Category: Mortgage Lending

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.

Countrywide, the largest U.S. home-mortgage lender in terms of loan volume, announced last Thursday that it borrowed $11.5 billion under a line of credit from 40 banks.

Today Countrywide Financial Corp. has begun laying off employees involved in originating loans. Countrywide cites the need to reduce costs as part of its effort to weather a credit crunch,

The layoffs occurred in the company’s Full Spectrum Lending unit, which handles many home mortgages in a category known as Alt-A, or mortgages between prime and subprime that often involve borrowers who don’t document their income. Such borrowers typically don’t qualify for a conforming mortgage, the type that can be sold to government-sponsored mortgage investors Fannie Mae and Freddie Mac.

Countrywide in all divisions employs about 61,000 people. It had a sales force of about 6,800 in Full Spectrum out of a total loan-origination sales force of about 18,000 as of June 30, according to a Securities and Exchange Commission filing.

Only two weeks ago, Countrywide said it was hiring more loan officers from rivals forced to close down. But the company now is expected to reduce sharply its lending and costs because investor anxiety over rising defaults has made it almost impossible for lenders to sell many types of loans now deemed too risky. That is likely to lead to a steep drop in short term earnings analysts say.

Great Southwest Mortgage is the parent company of First Magnus Financial Corp.

According to a recorded message on a customer-service line First Magnus Financial Corp., the second-largest privately held U.S. mortgage lender, will stop funding new mortgages.

“In light of the collapse of the secondary mortgage market, First Magnus will not fund any mortgage loans after Wednesday, Aug. 15,” the message said.

First Magnus was the 16th-largest U.S. home lender in the first half of this year, making $17.1 billion in loans, according to newsletter Inside Mortgage Finance. The company is based in Tucson, Arizona.

The fallout from the debacle from the improper risk evaluation policies in the sub prime lending market, abated for so long by the easy money policies of the US Federal Reserve Bank, is far from being finished. More bad news seems to surface everyday in the announcement of companies that have stopped loan funding operations or that are filing for bankruptcy.

Great Southwest Mortgage is just another one of several of large mortgage brokerage companies to announce that they are having extreme difficulties in funding housing loans. The extend of this disaster will be huge as it tends to feed on itself.

With the interlinking of markets that has occurred in recent years the impact of trouble in the US is global. Don’t trust the governments of the world to come in and save these companies or your investments. As this type of trouble can swiftly spread throughout the banking system make sure that cash in your bank is protected by FDIC insurance. Keep in mind that the protection limit is only $100,000.