It’s feeling a little like 2007 today. Back then, I was writing posts like this on a daily basis.
Capital One has announced that it is exiting the mortgage business, seemingly surprising given the current real estate climate that is red hot.
If you attempt to visit the Capital One Home Loans website, you’ll be greeted by a “Down For Maintenance” message.
It also says they’ll “be back online shortly,” for whatever that’s worth.
Mortgage Competition Too Fierce
- In what was seen as a surprising move
- Capital One exited the mortgage business entirely
- Thanks to increased competition that dented profitability
- 1,000+ jobs will be lost as a result
Per Bloomberg, Capital One chose to exit the mortgage origination business entirely because increased competition meant it wasn’t a profitable venture.
They will also cease making home equity loans, and more importantly, 1,100 employees will lose their jobs.
Some 905 positions will be cut in Plano, Texas, St. Cloud, Minnesota, and Melville, New York. An additional 200 jobs are being eliminated at an undisclosed call center in what is apparently an unrelated move.
Capital One president of financial services Sanjiv Yajnik told employees in an internal memo that the affected business lines “are in a structurally disadvantaged position, given the challenging rate environment and marketplace.”
And added that those “factors do not allow us to be both competitive and profitable for the foreseeable future.”
I’ll take that to mean that mortgage rates are now about three-quarters of a percentage point above their all-time lows, which is clearly hurting refinance numbers.
At the same time, new purchase originations are constrained due to limited available housing inventory and less home building.
While home equity lending is expected to experience a boom in coming years, it might not be enough to keep the business afloat.
So Many New Players in the Mortgage Space
- Speaking of competition
- There are tons of new non-bank mortgage lenders
- Including a slew of fintech companies attempting to shake things up
- It seems Capital One felt the mortgage business just wasn’t worth pursuing and it could be smart to get out early this time around…
There’s also the fact so many debutants have entered the mortgage space of late. We’ve got all the new fintech players including SoFi, Lenda, Clara, LendingHome, and Sindeo.
Then all the synergies between real estate agencies and mortgage lenders, like Motto Mortgage, Redfin Mortgage, Opendoor Mortgage, and most recently OfferPad Home Loans.
That’s making it increasingly difficult for banks to get a piece of the purchase market, even if that market segment is expected to strengthen.
It’s also not enough these days to merely offer mortgages alongside other financial products. Very few people are going to the bank and being cross-sold things like mortgages.
You’ve got to offer new and better ways to get a mortgage, like Quicken’s Rocket Mortgage. Or the push toward single source validation to speed up the loan process.
Implementing those new technologies and processes probably isn’t cheap, or easy, especially when you have other lines of business to worry about like credit cards and bank accounts.
The alternative is to beat everyone else on price, something large banks typically aren’t well positioned to do given their massive overhead.
If you can’t do either one, you may as well not bother. Even that million-mile promo didn’t seem to get the job done.
Capital One apparently still managed to become the 12th largest mortgage lender among other banks (not non-banks) with an estimated $20.6 billion in home loans as of June 30th. It sounds like a lot but really isn’t for a major financial institution.
Apparently it wasn’t enough to keep going in the mortgage space. The company did say it would continue to offer affordable housing loans and multifamily financing.