Washington Mutual, Inc. (NYSE:WM) said late yesterday that it earned $784 million, or $0.86 per diluted share, for the first quarter of 2007, compared with net income of $985 million, or $0.98 per diluted share, in the year-ago period. Driving the drop in net income at the bank was poor performance in the company's mortgage lending business, which reported its second straight quarterly loss. WaMu's Home Loans business unit reported a $113 million loss in the first quarter, coming on the heels of a $122 million loss during the fourth quarter of 2006. The mortgage unit had recorded a profit of $52 million in the first quarter of last year. “Our Home Loans business was challenged during the first quarter by difficult market conditions,� said Kerry Killinger, the company's chairman and CEO. “Over the past 12 months, we have taken a number of prudent actions to reduce our exposure to the subprime mortgage industry. These actions, along with a diversified business mix, limited our exposure to the mortgage market's downturn and position us well to expand and grow as market conditions improve.� WaMu attributed the loss in mortgage operations to "subprime deterioration," and said that weakening subprime mortgage credit performance and widening market credit spreads drove the first quarter $113 million loss for its Home Loans group. First quarter gain on sale included net losses of $164 million on sales of subprime mortgage loans and adjustments to reflect declines in market values of loans held for sale. Based on actual and estimates of future credit performance, WaMu said it decreased the value of its subprime mortgage residual portfolio by $88 million to a balance of $105 million at the end of the first quarter -- a markdown of nearly 45 percent.
Production Falls 34 Percent Weakness in the subprime mortgage market overshadowed improvement in its prime business, WaMu officials said. During the quarter, production volume for prime loans was solid and gain on sale increased from the prior quarter. However, due to the difficult subprime mortgage market, overall loan production dropped dramatically from year-ago levels, falling more than 34 percent to $29.7 billion. WaMu had funded volume of nearly $45 billion in the first quarter of 2006, and $34.9 billion in the fourth quarter of 2006. For its part, the company said the decline in its home loan volume from the fourth quarter was the result of what company executives characterized as "proactive steps" to reduce its subprime exposure through this point in the cycle. Subprime mortgage production for the first quarter was down 51 percent from the same quarter in 2006, due in part to WaMu's decision to exit its traditional correspondent business. Washington Mutual did not provide aggregate information on mortgage loan portfolio performance, leaving industry analysts to guess at the company's portfolio characteristics and delinquency trends. For more information, visit http://www.wamu.com.
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