Rising frustration among prospective homeowners about the way banks handle mortgages has many consumers saying that they would trust a non-bank entity to manage their mortgages – including a retailer like Wal-Mart. The retail corporation already operates a bank and would only need to get licensed in the states in which it would like to sell its mortgage products to be a viable option. Experts say the only downside would be if the company decided to securitize mortgages and then sell them off, which is one of the bigger problems consumers face when dealing with banks, especially in the wake of the recent housing market crisis. For more on this continue reading the following article from JDSupra.
You buy toilet paper and ammo there, so why not a home? Consumers are indicating they would trust Walmart and other non-banks with their mortgages, and some experts believe that’s not necessarily a bad thing.
While they seem mostly satisfied with the services of the big banks, “continued frustrations with current mortgage processes . . . could drive consumers to alternative home loan providers,” according to a recent survey by a consulting firm whose clients include some of the largest financial institutions in the world.
Survey Cites Mounting Frustrations
Carlisle & Gallagher Consulting Group (CG) surveyed over 600 U.S. consumers in a September 2012 online study and discovered the following:
- 80 percent of U.S. consumers would consider a mortgage from a non-bank
- 33 percent (1 in 3) would consider a mortgage from Walmart
- 48 percent would consider a mortgage from PayPal
The consultants said consumers cited frustrations over several issues with their current mortgage providers, including high interest rates, high payments, and taxes and escrow. Slow execution of the process, difficulty in communication, inability to track the status of their applications and untrustworthy advice were also mentioned.
Already in the Business
In order for Walmart to get into the mortgage business, the company would have to get licensed in each state where it wants to sell the products, says Roy Oppenheim, a founding partner of Oppenheim Law in Weston, Fla., which specializes in real estate, mortgages, and defending foreclosures.
“Walmart already has a bank,” Oppenheim notes. “They cash paychecks, issue debit cards. You can do your taxes there. Walmart is already into the banking industry.”
“Because consumers have a daily business relationship with Walmart, they may be more comfortable going there, rather than to a mortgage broker they don’t know,” he says. “Walmart has a strong, loyal following. I think they will start leveraging that consumer sentiment.”
Plus a large corporation like Walmart may have the ability to negotiate better deals for consumers. Kind of like they do for toilet paper.
“It’s very possible they will get good deals,” Oppenheim says. “If they use technology well, leverage themselves, and do it smart, why not offer a mortgage? It is, after all, a product. It may be intangible, but people are starting to not differentiate so much between tangible products and intangibles they buy all the time on the Internet.”
Securitization Is Key
Oppenheim says the only downside he can think of would be if Walmart securitizes mortgages instead of managing them like a portfolio lender. When a mortgage is securitized, it is bundled and sold off to another entity, creating a split between the ownership of the mortgage and who services it. Large banks often do this.
A portfolio lender, on the other hand, holds onto ownership and typically offers more services to the consumers who owe the mortgage: “If a bank holds on to your mortgage, explains Oppenheim, you can refinance, amend it – there’s a lot you can do with a mortgage.” Once it’s sold or securitized, it gets much harder to know what’s going on with your mortgage.
So how will consumers be able to tell if Walmart’s going to do that? Read the fine print on the mortgage contract; all mortgages providers are required to disclose the likelihood that they will sell or securitize your mortgage. “We don’t know if Walmart will securitize them,” Oppenheim says.
More competition for banks would be a good thing, he continues. “The introduction of a new kid on block with cojones would be great.”
This article was republished with permission from JDSupra.