E*Trade Financial ( ETFC) 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) 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.
The company reiterated in its annual filing with the Securities and Exchange Commission that a "key component" of its 2008 strategy was to exit and restructure certain non-core businesses. Exiting its retail mortgage lending -- its last remaining origination channel -- was a part of that, the company said. Citigroup analyst Keith Walsh, who initiated coverage on the company on Thursday, has doubts concerning the " long-term viability" of the company given its troubled loan portfolio. He slapped a sell rating on the firm. According to E*Trade's Web site, the company is offering "competitive rates" on 30-year and 15-year fixed rate loans and refinancings, as well as five-year and seven-year ARMs and interest-only loans. In order to garner business, it is also touting several perks for certain customers who receive a mortgage with E*Trade, including reduced closing costs and same-day loan pre-approval guarantees, the Web site said. Some investors have speculated that E*Trade must begin lending again in order to be eligible for funding from the Troubled Asset Relief Program, or TARP. E*Trade filed an application for $800 million in TARP funds in early November. While it has not yet been approved, the company has said publicly that it is "optimistic" it will. Capitol Hill lawmakers have been critical that the billions invested in banks and financial institutions by the government thus far has not been used enough to jumpstart the stalled credit markets. Since E*Trade had curtailed its lending, perhaps it made it more difficult to justify an investment through TARP. Erickson says the new mortgage initiative does not affect its TARP application, which she says is still under "active consideration" by Treasury. Shares of E*Trade closed up 13.6% to 75 cents on Friday.