Washington Mutual ending two mortgage types

Ends negative amortizing, Plus program as result of subprime losses

The nation’s largest thrift said it would no longer offer negative amortizing loan products or WaMu Mortgage Plus loans.

The switch follows WaMu’s decision in late 2007 to shutter its subprime mortgage operations and cease buying mortgages from brokers. The thrift continues to struggle with costs associated with delinquent borrowers and rising foreclosures, and in April agreed to a $7 billion cash infusion from private investors.

Negative amortizing loans, also called “option” adjustable rate mortgages, offer very low introductory payments and let borrowers defer some interest payments until later years. But monthly minimum payments on those mortgages don’t cover the interest accruing on the loan, and homeowners may end up owing more than they borrowed.

In the current weak housing market, more borrowers holding that kind of home loan are finding themselves “upside down,” or owing more on their mortgage than what the property is currently worth.

In 2005 and 2006, about 6 percent of U.S. mortgages were option ARM loans, up from less than 1 percent in 2003, according to First American CoreLogic LoanPerformance data. The group’s data show that those mortgages performed better than traditional loans until the latter half of 2006, as the credit crunch made it harder for borrowers to refinance.

Since then, delinquencies on option ARMs skyrocketed to more than 12 percent in February of this year, from less than 1 percent in September 2006.