Capital One Closes GreenPoint Mortgage, Idling 1,900

By Joseph N. DiStefano - August 20, 2007 20:22 EDT

Aug. 20 (Bloomberg) -- Capital One Financial Corp. shut its GreenPoint Mortgage unit, eliminating 1,900 jobs, and lowered its earnings forecast as the worst U.S. housing slump in 16 years erodes demand for home loans.

Capital One bought GreenPoint less than a year ago in a $13.2 billion deal that was the biggest acquisition to date for Chief Executive Officer Richard Fairbank. Today, the McLean, Virginia-based bank cut its 2007 earnings forecast to $5 a share from $7.15, triggering charges of about $860 million, or $2.15 per share, mostly during this year.

"They said, 'Let's just cut our losses now and get out," said Thomas Brown, chief executive officer at Second Curve Capital LLC in New York, which owned 1 million shares of Capital One on June 30. "The company had been getting a lot of questions about that business."

Capital One acquired GreenPoint's parent, North Fork Bancorp, at the tail end of a five-year boom in home sales. The real estate market nationwide has contracted and investors have shunned mortgage-backed securities since defaults on loans to home buyers with poor credit rose to a record earlier this year. More than 90 mortgage companies have closed operations or sought buyers since the start of 2006, according to Bloomberg data.

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 Alt-A loans stopped bidding this year as concern about rising defaults grew, pushing lenders including American Home Mortgage Investment Corp. and HomeBanc Corp. into bankruptcy this month.

Slack Demand

Capital One fell $2.03, or 3 percent, to $66.72 in New York Stock Exchange composite trading, bringing this year's loss to 13 percent. In extended trading after the shutdown was announced, the stock fell to $66.30 as of 7:44 p.m.

"The market disruption is too great to continue with GreenPoint's originate-and-sell business model," Capital One CEO Fairbank told workers in a memo. He said he had hoped GreenPoint would be "a growth platform."

The closures will affect GreenPoint'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 the U.S., according to Inside Mortgage Finance.

GreenPoint was a "wholesale" unit that provided loans through outside firms, rather than to individual borrowers. Regulators have criticized 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.

$12.5 Billion Portfolio

Wells Fargo & Co., the second-biggest U.S. home lender, said in July it would shut a subprime wholesale unit.

GreenPoint will continue to service residential mortgages from offices in Columbus, Georgia, and is looking at alternatives, including a possible sale, for its commercial mortgage origination business, Fairbank said in the memo. The bank will retain a $12.5 billion mortgage portfolio and will still make loans through its branches, the statement said.

To contact the reporter on this story: Joseph N. DiStefano in New York at jdistefano@bloomberg.net

To contact the editor responsible for this story: Erik Schatzker at eschatzker@bloomberg.net.

Source: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4f5h6jm4x60