Webster Financial Corp. reported a fourth quarter net loss of $8.7 million, or $.16 per share, on Thursday as the $17.2 bank holding company was sent reeling from bad loans in residential construction and home equity lending. Fourth quarter’s earnings compared to $35.0 million in profit one year earlier, the bank said. The New England area bank took a charge of $.86 per share, which included a special provision of $40 million, to cover credit losses in both its residential construction and home equity loan portfolios. Webster has since exited broker-based originations for both loan products, it said, although it still originates home equity loans in-market via retail. The bank, which had stepped into national lending via third-party originations, said it is not only retreating to retail, but focusing solely on its local markets. The bank will close its wholesale lending offices in Seattle; Phoenix; Cheshire, Connecticut; and Chicago, as a result. “Webster closes 2007 having addressed head-on the challenges facing the financial services industry and taken aggressive, constructive action,” said Webster Chairman and CEO James C. Smith. “Our future is in-market and contiguous franchise growth and lending relationships that are direct to consumer and commercial customers.” Webster has placed both its residential contruction and home equity portfolios, equalling roughly $424 million, into liquidation; the $40 million loss provision brings allowance for future loan losses in portfolio liquidation to $49 million. Non-performing assets totaled $121.1 million, 0.97 percent of total loans and other real estate owned at the end of Q4, the bank reported; that was an increase from $104.2 million at the end of the third quarter and roughly double the level of NPAs from one year earlier. Regional banks feeling mortgage pinch Webster joins a growing list of regional banking outfits that have seen their mortgage banking activities take a toll on fourth quarter earnings. A number of banks have reported losses on both construction lending as well as home equity lending. Others have seen their investments in Fannie Mae and Freddie Mac stock lead to losses, even if their mortgage portfolios remain relatively sound; the latest victim Thursday of write-downs in this area was New Jersey-based Valley National Bancorp, which wrote off $10.4 million of after-tax profit on its investments into preferred stock issued by both GSEs. National reported net income of $27.7 million for the quarter, down from $38.1 million one year earlier. Disclosure: The author held no positions in VLY or WBS when this post was originally published.