These are interesting times for the mortgage industry in the US.
The 2007-8 subprime lending crisis may have dealt a blow to the American economy, but it also damaged consumer confidence in traditional lending institutions. A growing frustration with current mortgage practices has left more potential home owners open to non conventional lenders. According to a recent survey from Carlisle & Gallagher Consulting Group, one in three US consumers would consider a mortgage from mega-retailer Wal-Mart, and almost half would consider one from PayPal, an online payment provider. Overall, 80% of consumers would entertain the notion of taking out a home loan from a non-bank.
Where’s the Love for Traditional Bank and Lenders?
This new look at the lending process is one born of frustration. A study conducted by Carlisle and Gallagher Consulting Group (CGCG) revealed that consumers list high interest rates, high payments, and taxes and escrow as the biggest problems with their current mortgages. A majority of consumers cite slow execution on the part of the bank as “one of the most painful aspects of the mortgage process.” More than thirty percent said that their bank was difficult to communicate with and that they were having a hard time tracking the status of their mortgage application. More than a quarter of consumers surveyed said they considered the advice they received from their bank to be untrustworthy.
Neither Wal-Mart nor PayPal has announced plans to enter the mortgage business, but such a move would not be without precedent. Warehouse retailer and Wal-Mart rival Costco Wholesale Corp began offering home loans online, via select lenders. The company reports that the service has been well received by consumers. Several groups exist to promote non-bank lenders, including the Community Mortgage Banking Project and the Community Mortgage Lenders of America. The chief issue facing non-bank lenders has been lack of name recognition. “Most consumers say, ‘Who are these people?’ but the fact is that these are mainstream loans with good pricing,” said Glen Corso, managing director of the Community Mortgage Banking Project.
Both Wal-Mart and PayPal are giants in their fields, rendering name recognition a moot point. It only remains to be seen whether they can parlay their image and fame into a successful shift toward the mortgage business. And all is not lost for traditional “brick and morter” banks – 70% of consumers say they would prefer to have their mortgage through a mainstream bank, according to CGCG. Many financial advisers would point to traditional banks as the best and cheapest way to get a home loan, despite consumer complaints and the recent lending crisis.
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