E*Trade Restarts Mortgage Lending

E*Trade Financial (ETFC Quote) is ramping up its mortgage offerings once again, offering new loans through a third-party mortgage outsourcer.

The company's thrift subsidiary on Friday launched an initiative to offer conventional fixed-rate loans, adjustable-rate mortgages and loans backed by the Federal Housing Administration, among others, a customer service representative reached by TheStreet.com said. E*Trade will not be providing riskier types of loans such as home equity lines of credit or construction loans, the employee said.

PHH Corp. (PHH Quote) of Mount Laurel, N.J. will take care of most aspects of the loan, including the processing, underwriting and servicing, while E*Trade will market the loans and help collect the necessary borrower information, E*Trade spokeswoman Pam Erickson said.

The program is targeted to current E*Trade Bank customers, but borrowers need not be a customer, she said.

Providing mortgages through a third-party allows the company to be a full-service banking outfit without the risk, since the loans will not be on their balance sheet, Erickson says. E*Trade said last year that it was exiting the retail mortgage origination business and would use a third-party to originate mortgages in the future.

"As a thrift bank, we think we have an obligation to offer a mortgage product," Erickson says. "We have always believed that mortgages are an important product to offer customers."

E*Trade, which forayed into mortgage lending and securities business during the housing boom earlier this decade, has been one of the worst-hit companies since the beginning of the credit crisis. It was forced to sell a stake to hedge fund Citadel Investment Group after taking huge writedowns on its asset-backed securities portfolio, primarily due to its collateralized debt obligations, or CDOs, and second-lien securities. The company has also been hobbled by delinquencies and defaults in its home equity loan portfolio.