Capital One 2013 Annual Report Download - page 114

Primary Loan Products
We provide a variety of lending products. Our primary products include credit cards, auto loans, home loans and
commercial loans.
•Credit cards: We originate both prime and subprime credit cards through a variety of channels. Our credit
cards generally have variable interest rates. Credit card accounts are underwritten using an automated
underwriting system based on predictive models that we have developed. The underwriting criteria, which
are customized for individual products and marketing programs, are established based on an analysis of the
net present value of expected revenues, expenses and losses, subject to a further analysis using a variety of
stress conditions. Underwriting decisions are generally based on credit bureau information, including
payment history, debt burden and credit scores, such as FICO, and on other factors, such as applicant
income. We maintain a credit card securitization program and selectively sell charged-off credit card loans.
Prior to February 1, 2013, we had not securitized any credit card loans since 2009.
•Auto loans: We originate both prime and subprime auto loans. Customers are acquired through a network of
auto dealers and direct marketing. Our auto loans generally have fixed interest rates and loan terms of 72
months or less. Loan size limits are customized by program and are generally less than $75,000. Similar to
credit card accounts, the underwriting criteria are customized for individual products and marketing
programs and based on analysis of net present value of expected revenues, expenses and losses, subject to
maintaining resilience under a variety of stress conditions. Underwriting decisions are generally based on an
applicant’s income, estimated debt-to-income ratio, and credit bureau information, along with collateral
characteristics such as loan-to-value (“LTV”) ratio. We generally retain all of our auto loans, though we
have securitized auto loans and sold charged-off auto loans in the past and may do so in the future.
•Home loans: Most of the existing home loans in our loan portfolio were originated by banks we acquired.
The underwriting standards for these loans were less restrictive than our current underwriting standards.
Currently, we originate residential mortgage and home equity loans through our branches, direct marketing,
and dedicated home loan officers. Our home loan products include conforming and non-conforming fixed
rate and adjustable rate mortgage loans, as well as first and second lien home equity loans and lines of
credit. In general, our underwriting policy limits for these loans include: (1) a maximum LTV ratio of 80%
for loans without mortgage insurance; (2) a maximum LTV ratio of 95% for loans with mortgage insurance
or for home equity products; (3) a maximum debt-to-income ratio of 50%; and (4) a maximum loan amount
of $3.0 million. Our underwriting procedures are intended to verify the income of applicants and obtain
appraisals to determine home values. We may, in limited instances, use automated valuation models to
determine home values. Our underwriting standards for conforming loans are designed to meet the
underwriting standards required by the agencies at a minimum, and we sell most of our conforming loans to
the agencies. We generally retain non-conforming mortgages and home equity loans and lines of credit.
•Commercial loans. We offer a range of commercial lending products, including loans secured by
commercial real estate and loans to middle market industrial and service companies. Our commercial loans
may have a fixed or variable interest rate; however, the majority of our commercial loans have variable
rates. Our underwriting standards require an analysis of the borrower’s financial condition and prospects, as
well as an assessment of the industry in which the borrower operates. Where relevant, we evaluate and
appraise underlying collateral and guarantees. We maintain underwriting guidelines and limits for major
types of borrowers and loan products that specify, where applicable, guidelines for debt service coverage,
leverage, LTV ratio and standard covenants and conditions. We assign a risk rating and establish a
monitoring schedule for loans based on the risk profile of the borrower, industry segment, source of
repayment, the underlying collateral and guarantees (if any) and current market conditions. Although we
generally retain commercial loans, we may syndicate large positions for risk mitigation purposes. In
addition, we have sold impaired commercial loans in the past and may do so in the future.
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