WaMu Plans to Rein in Size of MSR Asset.

Seattle -- Capitalizing on its fourth consecutive quarter of profitable mortgage activities, Washington Mutual chairman and CEO Kerry Killinger last week told investors that his company is "positioned to go toe-to-toe with any competitor in the mortgage business."

At the same time, he said WaMu will try not to let its potentially volatile mortgage servicing rights asset grow beyond the company's ability to manage it.

WaMu reported that second-quarter net income climbed 73% to $844 million from the year earlier quarter, with home loans contributing almost half of that total.

Revenue from the sale and servicing of home mortgage loans, including MSR risk management, totaled $403 million in the second quarter of 2005, up from essentially zero in the second quarter of 2004.

The second-quarter mortgage results were weakened by $295 million in amortization and "risk management" costs associated with the MSR asset, WaMu executives noted in a conference call with investors and analysts.

But Mr. Killinger reiterated WaMu's plan to tighten the reins on MSR risk management, saying that WaMu intends to maintain the size of its MSR asset at about 25% of equity capital after the acquisition of Providian Financial, San Francisco. Because of the volatility of MSR values, he said WaMu's MSR value at any point in time might fluctuate between 15% and 35% of equity capital. WaMu valued its MSR portfolio at $5.74 billion as of June 30.

He said the 25% goal is the "right level" given the ...