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Lehman's quiet consolidation

Investment banks are bulking up their presence in mortgage lending, once the exclusive domain of their commercial and retail brethren. For some, such as Merrill Lynch, the advantage lies in being able to offer yet another financial product to its wealthy private clients.

Lehman Brothers has spent the past two years quietly building up its mortgage loan origination efforts. ?We now originate 55% of the MBS we underwrite,? says Lehman Brothers CFO David Goldfarb. ?A few years ago that used to be zero.?

Some of this has come from expanding the operations of its bank subsidiary, Lehman Brothers FSB. But it has also been buying loan origination platforms in the US and UK, the most significant of the three it bought last year being Aurora Loan Services.

It is at once both an offensive and defensive move. ?We wanted to continue to increase our market share in MBS, so it was important to get supply,? says Goldfarb, explaining the offensive tactics.

Despite not having a large mortgage loan origination platform in the past, Lehman has usually been a top three underwriter of mortgage-backed securities in the US since the early 1990s. In fact, along with two other institutions lacking a loan platform ? Bear Stearns and PaineWebber, now within UBS ? Lehman has dominated the MBS league tables.

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