Capital One Comments on Proposed Subprime Mortgage Lending Statement
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Mortgage Lending (the “Statement”).
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Capital One commends the Agencies for focusing
their attention on this important subject.
Capital One Financial Corporation is a financial holding company whose
principal subsidiaries, Capital One Bank, Capital One, F.S.B., Capital One Auto Finance,
Inc., Capital One, N.A., North Fork Bank, and GreenPoint Mortgage Funding, Inc.,
(“GreenPoint”) offer a broad spectrum of financial products and services to consumers,
small businesses, and commercial clients. As of March 31, 2007, Capital One’s
subsidiaries collectively had $87.7 billion in deposits and $142 billion in managed loans
outstanding, and operated more than 720 retail bank branches. Capital One is a Fortune
500 company and is included in the S&P 100 Index. Through its subsidiary GreenPoint,
Capital One is a major mortgage lender. Over 40% of GreenPoint’s mortgage
originations are “Alt A” mortgages; GreenPoint is the eighth largest originator of such
mortgages.
It may be useful to state our understanding of the scope of the proposed
Statement. We understand the Statement to apply to adjustable rate mortgages with the
characteristics enumerated in the Statement,
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that are marketed to subprime borrowers, as
those borrowers are defined in the 2001 Subprime Lending Guidance.
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If the scope that
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72 Fed. Reg. 10533 (March 8, 2007).
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Those characteristics are:
(a) fixed introductory rate with a short initial period,
(b) ap proval decisions made without documentation of income,
(c) high or no limits on how much the payment amount or interest rate may increase,
(d) pro duct features likely to result in frequent refinancing to maintain an affordable monthly
payment,
(e) prepayment penalties that are substantial or extend beyond the introductory-rate period, or
(f) in sufficient disclosure of relevant terms and risks.
72 Fed. Reg at 10534.
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Under that Guidance, subprime borrowers are borrowers having one or more of the following
characteristics:
(a) at least two 30-day delinquencies in the last twelve months, or at least one 60-day
delinquency in the last 24 months,
(b) j udgment, foreclosure, repossession, or charge-off in the last 24 months,
(c) b ankruptcy in the last 5 years,
(d) c redit score of FICO 660 or below, or equivalent,
(e) debt-service-to-income ratio of 50% or more, or otherwise limited ability to cover living
expenses after servicing the debt.
Expanded Guidance for Subprime Lending Programs, p. 3 (Jan. 31, 2001).
We note that the Subprime Lending Guidance identifies high default probability by reference to a
redit score of FICO 660 or below “depending on the product/collateral.” Residential mortgage lending is
aditionally the lowest-risk form of consumer lending, and mortgage lenders traditionally consider
bprime borrowers to correspond to FICO 620 or below. To avoid unduly restricting the mortgage
nding market at a time of stress, the Agencies might wish to consider using that industry standard – FICO
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