NEW YORK (Reuters) - Washington Mutual Inc. WM.N, the largest U.S. savings and loan, said on Wednesday it will refinance up to $2 billion in subprime home loans at below-market rates to help borrowers who might otherwise struggle to keep up with payments.
The decision comes amid growing defaults nationwide by homeowners with weaker credit histories as gains in housing prices slow, rates on many mortgages adjust higher, and lending standards tighten.
Freddie Mac FRE.N, the second-largest provider of funding for home loans, on Wednesday committed to buy up to $20 billion of subprime mortgages. That could encourage lenders to offer the loans, by ensuring demand to buy them after they're made.
Seattle-based WaMu, as the thrift calls itself, said borrowers who are current on existing WaMu subprime loans and expect payment increases, typically in the next six months, may apply for discounted fixed-rate loans and other mortgages.
One option is a 30-year fixed-rate loan yielding one-half of a percentage point less than the going rate, it said. WaMu said it ended March with $20.4 billion of subprime loans on its books, or 9 percent of its $217 billion loan portfolio.
“Not all borrowers will need to, or want to, change their mortgages,” said David Schneider, president of WaMu’s home loans unit, in an interview. “Our primary concern is people who are coming up against rate resets. It’s 10,000 to 15,000 customers we think we can help.”
Rising defaults can deepen lenders’ credit losses, hurting earnings. The U.S. Federal Reserve has estimated it costs a bank $50,000 to foreclose on a home.
“It’s in no one’s interest for consumers to experience difficulties, or lose their homes,” Schneider said.
U.S. home foreclosures rose 47 percent in March from a year earlier, real estate data firm RealtyTrac Inc. said Wednesday. The foreclosure rate set a record high in the fourth quarter, according to the Mortgage Bankers Association.
Last week, Citigroup Inc. C.N and Bank of America Corp. BAC.N said they were working with an advocacy group to offer $1 billion in mortgages at below-market rates to subprime borrowers. This program differs from WaMu's because it is designed to benefit victims of abusive lending practices.
Subprime lending was the main reason that WaMu’s home loans unit posted a $113 million first-quarter loss on Tuesday. That contributed to a 20 percent decline in WaMu’s overall profit to $784 million. Results still topped analyst estimates.
WaMu shares rose $1.95, or 4.9 percent, to $42.08 in afternoon trading on the New York Stock Exchange.
To view additional stories about the subprime lending crisis, click on nN16195443
Additional reporting by Patrick Rucker
Our Standards: The Thomson Reuters Trust Principles.