Capital One Closes Down Mortgage Business Due To Home Loan Worries

Wed, 22 Aug 2007

Capital One, the American credit card issuer and banking firm, has become the latest victim of the current mortgage market crisis, after announcing it would shut down its wholesale mortgage business .

Around 1,900 jobs (roughly 6 per cent of the company’s total workforce) are expected to be lost due to the closure of the 31-branch GreenPoint Mortgage business, which specialises in offering "Alt-A" mortgages - which often go to people who do not qualify for ‘prime’ mortgages or cannot fully document income or assets .

Capital One placed the blame on the poor outlook for the mortgage industry and the increasing difficulty in raising funds to make new loans . The GreenPoint business lends money to homebuyers, before packaging the loans and selling them on to investors .

The company’s chief financial officer, Gary Perlin, said it had become "difficult to operate our wholesale mortgage banking business profitably" due to weaker demand and pricing in the secondary mortgage markets.

In order to cover the costs of the closure, Capital One said it would book a one-off $860 million (£432 million) charge, while adding it also reduced its earnings guidance by $2.15 to $5 as a direct result of the unit closure.

The move comes less than 12 months after the group took control of GreenPoint as part of a deal to purchase North Fork Bancorporation.
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