Trouble in the mortgage market spread Monday as Capital One cof said it will shut its GreenPoint Mortgage unit and fire 1,900 employees because it expects tighter credit to squeeze both lenders and home buyers out of the market.
SunTrust Banks sti also said Monday it expects to lay off about 7% of its workforce to cut costs. The Atlanta-based bank said the layoffs were part of a broad efficiency program, and it did not outline any changes to its mortgage business.
The news follows an announcement Friday that First Magnus Financial was closing down and had let go its nearly 6,000 employees. And Countrywide Financial, cfc the nation's largest mortgage lender, told employees it would cut an unspecified number of jobs in its unit that specializes in loans for those with good credit but often undocumented income or assets, The Wall Street Journal reported.
The ruptures in the real estate market have caused layoffs in the mortgage industry to nearly triple this year, injecting further risk into the economy. The Federal Reserve on Friday cut the interest rate it charges banks, saying, "The downside risks to growth have increased appreciably," because of deteriorating financial conditions and tighter credit.
Senate Banking Committee Chairman Chris Dodd, D-Conn., will meet Tuesday with Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson to discuss what further steps might be taken to stabilize the mortgage and credit markets. House Financial Services Committee Chairman Barney Frank, D-Mass., said his committee will hold a hearing Sept. 5 to discuss "the current crises" and how consumers are being affected.
Countrywide on Monday ran full-page ads in some newspapers to reassure customers that deposits in Countrywide Bank are federally insured up to the $100,000 limit, thus unaffected by the company's liquidity problems and rising default rates.
But "loss of thrift deposits is a meaningful risk," said analyst Frederick Cannon of Keefe Bruyette & Woods, who cut his rating on the stock to "underperform."
Also Monday, Thornburg Mortgage tma said it sold $20.5 billion in assets and reduced its short-term borrowing to help meet "liquidity and financing needs caused by rapidly declining mortgage securities prices."
"Investors' confidence in the mortgage financing space is not doing well," Larry Goldstone, chief operating officer of Thornburg, said on CNBC.
Meantime, Luminent Mortgage Capital lumsaid it will sell a majority stake in itself at a huge discount to shore up its financial condition.
Contributing: Wire reports