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Washington Mutual ending two mortgage types

Washington Mutual Inc. said Wednesday it would stop offering two types of complex mortgage products as part of a shift in its mortgage business.
/ Source: The Associated Press

Washington Mutual Inc. said Wednesday it would stop offering two types of complex mortgage products, the latest change to its mortgage business intended to help it recover from the mess in the mortgage and credit markets.

The nation’s largest thrift said it would no longer offer negative amortizing loan products or WaMu Mortgage Plus loans.

The switch follows WaMu’s decision in late 2007 to shutter its subprime mortgage operations and cease buying mortgages from brokers. The thrift continues to struggle with costs associated with delinquent borrowers and rising foreclosures, and in April agreed to a $7 billion cash infusion from private investors.

Negative amortizing loans, also called “option” adjustable rate mortgages, offer very low introductory payments and let borrowers defer some interest payments until later years. But monthly minimum payments on those mortgages don’t cover the interest accruing on the loan, and homeowners may end up owing more than they borrowed.

In the current weak housing market, more borrowers holding that kind of home loan are finding themselves “upside down,” or owing more on their mortgage than what the property is currently worth.

In 2005 and 2006, about 6 percent of U.S. mortgages were option ARM loans, up from less than 1 percent in 2003, according to First American CoreLogic LoanPerformance data. The group’s data show that those mortgages performed better than traditional loans until the latter half of 2006, as the credit crunch made it harder for borrowers to refinance.

Since then, delinquencies on option ARMs skyrocketed to more than 12 percent in February of this year, from less than 1 percent in September 2006.

In 2007, banks drastically cut back on option ARM lending. In an e-mailed statement, WaMu spokeswoman Sara Gaugl said the thrift was discontinuing that type of mortgage entirely because it has “significantly decreased in popularity with our customers given current market conditions.”

WaMu will, however, still offer two other types of adjustable-rate mortgages.

The thrift is also discontinuing its WaMu Mortgage Plus loans, or mortgages with built-in lines of credit and flexible payments.

Washington Mutual also said it is adding $1 billion to its borrowers’ assistance program, developed in 2007 to help people with subprime mortgage loans stabilize their finances and avoid foreclosure.

Separately, the Seattle-based thrift is reportedly planning to lay off hundreds of workers across the country, according to the Puget Sound Business Journal.

Gaugl said there were no job cuts to announce Wednesday but that the company is “making a number of changes to improve expense management, increase efficiency, and accelerate our return to profitability.”

In after-hours electronic trading, Washington Mutual shares fell 1 cent to $6.25. They had fallen 4 cents to end the regular session at $6.26 before the company’s announcement.