Washington Mutual to Exit Wholesale Lending: Sources

(Update 1: adds contents of broker email)

Housing Wire has learned that Washington Mutual (WM: 31.64 +0.25%) allegedly informed industry participants of its decision to exit wholesale mortgage origination on Monday evening, according to numerous sources.

HW received a copy of an email allegedly sent to some brokers informing them of the move. “[C]onsistent with the company’s retail focused strategy, WaMu has made the very difficult decision to exit the Wholesale lending business,” the email said.

Washington Mutual did not immediately respond to a request seeking comment.

Sources suggested to Housing Wire that the move is likely tied to a pending $5 billion dollar investment into the bank by private equity firm TPG. The Wall Street Journal broke the story Monday that TPG was nearing a deal involving both a common and preferred stock offering at the Seattle-based bank, as it continues to reel from exposure to residential mortgages.

“TPG is requiring that WaMu walk away from wholesale and retrench its retail mortgage operations as part of its investment,” said one source close to the deal, who asked not to be identified.

WaMu has been hit hard as the mortgage crisis has continued unabated, and posted a $1.84 billion loss for the fourth quarter in January, due largely to charges tied to expected loan losses.

The bank’s portfolio includes $57 billion in option ARM mortgages; so-called negative amortization loans have been a fast-increasing source of losses for lenders as housing prices have fallen in key markets throughout the United States and put millions of borrowers in the position of owing more on their mortgage than their home is worth.

Disclosure: The author held no positions in WM when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.