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WaMu to cut 4,000 jobs in home-loan operations

By Bradley Meacham
Seattle Times business reporter

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The Seattle-based company may cut the equivalent of 4,000 full-time jobs out of about 22,000 in its nationwide home-loan operations, chief executive Kerry Killinger said.

It already cut 1,500 jobs between August, when loan applications peaked, and the end of September, and recently set up a team of top executives to identify further cost savings.

During the mortgage boom, WaMu added temporary workers and expanded overtime to process record loan demand spurred by the lowest interest rates in a half century. Some cuts were expected when demand tapered.

WaMu employs 8,170 people in King and Snohomish counties and 59,100 nationwide. It's not clear where cuts would occur.

"We now have an opportunity to become more aggressive in eliminating redundancies and trimming costs throughout the organization," Killinger said during a conference call with investors and analysts. "Reducing the overall cost structure will be vital to driving our earnings growth in 2004."

On Tuesday, WaMu said home-loan applications fell by half during the third quarter as interest rates rose. Mortgage rates are now a full percentage point higher than in June.

Demand is expected to drop further, with the value of mortgages falling to $1.6 trillion in 2004 from $3.3 trillion this year, according to the Mortgage Bankers Association.

WaMu is responding with moves to streamline its operations and resolve customer-service problems. Cuts in the mortgage business are appropriate, analysts said, and will be offset as WaMu expands its banking operation and adds branches.

"This is the conditioned response you would expect when mortgage rates rise like they have," said Jim Bradshaw, an analyst at D.A. Davidson in Lake Oswego, Ore. "But they will continue to add people in new branches. It will be bodies shifting from one function to another."

The sudden change in interest rates during the third quarter led to a loss of $271 million on WaMu's mortgage loans related to the financial instruments it uses to balance the risk of rate changes. The head of WaMu's mortgage business abruptly quit last month and the consumer and corporate operations were split.

Recent operational problems included slow information on interest rate changes and some loans not being completed during the specified rate-lock period, Killinger said yesterday, calling the problems "unacceptable."

WaMu has lowered the rate it pays on some accounts and set up an internal "SWAT team" to look at how to prevent similar problems in the future, he said. Dyan Beito, who ran operations for the fast-growing consumer banking group, was named to oversee the home-loan operations. Tony Meola was named to oversee processing of loans and delivery to customers.

Despite the downturn, Killinger said WaMu will stick with its forecast of rising profit through the end of 2004. He pledged continued growth, with the addition of at least 1 million accounts each year. WaMu added more than 230,000 accounts in the third quarter for a total of 7.9 million.

When an analyst asked if WaMu's operational problems are behind it, Killinger demurred, saying there's still plenty of room to streamline, especially by further consolidating the series of smaller banks and mortgage companies it has bought.

"There are enormous opportunities for improving efficiency and for improving our service," Killinger said. "Now that refinancings are slowing down we're really going to tune up and dial up the efforts to complete all the operational integrations."

Bradley Meacham: 206-515-5066 or bmeacham@seattletimes.com

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