Capital One Will Close Loan Unit
Tuesday, August 21, 2007
Capital One Financial, the McLean-based financial services company, said it was closing a mortgage banking subsidiary and eliminating 1,900 jobs, joining a parade of firms that took steps yesterday to adjust to the widening credit crunch.
The string of announcements showed the depth of the trauma, as problems in the market for subprime, or risky, mortgages have spread and traditional sources of funding for lenders have dried up. Companies far and wide are going out of business or selling what they can to shore up their cash reserves.
Thornburg Mortgage, a New Mexico lender specializing in jumbo loans -- mortgages more than $417,000 -- to wealthy people with stellar credit, sold $20.5 billion in assets to reduce its debt.
"If there's a hiccup in the market for any reason, a company like Thornburg gets sucked into the vortex of the liquidity problem," said Steven Marks, a managing director at Fitch Ratings. "That's what's happening all around."
Friedman, Billings, Ramsey Group, the Arlington investment bank, said it sold about $4.95 billion of mortgage-backed securities at a loss of about $57 million to help regain its footing.
Luminent Mortgage Capital, an ailing mortgage investor in San Francisco, offered a majority stake in its business to Arco Capital in exchange for a $60 million loan. And KKR Financial Holdings, also in San Francisco, intends to sell up to $500 million of its stock to investors and shareholders.
In Capital One's case, the company decided to simply shut down its GreenPoint Mortgage subsidiary.
Based in California, the unit issues mortgages and sells them to investors. The company specialized in unconventional loans -- jumbo mortgages and loans made without full documentation of the borrower's income or assets. Those types of loans helped fuel the housing boom but lately have fallen out of favor with investors.
Capital One acquired GreenPoint in December with its purchase of North Fork Bancorporation, just as the mortgage business was on the verge of a dive. Closing the business will entail after-tax costs of $860 million, the company said.
In a message to employees, Capital One chairman and chief executive Richard D. Fairbank cited "an unprecedented disruption" in the mortgage markets.
The market for jumbo mortgages is "likely to remain challenged for the foreseeable future," the company said in a news release.
Capital One said it would close GreenPoint's 31 locations in 19 states, including one in Silver Spring that employs about 28 people and another in Baltimore that has about 29 employees. The layoffs are in addition to 2,000 job cuts the company announced earlier this year.