Discover Home Loans will accept its final loan application at the end of July, leaving the company vulnerable to eager lenders waiting to buy what little remains of the credit card company's foray into the mortgage lending business.
In a release, Discover said that it intends to focus on its “profitable banking products” instead, citing greater opportunities for growth in its other business lines.
“The business is not projected to meet our financial expectations due to ongoing challenges to our home loans operating model, so we made the difficult decision to exit," said Carlos Minetti, president of consumer banking for Discover.
As the company closes its doors, HousingWire sources say Guaranteed Rate, loanDepot and Freedom Mortgage are vying to acquire the home loan business.
None of the companies will comment at time of publication, and it is unknown if the sales will be whole or in part.
Back in 2011, Discover Home Loans started a giant push to beef up its mortgage operations, which included a deal to buy Home Loan Center, a subsidiary of Tree (TREE), for $55.9 million, the following year.
At the time, Minetti said, "Discover is acquiring a proven operating platform that we can scale by leveraging our brand and lending expertise. This will enable us to expand our line of banking products and provide home loans to consumers."
Arguable, the writing was on the wall for Discover Home Loans for months,.
Discover Financial Services’ fourth quarter 2014 earnings mentioned that the business was not performing.
“Expenses increased $77 million, or 10%, from the prior year due to the impairment of goodwill related to the home loans platform, as well as increased marketing spend, professional fees related to technology investments and employee compensation including higher headcount,” the fourth quarter 2014 earnings stated.
“The non-recurring items include the previously announced elimination of the credit card rewards forfeiture reserve as well as the impairment of goodwill realized with the acquisition of the Discover Home Loans platform and Diners Club Italy classified as held-for-sale,” it continued.
Meanwhile, there is still room for profit in the mortgage lending business as more companies look to grow with acquisitions.
The Mortgage Bankers Association recently updated its mortgage finance and economics forecast, significantly revising the volume of purchase originations upwards.
According to the new forecast, purchase originations will reach $801 billion in 2015 and $855 billion in 2016, increasing $71 billion and $94 billion, respectively, over the association's previous forecast.
But the good news comes too late for Discover Home Loans.