With foreclosures up, discount brokerage E*Trade Financial Corp. is getting out of the mortgage business while it still can. With the mortgage baggage out of its attic, is E*Trade preparing itself for a merger?

David Trone, a Fox-Pitt Kelton Cochran Caronia Waller (USA) LLC analyst, told MarketWatch it's a strong possibility. "Questions about E*Trade's mortgage exposure have probably made some potential suitors hesitant up to this point," Trone said. "E*Trade's restructuring plan makes them more attractive rather than less as a potential buyout candidate."

Only one month ago, E*Trade was reportedly in talks about a union with competitor, T.D. Ameritrade Holding Corp.

"Of all the online brokerage firms, these two look the most alike," Robert Ellis, an analyst at Celent LLC, told TheDeal.com last month. "They're both customer-based, have similar tools and similar pricing scales." However, Ellis added that there are differences between the two, namely, E*trade's pursuit of a more diversified strategy, and that it now makes more money from its banking side than brokerage. MarketWatch noted more specifically that Ameritrade expressed concern about E*Trade's mortgage exposure.

E*Trade announcement follows the likes of Ameriquest Mortgage Co. and Novastar Financial Inc. The move comes on the heels of sobering news that there was a total of 243,947 foreclosure filings in August, according to U.S. Foreclosure Market Report. That's a 36% increase from the previous month and a 115% jump from the same year-ago period. — Gerald Magpily

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Tags: brokerage, sub prime lending