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WaMu Sees Hedge Costs Rising as Yield Curve Flattens.
Seattle -- The mortgage unit was a mixed bag for Washington Mutual in the third quarter, with strength in nonprime lending offsetting competitive pressure in the prime market and a flat yield curve pushing up the cost of hedging mortgage servicing rights.
Overall, Washington Mutual earned $821 million, or $0.92 per share, in the third quarter, up 21% on a per-share basis from the third quarter of 2004. Chairman and CEO Kerry Killinger said the earnings "reflected excellent retail banking household growth" in a challenging rate environment.
Revenue from the sale and servicing of mortgage loans totaled $497 million in the third quarter, up from $403 in the second quarter but lower than the $549 million the mortgage group earned in the third quarter of last year.
Net income from WaMu's home loan unit - excluding Long Beach Mortgage - dropped to $165 million in the third quarter from $273 million one year earlier. WaMu said the decrease in income from its home loan group reflected lower gain-on-sale from mortgage loans due to competitive pricing for prime loans.
But it was a different picture at WaMu subprime subsidiary, Long Beach Mortgage. Long Beach recorded record loan origination volume and higher gain-from-sale of mortgage loans, contributing to the commercial group's $201 million in net income. Long Beach's origination volume more than doubled from one year earlier. The cost of hedging the company's big mortgage servicing portfolio also increased as a result of rising interest rates.
WaMu's cost cutting from the home loan group may be slowing down, the results suggest. Non-interest expense was $580 million during the quarter, ...
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Source: HighBeam Research, WaMu Sees Hedge Costs Rising as Yield Curve Flattens.