"In reality, Capital One’s departure could be simply a sign that the housing market is changing and evolving again."
Capital One announced last week it will lay off nearly 300 employees from its Plano, Texas campus as part of its ongoing termination of the company’s mortgage lending and home equity operations. These employees are part of a larger population of 950 employees laid off last November, although a small percentage of the November layoffs reportedly moved to work at Flagstar Bank. Capital One notified the employees at the end of July that they would be laid off by October 1, 2018. A company spokesperson noted that all employees received at least 60 days’ notice. All those effected were offered either another internal role at the company or a severance package.
The company had already sold about $17 billion worth of first- and second-lien mortgages to DLJ Mortgage Capital as of early May 2018. Once those mortgages were sold, the company was able to begin laying off the staff that serviced those products. Capital One’s head of financial services, Sanjiv Yajnik, described the company’s mortgage and home equity loan businesses as “structurally disadvantaged.” He said the business was likely neither competitive nor profitable “for the foreseeable future.”
Rising Interest Rates & Falling Inventory
Yajnik’s predictions likely stem from industry consensus that the volume of home purchases is likely to fall in coming months. This is due to interest rates rising and housing inventories dwindling. Many media outlets are touting this development as the first sign of a correction or even a real estate crash. In reality, Capital One’s departure could be simply a sign that the housing market is changing and evolving again.
Real estate investors should stay alert to the behavior of local markets and make sure you have multiple potential exit strategies in place for your investments or strategies waiting “in the wings.” This will enable you to carry and, ideally, cash-flow your investments if your market shifts.