Washington Mutual Offers To Refinance Subprime Loans

Washington Mutual said Wednesday it would offer some subprime mortgage borrowers the option to refinance adjustable-rate mortgages as a way to avoid default and foreclosure.

The move, which would cover up to $2 billion in loans, comes after Washington Mutual on Tuesday raised its 2007 guidance for bad-loan provisions to a range of $1.3 billion to $1.5 billion, from a range of $1.1 billion to $1.2 billion.

The Seattle financial services company is caught up in the upheaval on the mortgage sector that covers loans to people with bad credit, known as subprime borrowers.

As housing prices continue to fall in many regions around the country, Washington Mutual has an interest in seeing borrowers repay rather than default because of the declining value of the collateral backing the loans.

Under the program announced Wednesday, borrowers with adjustable mortgages who remain current on existing loans and who expect higher rates can apply for discounted fixed-rate loans, the bank said.

On Tuesday, Washington Mutual said its first-quarter profits fell 20% amid a nationwide implosion of the subprime home loan market.

The nation's largest savings and loan company reported quarterly income of 86 cents a share, down from 98 cents reported a year ago. Quarterly revenue was $3.62 billion, up slightly from $3.59 billion in the same period last year.

Analysts polled by Thomson Financial were looking for earnings of 83 cents a share on revenue of $3.6 billion.

Kerry Killinger, Washington Mutual's chairman and chief executive, said in a release that the company's retail banking, card services and commercial groups fared well but the home loan market remained a serious challenge given problems in the subprime segment.

"Over the past 12 months, we have taken a number of prudent actions to reduce our exposure to the subprime mortgage industry," Killinger said in a statement. "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."