Bear Stearns Alt-A absorbs Sub-prime Encore Credit

Bear Stearns Residential Mortgage and Encore Credit Corporation will be a single unit under the name Bear Stearns Residential Mortgage, the bank said in a statement. The move will mean reducing staffing by 310 jobs. Encore Credit is a sub-prime mortgage lender, while the Bear Stearns Residential Mortgage lends for Alt-A mortgages.

Less than a year ago, the acquisition of Encore Credit Corporation by Bear Stearns was described as a “Strategy of Vertical Integration in Mortgage Business”. At the time of the acquisition of Encore Credit, Bear Stearns Residential Mortgage was generating $600 million per month in primarily Alt-A mortgages. Encore gave access to the sub-prime mortgage market and an anticipated $400 million increase in loan origination to Bear Stearns.

Bear Stearns bought loans from ECC Capital for more than three years previous to the acquisition. ECC loans performed favorably compared with loans from other originators in the marketplace at that time. The original intent was to operate Encore as a separate entity and retain most of the original staff.

Bear Stearns Residential Mortgage Corporation began operations in April 2005 to provide mortgage brokers with an easy, streamlined solution for financing home loans.

It will be interesting to know whether the change to Bear Stearns strategy was due to non-performing loans generated by Encore Credit Corporation, or to investor reluctance and decline in secondary market value after news reported mortgage defaults on sub-prime and ARM mortgages began skyrocketing.