Subprime Storm Hurts WaMu, Bypasses Wachovia

Two major financial institutions are being affected in very different ways by the serious problems in the subprime mortgage market, according to presentations at the Lehman Brothers Financial Services Conference in New York City this morning.

Seattle-based savings and loan Washington Mutual reported it may have to add another $500 million to the $1.5 billion to $1.7 billion it planned to set aside earlier this year to cover non-performing loans, according to the Reuters news service. Kerry Killinger, WaMu CEO, told the conference that delinquencies and foreclosures are rising along with borrowing costs, and that credit underwriting requirements are getting tougher.

This mix of factors is “creating what we call a near-perfect storm for housing,” Killinger said, according to Reuters. 

Meanwhile Wachovia Corp. reported the subprime market may have a small negative affect on its results.

Its Pick-a-Payment product in the adjustable rate mortgage market stacks up well against the competition in serving borrowers and in reducing risk, according to the presentation by Ken Thompson, Wachovia’s chairman and CEO.

Pick-a-Payment typically requires a greater down payment than the adjustable rate mortgages offered by competitors that have caused losses in recent months. And the repricing increase in a Pick-a-Payment mortgage is limited to 7.5 percent, thus limiting the impact on mortgage holders.

Wachovia projected its growth will be lower than first projected when it bought Golden West Financial in October 2006, but that it would originate $1 billion in mortgages this year.

Executives from both Wachovia and WaMu suggested they could benefit from the housing problems because many competitors have left the business. Wachovia’s Thompson noted that five of the top 40 mortgage lenders from 2006 have gone out of business.