WaMu Originations Down as Earnings Drop 20%

Loan production fell once more at Washington Mutual Inc. as quarterly earnings dropped 20% on subprime troubles, prompting the company to refinance up to $2 billion of their high-risk mortgages at fixed-interest rates below-market. Washington Mutual, the largest savings and loan in the nation, reported a net income of $784 million for the first quarter, down from $985 million in the same period a year ago. Revenue for the quarter was $3.62 billion, up from $3.59 billion one year earlier. The company’s mortgage division posted a first-quarter loss of $113 million compared with a $52 million profit during the year-ago period. Sales of subprime mortgages accounted for a quarterly loss of $164 million, overshadowing a “solid” performance in home loans to borrowers with better credit. "The decline in home loan volume from the fourth quarter was the result of the proactive steps the company has taken to reduce its subprime exposure through this point in the cycle," said Chairman and CEO Kerry Killinger.WaMu said it has scaled back its subprime portfolio and has set aside $234 million for the quarter to cover future loan losses from just $82 million in first quarter 2006. At the end of March, Washington Mutual had $20.4 billion of subprime loans, representing 9% of its $217 billion loan portfolio.The Seattle-based company reported that 71% of total volume was adjustable-rate mortgages and approximately $21.9 billion of the total was refinances.Home equity loans represented $8.3 billion of the total quarterly volume, down from $8.5 billion during the fourth quarter.Of the $37.6 in fundings for the quarter, WaMu said that about $22.7 billion came from the correspondent channel, while retail fundings represented $13.0 billion and wholesale volume accounted for $6.2 billion.Washinton Mutual said its mortgage servicing portfolio was $709.2 billion at the end of March, down from $794.8 billion one year earlier.The company indicated that it would refinance up to $2 billion of its own subprime mortgages at fixed interest rates discounted by 0.50%. WaMu has created a team of specialists to guide borrowers who are not yet delinquent but expect an ARM payment increase in the near future. Another group in the company will work with delinquent borrowers on creating financial solutions for their home loans.