Washington Mutual, the nation's largest thrift, reported a net loss of $1.87 billion for the fourth quarter after market close on Thursday. The loss was its first since 1997, and came as WaMu took a $1.6 billion after-tax charge to the value of its home mortgage unit and set aside $1.53 billion for credit losses. Bloomberg reported that the $2.19 per share loss for the quarter was worse than analysts had expected; mean expectations were at $1.43 per share, the news service said. The fourth quarter loss pushed WaMu into the red for the full year, with the bank reporting a net loss of $67 million for 2007. The Seattle-based thrift had announced drastic measures in December, including laying off 3,150 employees as it looked to adjust to market challenges it characterized as "unprecedented" at the time. Mortgage losses continue to mount "It's clear that the weakness in both the housing and credit markets have led to a fundamental shift within the mortgage industry," CEO Kerry Killinger said in a conference call with analysts. Net charge-offs for the fourth quarter registered $747 million; the provision for future losses was roughly double the charge-off rate, bringing total allowance for loan losses to $2.57 billion at year end, WaMu said. Charge-offs in subprime and home equity loans dominated, accounting for approximately 70 percent of the total. Non-performing assets grew to $7.1 billion in the fourth quarter, equalling 2.17 percent of total assets and increasing 52 basis points from the prior quarter (see below for a look at NPAs by quarter). "Although we are not seeing significant changes in early stage delinquencies, once a borrower is delinquent it is difficult for them to cure their loan because home prices in many areas of the country are not only deteriorating, but homes are also taking longer to sell," said CFO Tom Casey. "In addition, liquidity for consumers has decreased with far fewer refinancing opportunities, especially for nonconforming loans." Beyond non-performing assets, Casey also discussed Wamu's exposure to option ARMs, saying that the bank considers only $2.1 billion of its $57 billion option ARM portfolio as "at risk," identifying high risk loans as those originated between 2005 and 2007 with an original LTV over 80 percent. WaMu had better hope the rest of its option ARM portfolio is low(er) risk: below is a scary ARM reset chart covering option ARM recasting. Looking ahead Killinger said that WaMu will continue to focus on retail originations, and that it is expecting a 40 percent drop in overall originations in 2008, to $1.5 trillion. That number is well below the $1.96 trillion predicted by the Mortgage Bankers Association in a recent forecast. Casey also noted that the thrift expects net charge-offs in the first quarter of 2008 to be up "20-30 percent" versus Q4, and that the loss provision will be in the "range of $1.8 to $2.0 billion." WaMu shares were down only slightly after hours on the New York Stock Exchange, off a quarter of a percent to $12.43. For more information, visit http://www.wamu.com. Disclosure: The author held various put option contacts on Washington Mutual at the time this story was published.