Word is the private equity cash infusion Washington Mutual is in line for comes with a condition: Cut the bank's risk in mortgage lendingTroubled thrift giant Washington Mutual (WM), once one of the biggest players in residential mortgages, will stop making loans through independent mortgage brokers—what the industry calls the "wholesale" side of the business. Instead the company will focus on loans through its 2,200 retail bank branches.
Mitch Ohlbaum, chief executive of Legend Mortgage, an independent mortgage broker in Los Angeles, says he was told by a WaMu representative that Apr. 10 will be the last day to submit new loan applications. The wholesale business is considered risky because lenders have to offer very competitive terms to win business over dozens of rivals. Wholesale lenders are also relying on independent brokers to accurately provide borrower information.
The move comes amid news that the Seattle company may get a $5 billion cash infusion from private equity firm TPG as early as Apr. 8. That news, first reported in The Wall Street Journal, sent the stock up 29% on Apr. 7, to 13.15. The Mortgage Lender Implode-O-Meter, a Web site that traffics in industry gossip, reports that exiting the wholesale business was a condition attached to the TPG investment. According to an internal WaMu memo obtained by BusinessWeek, all loans originated by independent brokers must close by June 13.
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