Capital One Sells $17 Billion Worth of Mortgages -- 2nd Update

By Austen Hufford and Justin Baer 

Capital One Financial Corp. is selling about $17 billion worth of mortgages as part of its exit from the single-family home-lending business.

The move comes after Capital One said in November that it would stop originating residential mortgage loans and home-equity lines of credit, citing the complex and competitive nature of the business and the interest-rate environment.

Capital One said Tuesday it reached a deal to sell the first and second-lien mortgages to DLJ Mortgage Capital Inc., a subsidiary of Credit Suisse AG. Credit Suisse then agreed to sell most of the mortgages to Pacific Investment Management Co., according to people familiar with the matter. Pimco is one of the world's largest managers of bonds and other fixed-income securities.

Interest rates on typical single-family mortgages have remained well below those seen before the financial crisis. The 30-year fixed-rate mortgage averaged 4.55% last week, according to data from Freddie Mac, marking its second consecutive week above the 4.5% mark. The last time average fixed mortgage rates were above 4.5% in consecutive weeks was January 2014. Rates averaged above 6% from 2006 to 2008.

"We determined that our originations business did not have sufficient scale to be competitive in a market where scale really matters," Capital One Chief Executive Richard Fairbank said on a call with analysts in January.

Capital One expects to complete the deal and record a gain on the sale in the current quarter. The company had about $16.63 billion worth of total home loans on its books as of March 31.

"Strong market demand enabled us to negotiate and sign this complex transaction more quickly than we thought possible," Capital One financial chief R. Scott Blackley said Tuesday in prepared remarks.

Capital One isn't alone in rethinking its home-lending strategy. Last month MB Financial Inc. said it would no longer originate residential mortgage loans outside its Chicago-area home market because of high competition and low margins in the sector. The Chicago-based bank said it would continue to hold residential mortgage loans on its balance sheet.

As a result of the sale, Capital One said it would resume repurchasing shares of its common stock through June 30.

Shares of Capital One were up about 2% at $90.74 in midday trading in New York.

Write to Austen Hufford at [e-mail] and Justin Baer at [e-mail]

(END) Dow Jones Newswires

May 08, 2018 13:45 ET (17:45 GMT)

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