Capital One shutting down prime/non-conforming mortgage unit
Another major player dropping out of the non-conforming mortgage market. I have been amazed how rapidly these companies have decided no one will buy homes ever again, especially with a mortgage greater than $417k.
Capital One shares fall 5% in late trading - MarketWatch
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Comments
I think you caught the absolute bottom. You can sell out now for a double, or sell calls on 1/2 of your holdings to bring down you average cost. I got $1.05 for a Sept $17.50 call on Friday. Of course, the premium is down from that today, but may be a good idea on another up swing.
You are missing the underlying issues. Capital One was not a big player in the mortgage market. However,they will continue to suffer in the carnage that is about to happen. As I am sure you have read, there is 550 billion in rollover paper coming up with no bid. This is the result initially, of the huge (up to 35%) delinquency in Subprime and Alt-A MBS’s. The reason for this was that the u/w guidelines were written and approved by people in the investment banking community that knew next to nothing about the mortgage business. Any mortgage underwriter with more than 5 yrs experience will tell you the guidelines were doomed to fail. If it was ever spoken in the open, you risked eventual dismissal. In addition, since 2000, the quality control functions were watered down and automated so that it was much easier to misrep and fraud a file.
There are solutions to the problems. The securities are priced right at their discounted value. It’s not the loan amount that’s the concern. The makeup of the file must be changed. A conversion process needs to take place whereby borrowers who should never have been given a loan are out and possibily prosecuted, and legitimate borrowers are put in place. This will be a painful process, depressing housing prices and massive foreclosures. In some parts of the country, this is already starting. The losers will be those enities that are liable for those securities, in addition, the investors in those securities are probably looking at between 60 and 70 cents on the dollar given depressed collateral and fraud.
Finally, let me qualify myself. I have been a mortgage banker for over 25 years. I have owned and been president of large motgage operations. During the past 10 yrs, I have contracted with various national institutions involved in all types of mortgage lending.
Sorry for the bad news. Nobody likes bad news. When you actually do see the bottom, it sure will not look like it looks now.
P.S. Find out the amount of loans Capital One is holding and liable for before you start to call absolute bottoms. (just friendly advice)
Tom, I appreciate the comments. It is great to get feedback from someone of your background. Can you put a percentage of the entire mortgage market that will be foreclosed due to sub-prime/Alt A problems.
And what percentage of the sub-prime/Alt A borrowers will lose their homes vs. some sort of work out solution?
It is pure speculation. The entire market guess, approach 10%. Left without a workout, I would guess 1 in 3 or 2.5 subprime will foreclose. In some states, it takes a year to foreclose. Also consider the industry has put over 100k people on the unemployment line within the last 2 weeks with no industry to hire them. More on the way. This may be worse than the S&L crisis in the 80s. I cannot even guess how many hundreds of billions of dollars will be lost on this.
Is there a way to find out how many shares were sold at the low of $7.50? I’m curious because I got extremely lucky and picked up 1,000 shares at $7.50.