Capital One Shuts Down Its Mortgage Unit
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Capital One Financial Corp. shut its GreenPoint Mortgage unit yesterday, saying that weak demand from investors who buy residential home loans made it too hard to turn a profit. About 1,900 jobs will be lost.
The shutdown will trigger charges of about $860 million, or $2.15 per share, mostly during this year, Capital One said in a statement yesterday, and the bank cut its 2007 earnings forecast to $5 a share from $7.15. Capital One, based in McLean, Va., bought GreenPoint’s parent, North Fork Bancorp, less than a year ago for $13.2 billion.
“They said, ‘Let’s just cut our losses now and get out,'” the chief executive officer at Second Curve Capital LLC in New York, which owned 1 million shares of Capital One on June 30, Thomas Brown, said. “Certainly the company had been getting a lot of questions about that business.”
GreenPoint focused on “Alt-A” lending, an alternative for people with good credit records who don’t meet the standards for prime mortgages. Investors who buy those home loans stopped bidding this year as concern about rising defaults grew, pushing Alt-A lenders including American Home Mortgage Investment Corp. and HomeBanc Corp. into bankruptcy this month.
Capital One fell $2.03, or 3%, to $66.72 as of 4:18 p.m. in New York Stock Exchange composite trading, bringing this year’s loss to 13%. In extended trading after the shutdown was announced, the stock was little changed.
“The market disruption is too great to continue with Green-Point’s originate-and-sell business model,” the chief executive officer of Capital One, Richard Fairbank, told workers in a memo. He said he had hoped GreenPoint would be “a growth platform,” adding, “I made the decision to wind down the business with a heavy heart.”
The closures will affect Green-Point’s California headquarters along with 31 locations across 19 states, Capital One said. GreenPoint originated $18.3 billion in Alt-A mortgages last year, making it the seventh-largest Alt-A lender in America, according to Inside Mortgage Finance.
GreenPoint was a “wholesale” unit that provided loans through outside firms, rather than to individual borrowers. Regulators have criticized the quality of loans made by brokers nationwide, saying they were interested mainly in generating upfront fees and didn’t pay enough attention to whether borrowers were qualified.
