Seattle-based Washington Mutual, the fifth largest U.S. subprime lender, today (April 18) announced a plan to offer$2 billion in assistance to help subprime borrowers hold on to their homes.
The program is effectively a commitment to refinance up to $2 billion in subprime loans made by the company at discounted interest rates. It comes as federal regulators have been urging lenders to exercise restraint when dealing with customers who are struggling under the weight of their mortgage payments.
Under the program, WaMu subprime borrowers who remain current on their existing loans and anticipate pending payment increases may apply for new discounted fixed-rate loans or other mortgage products available to them. The company will offer eligible customers a 30-year, fixed rate product at a rate discounted by 50 basis points, equal to half of a percentage point. It will make prime mortgage products available to customers who qualify. It also will provide a dedicated team to help customers understand the new offerings. Finally, it will make its staff available to discuss options for those customers who have become delinquent.
"We're reaching out to our subprime borrowers to help ensure they are in the best possible position to manage challenges posed by payment adjustments," said Kerry Killinger, WaMu chairman and chief executive officer. "We want our customers to know what's ahead, to avoid surprises, and to understand the choices available to them."
The move was seen by analysts as a tradeoff between incurring the costs associated with refinancing these customers now compared with dealing with the expense of defaults later.
"Early intervention combined with expanded options can make a major difference," said David Schneider, president of WaMu's Home Loans Group. "Customers who work with us to develop a payment plan are more likely to succeed in avoiding foreclosure and balancing other household financial obligations. Stepping up and helping our customers stay in their homes is in the best interest of our borrowers, our communities and WaMu."