Wamu Makes Changes; CIT Exits

Reinforcing an email I’d received from a HW reader yesterday, WaMu said in its earnings call that it’s taking some drastic steps towards improving the performance of its subprime loans:

Starting immediately, homeowners will have to meet stricter standards to get a mortgage and some loans won’t be offered at all, including subprime stated-income loans, [Washington Mutual] Chief Executive Officer Kerry Killinger said during a conference call … The bank will also halt adjustable mortgages whose initial rates are fixed for less than five years, and require tax and insurance escrow accounts with all new subprime mortgages that it originates, Killinger said.

In spite of the subprime drag, earnings at WaMu for the second quarter beat analyst estimates, moving to $830 million, or 92 cents a share, from $767 million, or 79 cents, in the previous year’s period. The announced changes at WaMu come on the heels of the larger industry-wide changes to most subprime lending programs that I’d blogged about earlier this week, and as WaMu’s Long Beach Mortgage unit was tagged by Moody’s for originating some of the worst performing subprime loans in the 2006 vintage. While WaMu was busy scaling back its subprime lending programs, CIT Group Inc. disclosed in its earnings call yesterday that it will exit the mortgage lending business completely:

Shares of CIT Group Inc. dropped Wednesday, adding to a stream of disappointments after the lender announced a second-quarter loss, lowered its outlook for the second half of the year, and said it was shedding its mortgage unit … “It was a challenging quarter where we had to make some tough decisions,” said Chairman and Chief Executive Jeffrey M. Peek. “While we believe exiting home lending is the right decision, it significantly impacted our current results.”

The exit leaves CIT focused primarily on commercial finance, which analysts said will provide the lender with “more stability” — at least until the commercial markets become unstable (something Moody’s apparently thinks might happen). I’d blogged about residential mortgage trouble at CIT way back in April, well before the company first disclosed the problems it was having in its mortgage business (a little pat on the back there, I know.) I think we’re at the point now where any major lender choosing to stay in the mortgage space is having to take a hard look at the depth of their commitment to the market. Update: Tanta at CR argues for why a commitment to subprime from the depositories is a Very Good Thing.

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