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Capitol One Shuts Mortage Unit, Sheds 1,900 Jobs

By Mike Baker
Associated Press
via Yahoo News
Monday, August 20, 2007


Capital One Financial Corp. said Monday it will cut 1,900 jobs and shutter its wholesale mortgage banking business, a move that comes as lenders continue to struggle in the nation's housing and mortgage markets.

Capital One said it will shut down GreenPoint Mortgage and eliminate most of the jobs by the end of year. The McLean, Va.-based company will close 31 GreenPoint locations in 19 states and "cease residential mortgage origination" effective immediately but said it will honor commitments to customers with locked rates who have loans already in the pipeline.

"Over the past few months, we have experienced an unprecedented disruption in the secondary mortgage markets," Capital One Chairman and Chief Executive Officer Richard D. Fairbank wrote in an internal memo to employees. "I made the decision to wind down the business with a heavy heart."

GreenPoint, based in Novato, Calif., specializes in no-documentation and Alt-A mortgage loans for borrowers with slightly better credit than subprime borrowers. In his memo, Fairbank said that market has seen a "significant reduction in liquidity and continuing volatility."

The decision to close GreenPoint will hit Capital One with an $860 million charge, or $2.15 per share, the vast majority of which will come in 2007. The company lowered its 2007 earnings guidance by 14 percent to $5 per share.

Analysts polled by Thomson Financial expected earnings of $7.05 per share. Analysts estimates typically exclude one-time charges.

Capital One made the announcement after markets closed Monday. Its shares fell $2.03 to close at $66.72, then fell 15 cents in after-hours trading.

Bart Narter, a senior analyst with Celent, a Boston-based financial research and consulting firm, said GreenPoint's model of processing, packaging and selling loans to investors didn't mix well with Capital One's historical strengths.

"Capital One was smart to say, 'We shouldn't be in this business,'" Narter said. "Capital One is in the business of understanding their customers well and keeping direct relationships with their customers. So I'm not surprised by their decision."

Capital One said its other business lines remain solid and in line with expectations, adding that it will continue to sell home loans through Capital One Home Loans and its bank branches.

"Capital One's other businesses are supported by ample liquidity and funding including deep access to deposits, a 'stockpile' of subordinated credit card funding in place that allows approximately $9 billion of AAA credit card funding going forward, and a $25 billion portfolio of highly liquid securities," said Gary Perlin, the company's chief financial officer.

As the nation's housing market has cooled, the mortgage lending industry has struggled with a dramatic rise in mortgage defaults and foreclosures. Many homebuyers have been forced into default or foreclosure because they haven't been able to sell their homes or end up owing more than their home is worth.

As a result, it has become more difficult for lenders like GreenPoint to sell the mortgages they originate to investors.

"The reductions in demand and pricing in the secondary mortgage markets make it difficult to operate our wholesale mortgage banking business profitably," Perlin said.

Once a stand-alone credit card company, Capital One has moved in the past two years to acquire traditional banks as part of an effort to diversify. In acquired GreenPoint in December as a part of a $13.2 billion purchase of North Fork Bancorp, which operates banks in New York, New Jersey and Connecticut.

Fairbank told employees Monday that he had expected GreenPoint's business to continue growing.

"Unfortunately, GreenPoint has run into unforeseen challenges that are beyond its control," Fairbank said.

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