Washington Mutual's ( WM) second-quarter earnings were cut in half, due primarily to its home loan mortgage banking income falling from more than a half-billion dollars to zero.

The company said, after the bell Wednesday, that net income fell to $489 million, or 55 cents a share, from $995 million, or $1.07 a share, in continuing operations a year earlier.

The consensus analyst estimate had expected the company to earn 60 cents a share.

Washington Mutual said net home loan mortgage banking income fell to zero from $611 million a year ago, due to the large change in the hedging performance of the company's mortgage servicing rights since the end of the first quarter.

On June 28, the company slashed 2004 earnings guidance to $3 to $3.60 a share, as it expected the increase in long-term interest rates would be sustained. WaMu said the impact of rising rates on its mortgage banking unit, which is compounded by the unit's high cost structure, would result in lower than expected gain on sale and increased overall hedging costs, especially in the second half of this year.

Also, the company expects net income for the year will be reduced by sales of investment securities in the first quarter.

"Most of Washington Mutual is strong and growing profitably, but this was a disappointing quarter," said Kerry Killinger, chairman, president and chief executive officer. "While second quarter results were affected by the volatility of our mortgage servicing rights, the root of our problem is the unacceptably high cost structure in our Mortgage Banking business. We know what we need to do, our efforts are well underway, and we will not be satisfied until we have fixed it."