NEW YORK ( TheStreet) -- Bank of America's ( BAC - Get Report), exit from its huge wholesale mortgage business is a very painful step, but is the right thing to shore up the company's balance sheet and refocus the bank on building relationships with its own customers.

Of course, the move underscores the epic disaster caused by former CEO Ken Lewis's decision to purchase Countrywide in 2008. According to Guggenheim Securities analyst Marty Mosby, Bank of America's "old regime thought it was cheap, but didn't anticipate the liability they were getting."

The analyst added that with Countrywide's reliance on broker-originated mortgages, there was "not as much direct contact with customers" as Bank of America "probably envisioned."

At this point, Bank of America's exit from correspondent mortgage lending, following its decision to stop originating mortgages through outside brokers, as reported by the Wall Street Journal, fits in with the company's ongoing efforts to shed businesses that aren't tied to its own customers, including the sale of a $1.2 billion Regions-branded credit card portfolio to Regions Financial ( RF - Get Report) in June, the sale of an $8.5 billion MBNA-branded credit card portfolio to Toronto-Dominion Bank ( TD - Get Report) in August.

With, by far, the largest branch network in the United States, with the highest market penetration, Bank of America is very well-positioned to ramp-up its retail mortgage origination as the economy improves. Of course, one might ask why Ken Lewis thought it was such a great idea to add such a large wholesale mortgage origination business, since there were no gaps in the company's ability to meet potential customers face-to-face, but there's really no good answer to that question.

Mosby expects Bank of America, operating in the new Basel III environment of enhanced capital requirements for large banks, to continue trimming "anything that doesn't create the returns they would like," because "because every operation creates a capital need."

Bank of America has been slowly trimming its mortgage portfolio, while greatly reducing mortgage loan purchases, over the past two years. The company needs to continue shrinking its balance sheet in order to shore up capital ratios, for eventual compliance with the enhanced capital requirements of Basell III and U.S. regulators.

The company had $2.26 trillion in total assets as of June 30, down 4% from a year earlier. Total one-to-four family mortgage loans on the balance sheet were $421.7 billion as of June 30, reflecting in part the weak environment for mortgage securitization.

Bank of America's Tier 1 common equity ratio was 8.23% as of June 30, declining from 8.64% at the end of the first quarter, but up from 8.01% in June 2010, according to SNL Financial. Of course, the decline of the capital ratio in the second quarter reflected the company's $8.8 billion net loss, mainly springing from Bank of America's $8.5 billion Countrywide mortgage putback settlement with institutional investors.

As we are seeing, with the Federal Deposit Insurance Corp. objecting to the Countrywide settlement and a U.S. Bancorp ( USB - Get Report) subsidiary filing suit as trustee on behalf of investors demanding Bank of America repurchase mortgages securitized by Countrywide, Bank of America can't possibly have a handle on what its ultimate losses from the mortgage mess will be.

So expect Bank of America to continue on this course, and let's all hope that for the long term, the company will stay focused on organically growing its business with its own customers, while staying away from the multiple smaller deals that distracted senior management in the name of gaining a few incremental pennies of quarterly earnings per share, and, of course, staying away from any large acquisitions.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.