Merrill Lynch's decision last week to acquire subprime lender First Franklin Financial Corp. swept yet another investment bank further into the loan origination business - a trend which some are coining as a "paradigm shift" within the maturing subprime mortgage market. The move is expected to provide Merrill - along with the other Wall Street banks that have preceded it - a cheaper and more direct path to reaping proceeds of securitization. Market participants said it might be too soon to predict, however, how that cost savings might alter pricing in the home equity ABS sector.
Merrill agreed to buy the San Jose, Calif.-based First Franklin from National City for $1.3 billion. The sale includes National City's loan processor National City Home Loan Services Inc. and online lender NationPoint. The bank is also expected to buy about $5.6 billion of First Franklin-originated loans from National City's portfolio. National City had been seeking a buyer for First Franklin for some time. Several investment banks, including Merrill, had been rumored as interested parties. (ASR, 07/24/06)