A collapse of brand culture: banks, subprime loans and “walking away”
By now we’ve all heard how subprime mortgage loans fueled the current real estate bust and financial crisis. One of the most startling results of this disaster is the sight of new homeowners “walking away” from their homes as their house values decline and jumbo mortgage payments approach.
There is broken trust all over the place. If we consider brands at the macro level, “walking away” is a brand problem.
Walking away: when brand culture fails
How can anyone walk away from their dream home—and their obligation to pay it off? That’s like walking away from the American dream, our cultural DNA and work ethic.
While the great majority of these new homeowners aren’t walking away (at least not yet), those that do must feel deeply betrayed by their lenders and by the home-buying process. To me, this widespread breakdown in trust signals a deep-seated brand failure. Walking away is a sign that an brand culture has collapsed, and that is a serious failure indeed.
A $2.5 trillion brand problem
When customers willingly abandon your product, and put themselves and you at financial risk, you’ve got a brand problem. The ties that bind are broken. Approximately $2.5 trillion in subprime loans have been issued, and a significant number of these loans are now working against the homeowners who have them.
Subprime mortgages are high-cost home loans intended for people with weak or blemished credit histories. Higher interest rates make sense for higher-risk loans to a point, but the subprime market has been rife with problems that are rare in the mainstream prime market: excessive fees, high penalties for refinancing, refinances that provide no real benefit to homeowners, and steering families into more expensive loans when they qualify for a better rate.
In recent years, subprime lenders and brokers flooded the growing subprime market with dangerous mortgages that come with “exploding” adjustable interest rates. The result is a massive epidemic of foreclosures that is harming families, entire residential communities, not to mention the availability of credit at home and abroad.
What went wrong, brand-wise? We could point to a number of things, but what stands out to me is a new sales-driven mortgage ethos undermining an established (aggregate) mortgage brand culture with mutual protections.
Creating a brand culture
When a brand creates customers it also creates a brand culture. The brand culture is the context of value creation produced by a company and its customers as they work together going forward. It consists of values and relationships that sustain the customer in the new freedoms and opportunities that the brand provides. The brand culture is a collaboration—in context, in identity and in value, core and edge, interactive and reciprocal, kept as dynamic as possible to foster initiative and innovation.
The brand culture of banking and lending
In the home-buying business, the classic brand culture is the iconic culture of banks and banking. This brand culture works as a collaboration between buyers and lenders to create value through the new home, over time. Traditionally, it’s a deliberate, disciplined and measured process, because of the responsibilities and the monies involved. Roles and relationships are very carefully defined. You don’t rush a 30-year relationship.
Elements of the banking and lending brand culture
Elements of the traditional banking and lending brand culture include:
- Full disclosure and transparency among all parties
- Procedures to qualify buyers, and to weed out unsuitable candidates to preserve the integrity of the process
- A process to conform expectations to financial realities
- A “long-term” perspective (30 years, fixed)
- Multi-stage lender/buyer interactions, to minimize errors
- A partnership in incremental value creation grounded in the community (traditionally via “the bank” not far from one’s house).
- A relationship of reciprocity, opening up future lines of credit and service
This brand culture is one reason why bank brands have traditionally been among the world’s strongest, vault-like in their integrity, and earning deep customer trust.
Banks as brands of prudent opportunity
In their traditional role, banks were brands of prudent opportunity. They created their customers within a strong culture of careful and considered risk. Banks maintained this brand culture by 1) knowing their customers, and 2) knowing their customers’ financial capabilities, inside and out.
In this brand relationship banks also gave wise counsel—sometimes in the form of “Sorry, no”—and through this tough love earned customer respect. The bank culture may have been slow and tedious, but it was rarely, if ever, reckless.
Brand culture and community
The prime brand context of banking set definite performance standards for customers, and for banks. It defined expectations, and spelled out responsibilities before and after loans were made. It helped make banking a community institution where the tightly structured borrower/lender process helped anchor the social fabric, with homeowners woven into the community’s present and future. Banks were brands of social stability.
A collapse of brand culture
In the recent real estate boom the brand culture of traditional banking and lending was pushed aside by a subprime banking culture of nonstop sales pitches, inflation of buyer expectations, a great easing (or absence) of qualifications, worry-free loan agreements (that could be refinanced if things got tight), easy money, and fast-paced deals. More than seven million subprime mortgages were sold, many with “teaser” rates designed to adjust upwards two or three years later.
Mortgages as commodity transactions
A key aspect of the subprime brand culture is that it reduces the lender/borrower process to a commodity transaction, with mortgage sales staffs incented to deliver volume results (and also incented to create subprime mortgages when borrowers actually qualified for regular mortgages. Subprime loans were made as easy to get as credit cards, and buyers in turn looked upon them as credit cards with a roof, four bedrooms and three baths.
Walking away—from a failed brand culture
From a brand culture perspective, one can gain some insight into why new home 
buyers may decide to simply “walk away” from their homes and their obligations. Subprime brand cultures helped them to become stakeholders in an illusion, not in a home equity reality. They were not made part of the traditional, disciplined brand culture of financial institutions, and a community of measured growth. The resulting ethos of a “quick and easy” mortgage makes it all that easier to walk away when the going gets tough.
With buying a home is reduced to the level of signing up for a new credit card, home owners will treat their homes and loans as commodities, too. They aren’t just “walking away” from newly built homes. They are walking away from a non-relationship with their lender. That is perhaps the biggest loss of all.
Historical note: In California another real estate boom went bust in the early 1990’s. There were no massive walk-away’s then because the brand culture of the lending process had kept the bubble fallout relatively small. New homeowners retrenched and took the long view. By 1995 home prices were back on the rise.
February 8th, 2008 at 12:31 pm
Walking Away, I would say you can equate that that to bankruptcy of your industry or brand. You might as well give up or as I would recommend start over with a new model. Great Article.