GOIH Capital Markets: Lehman Bros. (NYSE:LEH) Shuts down Subprime Mortgage Unit: Lays off 1,200.

Lehman Bros. the giant Wall St. broker just announced that it is shutting down its subprime mortgage unit. LEH was one of the largest players in the fixed income mortgage space.

What does this mean for the market?

We think it means that there will be less mortgage activity in the immediate future and companies such as CFC, and other mortgage originators will not have a previous source to securitize the loans originated, forcing the lenders to hold the loans on its balance sheet that are not agency paper, i.e., Fannie Mae and Freddie Mac conforming loans.

Lehman will now probably take a charge against earnings and trade down in the near term.

We see the opportunity to make short term trading profits by shorting or selling puts against LEH.

We see pressure on CFC, ETFC, BSC and other players in the subprime space.