Loans

Capital One Exits The Mortgage Origination Business

Capital One Financial Corp. is getting out of the mortgage origination and home equity business, while continuing to service their existing and pending home loans, because of competition that made it too hard for the unit to turn a profit.

According to news from Bloomberg, citing an internal memo, Capital One also said it will initiate 905 layoffs across offices located primarily in Plano, Texas, but also in St. Cloud, Minnesota, and Melville, New York, as part of its exit from the mortgage origination and home equity business.

“These businesses are in a structurally disadvantaged position, given the challenging rate environment and marketplace,” Sanjiv Yajnik, president of Financial Services at Capital One, said in a memo to employees. “These factors do not allow us to be both competitive and profitable for the foreseeable future.”

According to Bloomberg, as of June 30, Capital One had around $20.6 billion worth of home mortgages, making it the twelfth-largest bank engaging in mortgage lending. Capital One said it will continue to provide multi-family financing to real estate investors and developers and lending for affordable housing.

The home lending business has become fiercely competitive in recent years following the entrance of non-bank lenders. Bloomberg reported that non-bank mortgages represented more than 70 percent of Federal Housing Administration (FHA) loans as of July 2017. Quicken, which isn’t a bank, is the second-largest mortgage lender in the country. 

The move on the part of Capital One comes just a few days after the bank had a better than expected Q3 — with profits up 10 percent to $1.1 billion ($2.14 a share), up from $1.01 billion ($1.90 a share) at the same time last year. The result also outdrew analyst predictions of $2.14 per share. The result adjusted — excluding items like a “realignment” of its workforce and the closing on its purchase of the Cabela’s credit card portfolio — Capital One said it reported earnings of $2.42 a share. Revenue came in at $6.99 billion, up 8 percent from a year ago and also out ahead of analyst estimates from a year prior.

Net charge-off rates, which measure loan losses, were an improved picture when compared to Q2, but were still higher than they were a year ago during Q3. The third financial quarter is historically the one with the fewest charge-offs. At Capital One, the domestic credit card net charge-off rate was up in Q3 0.90 percentage points year over year to 4.64 percent, and provisions for overall credit losses rose 15 percent to $1.83 billion.

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