That's Affordable: Seattle-Based Washington Mutual Has Built a Serious Business around Community Outreach and Affordable Lending. the Lending Giant Is Making Inroads in the Inner Cities, on Tribal Lands and in Other Spots Widely Considered Underserved

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A DECADE AGO, Washington Mutual Inc. was a long-established and well-regarded Seattle thrift. Today, with about 1,500 outlets around the United States, Washington Mutual is a financial services giant, doing business in every state and vying with Wells Fargo & Co., San Francisco, and one or two others for leadership of the U.S. mortgage sector.

Washington Mutual estimates that it originates about one out of every eight mortgage in the United States. This year, it expects to service almost 6 million mortgage loans.

Washington Mutual has targeted the affordable-lending market as well. Its interest in low- and moderate-income customers, for both banking and mortgages, is demonstrated by a company policy mandating that its performance within this demographic in a given market at least matches the bank's overall position in that market. According to Washington Mutual, its activity in this area goes beyond Community Reinvestment Act (CRA) requirements that banks invest capital in the areas in which they operate.

Craig S. Davis, president of Washington Mutual's Home Loans & Insurance Services Group, says that the high rate of homeownership in the United States--currently about 68 percent--can mask very low rates among immigrants and minorities. He argues that encouraging ownership among these groups is both good for Washington Mutual and good for the country.

"Affordable housing and lending is front and center in terms of our strategy," Davis says.

Jay Tejera, a banking analyst at stockbroker Ragen MacKenzie Inc., Seattle, believes Washington Mutual's targeting of the affordable-housing market is evidence of the bank's solid grasp of the underlying changes that are taking place in U.S. society. "The [mortgage] market is broadening as well as deepening," he says.

Davis says Washington Mutual has grown through a "buy-and-build strategy." The first leg of this plan has taken the form of a series of high-profile acquisitions. The second has seen the bank move aggressively into new territories, establishing its mortgage business and creating brand recognition before opening up a string of retail banking outlets. Mortgage customers are offered such services as credit cards and free checking accounts. Davis calls this strategy "the one-two punch."

Benson Porter, division executive of Washington Mutual's Community and External Affairs Division, says the company has three primary business lines: the Home Loans & Insurance Group; the Banking and Financial Services Group, which operates the retail banking branch network; and Specialty Finance, which focuses on multifamily lending. The banking and financial services arm is also involved in the rental sector. The other two groups both offer marquee products designed to entice mortgage customers into account relationships.

During the first quarter of 2003, Washington Mutual added 33 financial center stores and three home-loan stores. Over the last couple of years, Davis says, Washington Mutual has launched retail banking networks in such markets as Las Vegas, Phoenix, Atlanta and New York. It is now in the process of opening 70 branches in the Chicago area.

Porter says the opening of the Chicago-area retail branches will be followed by the thrift's emerging-markets division, which will target low- and moderate-income home-loan customers from these branches. This is part of Washington Mutual's plan to become the nation's leading retailer of consumer financial services.

"Our business plan," Porter says, "is to have both our mortgage lending and our retail banking presence in all the top urban markets in the next several years."

Washington Mutual, which remains a thrift, offers a full range of personal and commercial banking and financial products, including its own line of mutual funds. The company is No. 94 in the Fortune 500, No. 137 in the FT Global 500 and No. 97 on Fortune magazine's list of "Best Companies to Work For. …