Washington Mutual Case Assignment

For decades, homeownership was an integral part of living the American Dream; regardless of your background or economic status, if you worked hard you could own a home. With once humble beginnings, mortgage lending became a major initiative at Washington Mutual Bank (WaMu) in 2003. Launching “The Power of Yes” ad campaign, WaMu pitched flexible lending rules with quick approvals, saying “yes” to many unqualified applicants. The American Dream of homeownership was tempered by a machine that became very good and doing something very unethical. The demise of WaMu came not only from its subprime mortgage loan business, but also from the behaviors of its leaders. The following expands on WaMu’s decades of success and eminent failures as driven by its organizational leadership.

1.) Does WaMu have a clearly defined target market segment and a well-defined intended brand?

When Kerry Killinger took the role as CEO in 1989, it was clear that WaMu’s target market was lower- to middle-income consumers, inner city and ethnic minorities, and small corporations. Up until 2003, WaMu’s product set and sales strategy clearly catered to this group and served its needs. As WaMu attempted to penetrate various markets through organic growth instead of acquisitions, poor decisions suggest that the definition of its target consumer became blurred. In Chicago, WaMu opened branches in northern Lake County where its “youth-oriented, cheeky ads did not play well with an older, conservative, suburban demographic.” WaMu attempted to spread its brand in an area that was not home to its traditional core consumer, and thus failed, having to close 24 branches in 2006. In Atlanta, WaMu failed to recognize the importance of having a drive-through for their chosen locations, a major error in a city dominated by personal vehicle transportation due to limited public transit options. This further illustrated a lack in WaMu’s ability to appropriately serve its target consumer across markets.

WaMu’s major downfall came from a series of poorly calculated decisions that eventually resulted in its demise as it unwillingly succumbed to the major collapse in the U.S. real estate market in 2008. In 2003, WaMu entered the subprime and adjustable-rate mortgage market, in a way, remaining true to its core low-middle income consumers. However, introducing “The Power of Yes” campaign interfered with its ability to uphold standards for lending. Its target market segment became less clearly defined, as it issued mortgage loans to consumers without proper consideration of credit scores, annual income and general ability to repay. Had WaMu upheld basic standards for determining loan eligibility, it would have been able to serve its target market in an ethical and responsible way. Instead, WaMu opened its pool of consumers up to anyone and everyone who wanted a loan.