Washington Mutual sees more 2007 loan losses

NEW YORK (Reuters) - Washington Mutual Inc said on Monday that most U.S. housing markets are weakening, creating a “near perfect storm” that may force the largest U.S. savings and loan to set aside more money for bad loans.

Chief Executive Kerry Killinger said the thrift may set aside $500 million more for loan losses than the $1.5 billion to $1.7 billion it had forecast in July. Any increase would be Washington Mutual’s fourth this year.

Speaking at a Lehman Brothers Inc financial services conference, Killinger said the housing market faces rising delinquencies and foreclosures, higher borrowing costs, tighter underwriting standards and tough capital markets, “creating what we call a near-perfect storm for housing.

“Most housing markets appear to be weakening, to us,” Killinger said. “We would not be surprised to see declines in housing prices in many regions of the country ... for the next few quarters.” He said corrections in the housing and credit markets will last longer than the thrift expected.

Seattle-based Washington Mutual has fallen to sixth in U.S. mortgage lending from third in 2005, after it stopped making some riskier loans and in 2006 eliminated nearly 11,000 jobs, or 18 percent of its work force.

U.S. mortgage volume totaled $83 billion from January to June, according to the newsletter Inside Mortgage Finance, when the thrift’s home loans unit lost $150 million.

Killinger nevertheless said Washington Mutual is well positioned to benefit, as “weaker competitors close down or finally ‘fess up.”

Dozens of mortgage lenders have reduced lending or quit the industry this year. More than 50,000 jobs have been eliminated, including up to 12,000 announced on Friday by Countrywide Financial Corp, the largest mortgage lender.

Washington Mutual plans to hold more loans for investment, citing potential for strong risk-adjusted returns.

It also plans to move some “nonconforming” loans, which don’t meet Fannie Mae and Freddie Mac purchase requirements, to loans held for investment from loans held for sale. Killinger expects this to result in a $200 million write-down, equal to 15 cents per share according to analysts.

He also expects Washington Mutual to be able to maintain its 56 cents per share quarterly common stock dividend, equal to a 6.4 percent yield, “for the foreseeable future.”

IndyMac Bancorp Inc, the ninth-largest mortgage lender, last week halved its dividend.

Shares of Washington Mutual edged up 3 cents to $35.05 at mid-afternoon on the New York Stock Exchange. Through Friday, they had fallen 23 percent this year.