Washington Mutual halts some exotic subprime loans

NEW YORK (Reuters) - Washington Mutual Inc. (WM.N), one of the largest U.S. mortgage lenders, said it will no longer offer some subprime home loans that had become popular before soaring defaults caused distress for dozens of lenders.

In an interview, Chief Executive Kerry Killinger said that effective immediately, the Seattle-based thrift will require full documentation of income and assets from prospective subprime borrowers, eliminating riskier "stated income" loans.

He also said Washington Mutual will not offer any subprime adjustable-rate mortgages with initial fixed terms of fewer than five years.

This would eliminate so-called 2/28 and 3/27 subprime loans, which carry low rates for two or three years and then jump to much higher rates that float.

"Too much money, and some would say, irrational money flooded the subprime market in the last couple of years," Killinger said. He said that despite the changes, "we're absolutely committed to the subprime mortgage business. It serves a very important customer need."

(Reporting by Jonathan Stempel)