BLOG VIEW: Earlier this month, a poll conducted by Charlotte, N.C.-based Carlisle & Gallagher Consulting Group asked American consumers if they would consider obtaining a home loan from Walmart. The results wound up making headlines all over the country: One out of three respondents said that they would gladly forego the traditional banking avenues and consider going to Walmart for a mortgage.
Admittedly, the poll was not the most scientific survey – a mere 618 people were questioned – and it also seemed a bit unnecessary, considering that Walmart is not making a public effort to get into the mortgage banking business. But at the risk of being mischievous, I can ask: Should Walmart take heed of this poll and make an effort to expand into mortgage banking? The answer, I believe, is no.
Walmart is no stranger to the financial services world – it operates banks in Canada and Mexico, and its Sam's Club subsidiary is a business loan originator for American companies. It also offers American consumers financial products and services of a transactional nature – debit cards, money transfers, bill payments and checking cashing services.
Many Walmart retail units around the country have in-store bank branches run by SunTrust, but the company itself is not making home loans to U.S. consumers. That's not to say it wasn't interested in the mortgage market. Five years ago, the company tried to expand in that direction by seeking a federal charter to create an industrial loan corporation, which was widely seen as the retailer's first step into U.S. banking arena. However, the Federal Deposit Insurance Corp. stalled Walmart's charter application after a furious outcry arose from the financial services industry. Recognizing it was fighting for a lost cause, Walmart glumly withdrew its application.
Ironically, the main argument in 2007 against Walmart's entry into U.S. banking was the fear that it would crush the nation's community banks. Fast forward to today, and the community banks are being crushed – not by Walmart, but by the federal regulatory burdens of the Dodd-Frank Act, along with the continuing economic weakness that followed the Great Recession.
The loss of the industrial loan corporation charter proved to be a blessing in disguise. Having been excluded from the banking party during the boom years, Walmart did not experience the post-crash wreckage that consumed many of its U.S. financial services critics.
And the company does not appear to be ready to tempt fate again. To its credit, Walmart's financial services operation has avoided complex products that require extensive paperwork, along with intensive quality control and due diligence plus oversight by federal and state regulators. Even the Sam's Club business loans tend to be small, ranging from $5,000 to $25,000 – we're not talking about the type of loans that get packaged into commercial mortgage-backed securities.
But staying out of this market can also be attributed to other issues. Walmart, for a number of reasons, also has something of a public relations problem. Last month, the company was the focus of protest rumblings by employees who complained of having to work on Thanksgiving evening, and many employees were vocally upset over what they claimed were inadequate wages and benefits.
Over the years, the retailer has fielded accusations ranging from failing to support American manufacturing to destroying Main Street small business, and scores of anti-Walmart websites and boycott movements have seen a kudzu-worthy spread across the nation. No other big-box retailer has this kind of a PR headache – and if Walmart wanted to improve its cred, the very last thing it would do is expand into an industry that has been blamed for nothing short of crashing the U.S. economy.
Of course, that's just the view from today. The national economy is still fragile, and the mortgage banking industry is still undergoing a significant amount of tumult. In an improved economic landscape, Walmart might find the benefits of branching out into mortgage origination. Until such time, however, I suspect that the average Walmart shopper will be filling his or her wagons with automotive supplies and groceries and not with reverse mortgages or 30-year fixed-rate loans.
– Phil Hall, editor, MortgageOrb
(Please address all comments regarding this opinion column to hallp@mortgageorb.com.)
Photo courtesy ILSR
