Bear Stearns Buys ECC Capital Sub-Prime Unit
Irvine-based mortgage company ECC Capital Corp. said Tuesday that it would exit sub-prime wholesale lending, selling that part of its business to brokerage Bear Stearns Cos.
The move marks a deeper move by Wall Street into home lending as struggling companies leave the field.
Under the agreement, Bear Stearns’ loan unit, Bear Stearns Residential Mortgage, will buy the sub-prime wholesale mortgage origination business of ECC Capital’s Encore Credit unit.
ECC Capital said it would get about $26 million in cash.
Encore Credit specializes in originating mortgages for borrowers with less-than-stellar credit profiles. It will operate as a separate division of Bear Stearns Residential.
Bear Stearns is a powerhouse in packaging home loans into tradable bonds. Over the last two years, it has aggressively expanded its mortgage franchise, helping fuel record profit.
Other brokerages, including Merrill Lynch & Co. and Morgan Stanley, also have bought mortgage lenders to help feed their thriving mortgage-backed securities businesses.
With the Encore unit, Bear Stearns said it expected total loan generation to top more than $1 billion a month.
Shares of Bear Stearns climbed $1.18 to $149.05 before the announcement.
ECC Capital has been struggling amid rising interest rates and higher loan delinquencies. The company went public in 2005 at $6.75 a share. The shares closed Tuesday at $1.04, up 1 cent, before the announcement.
The company said that it expected to make an 80-cents-a-share distribution to shareholders after the deal closes and that it was still considering whether to sell its remaining assets.
