WaMu to refinance $2 billion in subprime loans

Washington Mutual, the biggest U.S. savings and loan, will refinance up to $2 billion in subprime loans amid an industrywide surge in defaults among the nation's riskiest borrowers.

The loans will be refinanced or modified at discounted rates to help borrowers' stabilize their finances and avoid foreclosure, Seattle-based WaMu said in a statement.

U.S. banking regulators told mortgage providers today to tighten standards for loans to subprime borrowers, who have blemished or little credit history. Lenders should verify income levels instead of relying on borrowers' statements and should account for potential interest-rate increases when scrutinizing whether homebuyers can pay off loans, the Federal Reserve and other regulators said in guidelines issued today in Washington, D.C.

WaMu said it's "well positioned" to implement the new guidance. It added that it remains concerned about an "unlevel playing field" because the standards won't apply to all lenders.

The nation's riskiest borrowers are defaulting on subprime mortgages at the fastest pace in four years, leading at least 60 mortgage companies to close or sell operations since the start of last year.

Shares of Washington Mutual fell 55 cents, or 1.3 percent, to $42.90 in afternoon trading. The stock has declined about 5.7 percent so far this year.