The U.S. mortgage industry took another battering on Monday, as Capital One Financial Corp said it will shut a lending unit it bought less than a year ago, while two mortgage companies took steps to bolster liquidity as losses piled up.
Capital One, best known as a credit card issuer, said it will cut 1,900 jobs and take $860 million in charges as it closes its GreenPoint Mortgage unit, which it acquired last December when it paid $13.2 billion for North Fork Bancorp Inc.
McLean, Virginia-based Capital One plans to close GreenPoint's headquarters in Novato, California as well as 31 offices in 19 states, and will stop offering mortgages through brokers.
It also cut its 2007 profit forecast to $5.00 per share from $7.15.
GreenPoint has run into unforeseen challenges that are beyond its control, Capital One Chief Executive Richard Fairbank said in a memo to employees, adding the closure is the function of an unprecedented set of market circumstances.
GreenPoint has specialized in Alt-A mortgages, which often go to people who do not qualify for prime mortgages or cannot fully document income or assets.
Capital One shares closed down 3 percent at $66.72 on the New York Stock Exchange. They fell an additional 2.4 percent to $65.08 in extended trading after Capital One's announcement.
THORNBURG SELLS ASSETS
Separately, home loan provider Thornburg Mortgage Inc said it sold $20.5 billion of mortgage assets and reduced short-term borrowings by a like amount to reduce the risk of its losing access to short-term credit markets.
The sale amounted to more than 35 percent of its assets as of June 30. Thornburg estimated the net value of its assets, or book value, fell 13 percent to $12.40 per share last week alone.
Its stock closed down $1.54, or 10.2 percent, at $13.50, on the NYSE.
Meanwhile, mortgage investor Luminent Mortgage Capital Inc
said it would sell a 51 percent stake at a deep discount to Arco Capital Corp, a San Juan, Puerto Rico-based holding company, to shore up its finances.
With U.S. home values weakening and mortgage defaults rising, investors have balked at buying home loans in any form, and mortgage bonds have broadly dropped relative to Treasuries. That has left many lenders starved for cash or business.
Countrywide Financial Corp took out advertisements in many newspapers on Monday seeking to reassure customers their bank deposits were safe.
The largest U.S. mortgage lender has faced a flurry of withdrawals following the company's unexpected August 16 announcement that it tapped an $11.5 billion bank credit line.
Difficulty in the mortgage market should come as no surprise and is not likely to disappear soon, said Marshall Front, chairman of Front Barnett Associates in Chicago.
The mortgage industry grew disproportionately large and it's going to have to shrink now, Front said.
The U.S. Federal Reserve on Friday cut the rate at which it lends to banks, giving a lift to mortgage-backed securities and mortgage credit markets.
But the industry's problems are far from over, traders said, and mortgage assets are still much weaker than at the start of 2006.
Private equity firm Lone Star Funds said on Monday it asked the Delaware Chancery Court to terminate its roughly $400 million purchase of Accredited Home Lenders Holding Co, saying the subprime lender had not met conditions required to close.
San Diego-based Accredited sued Lone Star on August 11 to force it to complete the $15.10-per-share buyout. The shares closed Monday at $6.44, down 4.6 percent on Nasdaq.
Meanwhile, Friedman, Billings, Ramsey Group Inc said it incurred a $57 million loss from the sale of $4.95 billion of mortgage securities.