Posted on 08/21/2007 6:43:21 AM PDT by Hydroshock
NEW YORK (Fortune) -- Capital One's shuttered GreenPoint Mortgage is the latest mortgage banking explosion to bump Wall Street's panic meter up a notch, and industry insiders say it is just another indicator that retail banks will be stung by the credit mess they helped create.
"Banks are not going to want to be in the mortgage business after all this is over," says Richard Wilkes, a mortgage industry veteran who ran First Nationwide Mortgage before it became a part of Citigroup.
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"It happened to the insurance companies in the 1980s when players like Travelers and Prudential owned mortgage banking operations. They just couldn't stand the cyclicality and the banks won't be able to either."
But big names in retail banking like Capital One have become deeply entwined in the mortgage lending industry, particularly at the beginning of the decade. Loan originators made boatloads of cash selling mortgages to investment banks that turned them into the asset-backed bonds.
The game ended when the mortgage-backed bonds turned out to be toxic waste for investors, and high-profile write-downs on their value sparked the credit crunch that is strangling the markets. However, it won't be so easy for banks to get out of mortgage lending altogether.
(Excerpt) Read more at money.cnn.com ...
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