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Discover May Exit the Mortgage Biz


After only about three years, Discover might be looking to get out of the mortgage business, per a new interview with Discover Financial CEO David Nelms.

The credit card company officially launched Discover Home Loans in June of 2012 after purchasing certain loan origination assets from LendingTree in mid-2011 for around $56 million.

It seemed like a good time to get involved in the industry, what with the housing crisis subsiding and opportunities to offer purchase and refinance loans on the rise.

But it sounds like the complexities of the mortgage industry might be too much for Discover, based on comments made by Nelms.

All Options on the Table

In the interview, he told American Banker that Discover is “considering all options” and added that the mortgage industry has “a lot of overcapacity.”

In other words, Discover may be willing to part with its home loan lending arm and focus on its bread and butter again, which is credit cards and perhaps basic banking services like checking and savings accounts.

One of the issues is home purchase lending, which generally involves face-to-face interactions, or at least a referral (usually from a real estate agent) with a local bank or mortgage broker.

Online mortgage shops have greater difficulty originating purchase loans because consumers are quite a bit more skittish when it comes to getting their initial financing.

When it comes to a refinance, homeowners may not mind working with someone halfway across the country, but with refi volume generally on the decline, that might not be good enough for Discover.

Nelms said Discover hasn’t yet “cracked the nut on purchase-money mortgages,” and even conceded that consumers are “more likely to go through their local bank” for such financing.

Which kind of begs the question, should Discover get into brick-and-mortar banking so it can offer mortgages at local branches?

Probably not, given the migration away from such ventures as more companies embrace the online space. But it’s an idea.

Discover Did About $2.5 Billion in Mortgages Last Year

Despite overall weakness in the mortgage industry last year, Discover still mustered about $2.5 billion in mortgage volume in 2014

That made it a top-100 mortgage lender, which might sound good if you’re not a $27 billion publicly traded behemoth. Unfortunately, they are, so it’s simply not good enough.

Apparently they got a nice boost from the refinance boom in 2013, but once that ship sailed, origination volume didn’t meet expectations. Discover also took a $27 million goodwill impairment related to its acquisition from LendingTree.

The goal was probably to be in the top 25 at minimum, and eventually top 10. But that wasn’t going to happen with a flagging refinance market and no grasp on the purchase market.

Another issue seems to be simply understanding the mortgage industry. Just take a look at the many comments on my review of the company and you’ll see that a lot of folks haven’t been too pleased with the service.

At the end of the day, mortgages are a lot more complicated than credit cards and other types of loans, so it’s not easy to just cruise in and grab market share.

Whether they’ll stick with it long-term is unknown, but the interview certainly makes it appear as if they’re shopping it, or at least considering doing so.

Update: Discover has halted mortgage lending.

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