Business news station CNBC reported late Thursday that Merrill Lynch will shutter its subprime mortgage origination arm First Franklin amid continuing woes in the U.S. mortgage and housing markets. The channel reported that the move will cost some 400 to 500 employees their jobs. While CNBC reported that Merrill would keep First Franklin's servicing business intact, Housing Wire learned Friday from a source close to the process that it's more likely that the troubled subprime lender's existing servicing portfolio would be moved to the Wall Street bank's Beaverton, Oregon-based Wilshire Credit Services servicing platform. Merrill Lynch is not commenting to the press on the report. The firm puchased First Franklin at the end of 2006 from National City Corp. in a deal worth $1.3 billion, right before the subprime mortgage market cratered. Recently, media reports have surfaced suggesting that Merrill executives were considering turning the subprime lending platform into a conforming lending specialist -- a move industry executives had said would be tough to accomplish. It now appears that, at least for Merrill, its decision to close First Franklin is an admission that the company's bid to expand its subprime presence was ill-timed. The firm recorded $18 billion in write-downs during the recently-completed fourth quarter, as bad bets on mortgage-related securities and derivatives led to the ouster of former CEO Stan O'Neal. Disclosure: The writer held no positions in MER when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.