WAMU: slash subprime loans 70 percent this year

Washington Mutual Inc. said it is making fewer subprime mortgages and emphasizing higher-quality loans to boost earnings and cut risk after its home loans unit lost $113 million from January to March.

The largest U.S. savings and loan said Friday it is also significantly reducing loans that require little documentation of borrowers' income or assets and second mortgages that let borrowers buy homes with little or no money down.

It is making the changes amid an industrywide increase in defaults and foreclosures at a time that home prices are stalling and homeowners find it tougher to refinance as interest rates adjust higher.

"We've completely changed the culture from a volume-based culture to a quality-based culture,"

The home loan loss caused WaMu's first-quarter profit to drop 20 percent to $784 million, despite higher earnings in its retail banking, credit card and commercial banking units. Overall home loan volume fell 34 percent to $29.6 billion.

Beck said WaMu has reduced "piggyback" second mortgages and "stated-income" loans, sometimes called "liar" loans, because they require little documentation and can lead to fraud.

He also said "we no longer do" combination loans, in which principal equals 100 percent of properties' value.

WaMu expects to slash subprime loans 70 percent this year to $8 billion from last year's $27 billion. On April 18, it pledged to refinance up to $2 billion of subprime loans at below-market rates to help borrowers who might otherwise miss payments. Subprime loans are to borrowers with poor credit histories.

The thrift also expects to boost "Alt-A," or "Alternative-A," lending, which falls between prime and subprime in quality. First-quarter Alt-A loans rose 49 percent to $7.6 billion from $5.1 billion, the thrift said.

Other lenders that tightened loan standards this year include Citigroup Inc , Countrywide Financial Corp , IndyMac Bancorp Inc . and Wells Fargo & Co .

WaMu shares are down 7 percent this year.