Dec. 5, 2012, 11:14 a.m. EST
Wal-Mart mortgages could fuel the next bubble
Commentary: We want convenience, but what would it cost us?
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By Al Lewis
DENVER (MarketWatch) —Too bad Wal-Mart doesn’t offer mortgages.
If you insist on getting a mortgage from a big-box retailer, you have to go to Costco COST +0.43% , which began offering them last April in a partnership with a New Jersey community bank, First Choice Bank.
Nevertheless, one out of three people would consider taking out a mortgage at Wal-Mart WMT -0.33% , according to a survey released Monday by Carlisle & Gallagher Consulting Group.
Many consumers say they’d like to be able to shop for a mortgage or home-equity loan at Wal-Mart.
The Charlotte, N.C., management and technology consulting firm serves five of the nation’s top-eight mortgage originators and seven of the nation’s top-10 financial institutions. Its survey points out a competitive threat that its clients potentially face from popular retailers.
“The average consumer goes into a bank a lot less often than a Costco or a Wal-Mart,” said Doug Hautop, the firm’s lending practice leader, in a telephone interview.
Wal-Mart offers an array of relatively simple financial services, including checking, credit cards, money transfers, and it will do your tax returns, too. Its Sam’s Club warehouse stores even make small business loans. But if Wal-Mart were to make it big in the mortgage-lending business, the Earth might just tip on its axis.
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Critics have long complained of Wal-Mart as a global distribution network for China. It’s where Americans demanding “always the low price” send their money. China then buys U.S. Treasuries, pushing down interest rates for everything, including home loans. This helps make it possible for consumers to tap their home-equity lines and go shopping yet again.
The fear is that if this cycle continues, indefinitely, China will end up with all the money, and we will end up with all the debt and a lot of cheap, plastic stuff we’ll need to bury in a landfill. This fear may be a bit overstated. But anyone who thinks the mortgage-lending bubble couldn’t happen again isn’t watching it already starting to happen again.
“Home-equity lines of credit that fueled a spending spree during the U.S. property boom are back,” according to a recent article by Bloomberg News.
The report cited numbers from Moody’s Corp., showing that lending on home equity lines of credit, or Helocs, will rise 30%, to $79.6 billion in 2012, the highest since the 2008 financial crisis. Moody’s expects this number will jump another 31% next year.
Interest rates are at all-time lows and even a sluggishly recovering housing market has left millions of consumers with home equity to tap. So why not tap it all now and spend it for Christmas?
Cheap interest rates created the first bubble. Even lower interest rates could create the second.
In many markets, it is getting to be more expensive to rent a home than to buy one, a cash-flow spread that will entice more everyday people into the housing market as investors.
Consumers like the idea of Wal-Mart as a mortgage lender because they think the discounter can make mortgages cheaper and faster than banks, according to the C&G survey. Another place they would like to be able to get a mortgage — but, as yet, can’t — is PayPal EBAY +0.43% .