts at major investment banks have a “new sense of independence.” Why the change? A very pubic and costly litigation resulted in a $1.4 billion dollar settlement after Eliot Spitzer, the New York Attorney General, took on “conflict-ridden, stock-touting Wall Street research analysts.” Real estate analysts out there, think about that…! Think about having “any sense of independence” and really believing that your opinion had material impact.

OCC - thou doth protest too much!

That doesn’t sound like the behavior of a squeaky-clean organization. I bet Kenneth Lay would like to take a page out of the OCC’s play book. So now the guys who want to make and set the rules, control the purse strings and judicial system are flexing their muscle. Watch this one. It sets the tone for all the rest yet to come.

So, Who’s On Third?

No, Who’s on First…

What’s on Second.

I Don’t Know is On Third.

Our politicos make our current time one of confusion in typical Beltway politics of centralization and control playing first violin and first viola to the banking cartel. It is a time of change and a time to reinvigorate the real estate valuation analysts out there who know their worth. In fact, this could be the start of a new era for real estate…stay tuned and stay informed. Tell your representative what you really think about both bills – these are currently discussed bills that require speaking out about now. There are no “true” allegiances when it comes to politics or playing with your career.

Leigh W. Budlong, MAI
Sausalito, California
Email Author

© 2005 Leigh W. Budlong, MAI for Realty Reality
Edited by Ole Bear, Editor

About the Author:

Leigh Budlong started her career shortly after the S&L scandal when the market was decimated with most properties owned by the RTC. It was Phoenix 1991 and she was working for a senior partner at a regional firm. Within 3 years, she had earned the MAI designation and had been recruited by Cushman & Wakefield first working in their Phoenix  office, then moved East to their NYC headquarters. After a few years, CB Richard Ellis recruited her and she stayed working for that firm after leaving Manhattan for San Francisco, working for a time in their investment sales department as a broker.

In 1998, she became self-employed creating a hybrid position that blended brokerage, investment, interior design/construction and advisory services. With a well rounded background and a passion to make appraisal fun and informative, the foundation was laid for Beyond Value.

Credentials: Member of the Appraisal Institute (MAI), California State broker, AG Licensed Appraiser, approved assistant instructor for the Appraisal Institute.