It was only a matter of time, but Washington Mutual (WM)
on late Wednesday said that it had decided to stop offering two complex mortgages, including option ARMs. The Seattle-based bank had rode negative amortization loans to mortgage market prominence during the recent housing boom.
In a press statement
, WaMu said it would discontinue all negative amortizing loan product options, in an effort to refocus its lending operations on more traditional mortgage products. The bank already exited subprime lending in late 2007, and in April shuttered its wholesale mortgage banking ARM after securing a $7 billion commitment from a group of private investors led by Texas Pacific Group
. Shareholders are set to vote on the capital infusion next week.
"We've carefully selected a core set of products that continue to meet the home purchasing and financing needs of qualified borrowers, while also recognizing the current mortgage lending environment," said David Schneider, president, WaMu Home Loans.
Corporate-speak aside, WaMu's decision to nix option ARMs likely has less to do with meeting the "needs of qualified borrowers" than it does with mounting credit costs tied to the troublesome loan product.
The bank’s portfolio includes some $57 billion in option ARM mortgages; and credit quality among negative amortization loan products has been quickly deteriorating among lenders that once specialized in the product. California-based Downey Savings and Loan (DSL)
, another large option ARM lender in recent years, said earlier this week that total non-performing assets rose to 14.3 percent of its nearly $13 billion in total assets.
In addition to option ARMs, the bank also said it would stop offering its WaMu Mortgage Plus product, a flexible-payment mortgage.
More help for troubled subprime borrowers
Beyond paring back its product offerings, WaMu said it would dedicate an additional $1 billion as part of its borrowers' assistance program targeting troubled homeowners with subprime mortgage loans. The extra money comes as the company has exhausted most of the $2 billion it committed last April, it said.
"Since the fund was first established in April, 2007, WaMu has helped more than 7,500 homeowners work to avoid foreclosure. Now that we have utilized most of the initial funding, we are adding an additional $1 billion to the original commitment for a total of $3 billion dedicated to assisting our borrowers," said Kerry Killinger, chief executive officer of Washington Mutual.
Under the program, eligible WaMu subprime borrowers who remain current on their existing loans and anticipate pending payment increases may apply for new discounted fixed-rate loans or other mortgage products available to them.
Which, we suppose, comes as little consolation to the billions of dollars worth of option ARM borrowers on WaMu's books -- many of whom are undoubtedly underwater on their current mortgage, staring at a recapitalization of debt they can't afford, and would need similar assistance in order to refinance.
Disclosure: The author held no positions in WM or DSL when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.