Almost before the ink was dry on the landmark Gramm-Leach-Bliley Act three years ago, the National Association of Realtors swung into action to ensure that banks would not tread on their turf.

But now NAR and a second trade group have splintered, leading to a nasty split in the realty community.

The spat came to a head last month when the Real Estate Services Providers Council and the Realty Alliance fired off a letter to Speaker Dennis Hastert (R-Ill.) voicing their support for allowing banks into the real estate business.

“We would like to express our united opposition to HR 111, the Community Choice in Real Estate Act, which would prohibit financial holding companies and national bank subsidiaries from engaging in residential real estate brokerage activities,” the Real Estate Services Providers Council and the Realty Alliance wrote in the letter to Hastert, which was also sent to chairmen of key Congressional committees.

The letter was signed by dozens of executives from some of the biggest real estate brokerage firms in the country, many of whom are also members of NAR.

NAR has led the charge against allowing banks into real estate since the Gramm-Leach-Bliley Act took effect in 2000. That law shattered Depression-era barriers that barred banks from offering securities and insurance services. It also opened the door to allowing banks wider access, leaving it to the Federal Reserve Board and the Treasury Department to determine what additional services, if any, they may offer.

Soon thereafter, banks sought permission to enter real estate. That permission was granted in the form of a rule issued in the waning days of the Clinton administration that was later suspended when then-Bush Treasury Secretary Paul O’Neill delayed making the rule final. [IMGCAP(1)]

After intense lobbying by NAR, Rep. Anne Northup (R-Ky.) successfully inserted a provision in the 2003 omnibus appropriations bill that blocked implementation of the rule through the end of this fiscal year.

Anticipating a similar move from NAR’s Capitol Hill allies this appropriations season, the splinter groups acted.

“We didn’t want that to happen again this year,” said RESPRO chief Sue Johnson. “Our members stand for the principle of open competition. They didn’t want to be perceived as not being for open competition.”

The letter was welcome news to the American Bankers Association, which has furiously lobbied to get its members access to the growing real estate brokerage market.

“Anytime you have a correspondence like this … it’s something significant,” ABA spokeswoman Catherine Pulley said. “Basically, what they’re saying is, ‘Competition is good.’”

NAR officials, however, played down the letter. “We don’t think it means much at all,” NAR spokesman Steve Cook said. “It’s nothing new. We recognize there’s a difference of opinion in our industry.”

Furthermore, Cook noted that although NAR has more than 917,000 members, only 40 or so brokers signed the letter.

But Pulley shot back that “anyone who tries to spin this as insignificant … is wrong. The letter shows there is a debate; this is not a one-size-fits-all” issue.

People familiar with the issue on Capitol Hill agree that the schism has existed for some time. But the letter marks the first time that RESPRO and the Realty Alliance went beyond testifying before committees and took their case directly to those in power.

As the debate dragged on, Johnson’s members realized they needed to speak up. “The message needs to get to Congress that we’re not afraid of competition,” she said.

Cook said his group does not fear fair competition.

“Federally chartered banks enjoy an advantage,” he said, noting that banks have access to cheaper capital via the Fed discount window and that they are protected against failure by the Federal Deposit Insurance Corp.

“No other business has that advantage,” he said.

Legislation to keep the banks at bay has 236 co-sponsors in the House, and its Senate counterpart has the backing of 22 Senators.

At present, the issue is at a standoff as House Financial Services Chairman Mike Oxley (R-Ohio) opposes the ban and Senate Banking, Housing and Urban Affairs Chairman Richard Shelby (R-Ala.) supports it.

“Chairman Oxley has concerns about reopening Gramm-Leach-Bliley and about legislating on appropriations bills,” spokeswoman Peggy Peterson said, declining to say outright that Oxley backs the banks.

Despite the letter, Shelby continues to oppose allowing banks into real estate, according to his committee spokesman.

For her part, Northup is not budging either, according to her spokeswoman.