Capital One Financial Corp. will acquire $41 billion of mortgage loans and $20 billion in various types of MBS as part of its $9 billion purchase of ING Direct USA.
According to Capital One's investor presentation, just over 60% of the residential loan portfolio was originated in 2008 or later. Most of the loans are five- and seven-year ARMs with an average (original) loan-to-value ratio of 66% and a current FICO score of 746.
Capital One said it will take a credit mark of $1.7 billion against the portfolio, which according to a new report from Fitch Ratings “appears reasonable given the relative performance” of the assets.
It adds that a large portion of this portfolio will run off over time.
In his take on the deal, Credit Suisse analyst Moshe Orenbuch said "Capital One expects to swap the mortgage loans over time and replace the run-off with Capital One assets including card, auto, and commercial loans."
Capital One does not have a large presence in the mortgage business. Four years ago it shuttered the origination operation of its GreenPoint Mortgage subsidiary, once a top ranked alt-A lender. About a year after that, CapOne bought Chevy Chase Bank, Bethesda, Md., but that lender too has scaled back its presence in residential finance. (Until late last year CapOne still used the Chevy Chase name.)
As for the securities portfolio, $15 billion is agency MBS, with $4 billion classified as nonagency. The balance represents asset-backed securities and commercial MBS.