US low doc mortgage pioneer shut down

Capital One, the ninth-largest US bank by market value, has announced plans to shut down its low doc mortgage unit GreenPoint.

GreenPoint was a pioneer in "jumbo" and low doc mortgages in the 1990s, focusing on serving wealthy clients whose large surges in income made it difficult to qualify for a standard mortgage.

Citing "an unprecedented set of market circumstances", in a memo to employees Capital One played down the significance of the mortgage arm, saying it represents "a small part of Capital One's diversified businesses." Credit cards remain Capital One's biggest line of business, generating over 70 per cent of income.

Capital One bought GreenPoint in last year's US$13.2 billion purchase of North Fork Bancorp and said it valued the mortgage unit at about US$2 billion (15 per cent of the purchase price). North Fork paid US$6.3 billion for GreenPoint in 2004.

Capital One was initially optimistic when it acquired GreenPoint, believing the unit's national infrastructure would give it scale.

However the housing market slowed shortly thereafter and despite "a valiant job" of cutting costs and tightening underwriting standards, Capital One determined GreenPoint simply couldn't "weather the challenges currently facing the mortgage industry."

Capital One reported a US$9.7 million loss on its mortgage unit in the first half of 2007.