GreenPoint Mortgage Closed by Capital One

Capital One Financial Corp. closed its GreenPoint Mortgage unit, letting 1,900 employees go, as the worst U.S. housing slump in 16 years kills demand for home loans.

Capital One bought GreenPoint Mortgage 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.

Capital One decided to “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. According to Bloomberg more than 90 mortgage companies have closed operations or sought buyers since the start of 2006,

GreenPoint specialized on “Alt-A” lending, an alternative for people with decent credit records who don’t quite 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.

The mortgage industry is in the bust phase of the business cycle after several years of vigorous growth and relaxed lending standards. You can expect more mortgage firms to announce closures and bankruptcies in the near future.

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