The Federal Reserve and Department of Treasury are considering whether to allow banks into property management and real estate brokerage, after the banking industry was deregulated a couple years ago. At issue is the fundamental question of whether real estate brokerage services are either financial in nature or incidental to financial transactions. If they were deemed either, banks would theoretically be allowed to enter the real estate arena.

"This proposal is a lose-lose proposition. It's a bad idea for banks and it's really terrible for consumers. Market concentration reduces competition and consumers end up paying more for less service and having fewer options in terms of service providers," says NAR chief economist David Lereah.

The NAR's paper contends that, if approved, the regulation would introduce unfair competition, concentrate the market too much and could result in more foreclosures."If regulators approve the proposal allowing the expansion of bank powers into real estate brokerage, the alignment of homeowner and bank interests would be eliminated and so a perverse set of incentives could be substituted," the white paper states.

Despite less competition and more market concentration, the measure wouldn't improve profits or performance for banks, according to the report. Because real estate is "fiercely competitive," the paper argues, banks will realize little if any economies of scale. Also, banks planning to present a comprehensive package of services to buyers or sellers won't necessarily attract more customers, because the NAR report says that studies show customers don't choose a real estate firm based on its level of services.

The group claims federally chartered banks would reap unfair advantages, including access to low-cost funds – buying up competitors and reducing customer choice. Commercial banks already have a huge share of the mortgage market, according to the NAR, with commercial bank mortgage originations accounting for 44% of the market in 1999. Mortgage Bankers Associations projects forecast that the 25 largest companies in origination and servicing will account for at least 90% by 2008. The 25 largest real estate brokerage firms accounted for only 0.8% of mortgage originations in 1999.

"The most troubling change in banking over the last two decades has been the dramatic increase in the concentration of economic power through mergers and acquisitions. The 25 largest banks now represent more than 50% of the assets in the banking industry," the white paper states.

The report accompanied NAR's formal comment letter that was submitted to the Federal Reserve Board and the Treasury Department.