E-Trade Getting Out of Wholesale Mortgage Business
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E-Trade has learned the lesson of the secondary mortgage market, and it is to stay the hell out of it. With most of their portfolio in mortgages held in house, and we are talking about 30 billion, the little secondary mortgage business that E-Trade has been doing is just putting a taint on the company as a whole.
And lets face it, if the loan is a good one, most lending institutions want to hold on to it. It was the demands of the secondary market that created all of the middlemen that are now going belly up. Full service banks and lending institutions would put their worst paper on the secondary market but keep the best loans they wrote. And since the landscape is changing where no one is writing a bad loan, all loans are good. And if the loan can not be sold to Fannie Mae or Freddie Mac, the loan will just not be written.
It is that simple.
The result is that E-Trade executives say they’re becoming frustrated with second-tier mortgages, since they’re such a small part of the company’s overall portfolio.
“All of this credit stuff that’s going on now is hiding our core business. We’re a diversified financial-services company,” Lilien said, referring to activities such as trading and banking. “The core business is really operating very well and having record quarters in terms of new customers.”
While E-Trade is considering selling off some of its second mortgages, “more than likely what we’ll do is let some of these mortgages prepay or mature on their own,” he added. “We’ll do new mortgages, but they’ll be more from our existing base of customers. And the ones we do from outside sources will focus on first mortgages.” via MarketWatch.
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