WaMu Sinks as Losses Mount

The lender speaks of more pain in the housing market next year.
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Washington Mutual

(WM) - Get Report

painted a bleak future for itself and the housing market at an investor conference Wednesday.

"We expect today's challenging housing market conditions to continue throughout 2008," CEO Kerry Killinger said, sending shares of mortgage lenders and homebuilders reeling.

John McMurray, WaMu's chief credit officer, said that as a result, the firm expects to see more loan losses well into 2008. He said WaMu's provisions for future loan losses in the fourth quarter will be "similar to or slightly higher than" the $1.1 billion to $1.3 billion range the company had given for the fourth quarter. The bank had to set aside $967 million in the third quarter to cushion against greater loan delinquencies on subprime mortgages and home equity loans.

WaMu stock plunged as much as 7% in early trading to a new 52-week low. Shares of other lenders

Countrywide

(CFC)

and

Indymac

(IMB)

, and homebuilders

Toll Brothers

(TOL) - Get Report

, and

Pulte Homes

(PHM) - Get Report

also sold off.

Killinger added he expects originations to be "soft" in 2008, and that the the industry may only amass $1.5 trillion of mortgage origination next year -- some 20% below the Mortgage Bankers Association forecast for $1.9 trillion of origination next year. Even the MBA's rosier projection would mark an 18% decline from 2006 levels. Killinger highlighted extra pressure in California, Flordia, Arizona and Nevada markets.

Meanwhile, McMurray says 2008 loan losses will be even worse. "Delinquencies and NPAs

non-performing assets are expected to remain high and liquidity and credit availability are expected to remain low," said McMurray. "Going forward from there, provisioning levels are likely to remain elevated until there is some indication that the downturn in home prices has stabilized," he continued.

Wamu also took a $147 million writedown in the third quarter on $17 billion worth of home, multifamily and other commercial real estate loans that could not be sold in the secondary markets and were subsequently transferred to the company's investment portfolio. It also had $153 million of losses in its trading securities portfolio from residual interests on home loans and other assets.

Shares were down $1.57 to $22.66 in the first hour of trading.