MarketWatch reports that Wal-Mart will enter the mortgage and home equity loan businesses. The retailer has not been able to get a federal bank charter, largely because of fears that it would damage the community bank business. The company does offer other services including check cashing and wire payment.
But, Wal-Mart tends to service a down-scale clientele. Much of the company’s customer base is the "unbanked" or "underbanked" group of the U.S. population that has little or no access to banking services. And, that is what makes the decision seem so queer. With the current considerable problems of sub-prime lending, it is hard to imagine how a company like Wal-Mart would be able to screen credit risk better than banks and mortgage loan companies.
The tactic creates another problem. If Wal-Mart is going to manage the offering of mortgages so that it does not have the some problem that have faced other lenders recently, it will have to turn away a lot of applicants. Those customers may be miffed. If so, it is hard to imagine them coming back to buy groceries and clothing.
Douglas A. McIntyre
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