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Lending

Could the post office get into the mortgage business?

It’s not as crazy as you might think

bank

Imagine walking into your local post office, dropping off some mail, picking up some stamps and walking out with a mortgage.

It may seem like a crazy idea but it’s not as far-fetched as you may think, especially after new legislation was proposed last week in Congress that would allow the post office to offer banking services.

Representative Cedric Richmond, D-La., has introduced a bill called The Providing Opportunities for Savings, Transactions and Lending Act, which would allow the United States Postal Service to offer “basic financial services.”

If the POSTAL Act (yes, it’s called the POSTAL Act) passes, post office customers would be able to open checking accounts, deposit funds in an interest-bearing savings account, and receive small-dollar loans.

The goal of the legislation, according to Richmond, is to provide financial services to a market that are currently underserved.

“In the New Orleans area alone, 181,000 households do not have access to a full range of financial services,” Richmond said. “These are primarily low-income households that are forced to pay exorbitant interest rates to predatory lenders in order to borrow. Allowing the Post Office to offer some basic financial services would save these households thousands of dollars every year, and put the USPS on more stable financial footing.”

The legislation doesn’t outline what exactly the small-dollar loans could be used for, but if the post office gets into the loan game, is it really a gigantic logical leap to wonder if they could offer mortgages?

Post offices in the United Kingdom already offer banking services, including offering mortgages.

The idea that the post office could join its UK counterpart and get into the mortgage game isn’t in the USPS’s report or in Richmond’s bill, but it's a rational argument, especially considering the government’s current stake in the mortgage market.

As overseer of Fannie Mae and Freddie Mac, many would argue that the government is full bore into the mortgage market already.

And with a mortgage market that may be significantly down in 2014, but still likely to approach $1 trillion, could the government want a bigger piece of the pie to save its floundering mail service?

Just by offering those basic services, the post office could generate billions in additional revenue.

“If even 10% of what the underserved currently spend on interest and fees instead went to more affordable offerings from the Postal Service, it could lead to $8.9 billion in new revenue per year,” the USPS Inspector General said in a white paper, which originally suggested the idea of USPS banking earlier this year.

If the legislation succeeds (and that’s certainly a big hypothetical at this point), it could lead to a financial windfall for the USPS, which has been hemorrhaging money for years.

Banking organizations gave the proposal an unwarm welcome.

“Though well-intended, the proposal to expand financial services through USPS could have unintentional effects on credit unions and consumers,” said Carrie Hunt, the senior vice president of government affairs and general counsel for the National Association of Federal Credit Unions.

“As not-for-profit, member-focused financial institutions, credit unions have been long-recognized for their low fees, competitive rates and exceptional member service,” Hunt said. “Credit unions are solid financial resources for their local communities and also offer many services for the underbanked.”

The American Bankers Association expressed its concern about the proposal as well.

“Serving the unbanked is a top priority for banks, which are reaching more and more people with innovative products and services,” said Ken Clayton, executive vice president of the ABA.

“At the same time, we’re concerned about possibly creating a new entity engaged in banking services, but not subject to the same level of regulation,” Clayton added. This new entity could be perceived by many as a government-endorsed and preferred provider of financial products. The impact on banks -- particularly community banks -- would be substantial.” 

For banks, the competition would certainly be unwelcome.

For consumers, having a little more choice in banking wouldn’t be the worst thing in the world. We’ve certainly seen what banks can do when left to their own devices.

But on the other hand, it’s not like the post office is a bastion of economic excellence either.

So we probably shouldn’t expect the post office to save housing in this country...but stranger things have happened. 

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