John A. Tuccillo, chief economist of the National Association of Realtors, said in an interview with The Mortgage Marketplace that the new Respa regulations will encourage competition in the real estate finance industry. Moreover, he said the consumer is protected by disclosure requirements. MMP: Mortgage bankers and brokers have complained that the controlled business arrangement provision are a strong incentive to act on a conflict of interest and steer business to affiliates of real estate brokerages. What is your view? Tuccillo: I think the full disclosure of affilliate relationships required under the regulation will provide enough protection for the consumer. MMP: Then why are the mortgage bankers and brokers so upset? Tuccillo: They don't want more competition. No one likes more competitors, but that's the way capitalism works. Because some real estate finance industries are thinly capitalized, they are easily open to new entrants.

The mortgage bankers and brokers wanted a rule that would inhibit new entrants. What we got was a rule that encourages them but specifies the rules of the game. MMP: Will the CBA rules result in significant changes for real estate brokerages? Tuccillo: You won't see any rapid changes. Real estate firms are typically thinly capitalized, so you're not dealing with corporations who have deep pockets. MMP: What are the implications of the fact that computer loan origination systems can be limited to a single lender? Tuccillo: Not very significant. In a competitive world, we're not going to see the survival of single-lender CLOs. A single-lender CLO can thrive only when it provides a significantly higher level of service.

That's not likely when competitors are offering seven to 10 lenders, which is quite typical. That would offer potential borrowers 30 or 40 loan products from which to choose.

Interestingly, Citicorp's Mortgage Power, the most famous single-lender CLO, did not have the most competitive loan products.

What made it attractive to some borrowers was the speed with which it approved or disapproved a loan application. Because of that speed, it picked up a lot of bad loans and is no longer in existence MMP: What is the significance of not setting any limit on what can be charged a borrower for use of a CLO? Tuccillo: You can read the lack of a cap as a license to steal or you can read it as a decision not to arbitrarily set a price that will be decided by the market. My expectation is that we will see some variation and there will be lower fees where there's competition. MMP: Will the controlled business arrangement rules promote affiliations among mortgage bankers, brokers and real estate firms? Tuccillo: Affiliation will be limited by the amount of capital available. Firms large enough to offer a full range of services won't change. The Respa regulations are one piece of a larger trend of increasing use of technology that is impacting real estate finance. The squeeze is really on middle-sized firms. Smaller ones can carve a niche as speciality boutiques. Some of the middle-sized firms will have to shrink themselves and become boutiques. CLOs won't change the direction of the real estate finance industry; they will make the trend more pronounced. MMP: The mortgage bankers and brokers were upset that they weren't included in negotiations with the Bush Administration over the Respa regulations. Were the Realtors at the table? Tuccillo: To tell the truth, we didn't know about those negotiations until the last minute and we were not part of them.

When proposed regulations were leaked [to Mortgage Commentary Publications] in late 1990, we spent three or four months heavily involved in trying to reshape them. Then our effort subsided.

By the end of 1991, we had made all of our arguments and talked to people all over town, including the Office of Management and Budget and the Vice President's Council on Competitiveness.

Then the regulations lay at the bottom of the pond until something brought them up to the surface. There were all sorts of rumors that it was a payoff for Realtor campaign contributions to the Bush campaign, but that is simply nonsense.

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