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WaMu Profit Hit by Mortgage Mess

Seattle-based Washington Mutual reported third quarter profit of $210 million, or 23 cents a share, compared with profit of $748 million, or 77 cents a share a year earlier, its smallest profit since 1998.

The quarter included $967 million set aside to cover loan losses as banks and mortgage lenders continue to struggle with a deteriorating housing market and a collapse in mortgage lending.

Chief Executive Kerry Killinger said “increasingly difficult market conditions” have put a strain on the bank, noting profitability in the mortgage unit by year-end was now “an unrealistic goal”.

The lending giant lost $222 million on the sale of home loans during the third quarter, compared with a gain of $192 million in the second quarter.

The thrift’s home lending unit lost $348 million, up sharply from $23 million a year earlier.

WaMu now plans to set aside $2.7 billion to $2.9 billion this year for credit losses, up from the $1.5 billion to $1.7 billion it forecast earlier this summer, marking the fourth increase in estimates this year.

Washington Mutual has laid off 28 percent of its lending staff since 2005, including about 1,000 last month after it closed three mortgage fulfillment centers.

“We continued to adapt our home loans business to meet market conditions”, Killinger added.

Last year, the lender laid off 2,500 support employees in its mortgage unit while reducing the number of its mortgage processing offices from 26 to 16, citing weaker demand for home loans.

As for what the future holds, Killinger said, “We are not making projections as to when the market will stabilize.”

“At this point, we have not seen signs of stabilization. We are planning for challenging conditions in the housing market to continue for some time.”

Earnings were released after market close, sending shares of Washington Mutual down $1.08, or 3.27% to $31.99, just slightly above the 52-week low of $31.27.

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