A New Blue-Light Special: Mortgages

Nearly half the respondents in a recent study said they would consider getting a mortgage through eBay Inc.’s (NASDAQ: EBAY) PayPal. And one of three would consider a mortgage from Wal-Mart Stores Inc. (NYSE: WMT). The study was conducted by management and tech consulting firm Carlisle & Gallagher (CG).

The firm surveyed 618 U.S. consumers in an online study in the month of September. Of those 80% said they would consider a mortgage from a non-bank. Satisfaction with bank mortgages is high — 81% — but the CG study points to some weak spots:

• High interest rates, along with high payments, taxes, and escrow are the three issues that consumers list as the most frustrating
• Slow execution is a problem for 56% of borrowers
• Poor communication affected 32% of borrowers
• Inability to track application status was a problem mentioned by 31% of respondents
• Untrustworthy advice troubled 26% of borrowers

A CG executive noted:

Consumer attitude is driven by three things, price, service and trust. Institutions looking to gain market share must target customer values instead of traditional asset segmentation.

Walmart has been tinkering with the idea of opening its own bank for years, but has moved into offering bank-like services with pre-paid credit cards offered with Green Dot Corp. (NYSE: GDOT) and, most recently, American Express Co. (NYSE: AXP).

In July of next year, a regulatory moratorium expires that prohibited the creation of new non-bank banks (called industrial loan companies, or ILCs). In order make loans, Walmart or any other non-bank, would need a charter as an industrial loan company. There are plenty of non-bank lenders already, including Target Corp. (NYSE: TGT), The Home Depot Inc. (NYSE: HD), General Motors Co. (NYSE: GM), and Harley-Davidson Inc. (NYSE: HOG). Walmart withdrew its application to become an ILC in 2005 after consumer groups, banks, and members of Congress raised a big fuss.

Given that consumers are favorably disposed to a Walmart bank, and a lot of the original opposition to the idea has evaporated, it’s not so far-fetched to think that the company will apply again for an ILC charter, and if it gets one, mortgage loans may be available on aisle 7.

Paul Ausick