Mortgage execs paint bleak housing picture

WASHINGTON — Mortgage industry executives warned the worst is yet to come in the U.S. housing market.

The gloomy assessments were made Monday at a conference sponsored by the Office of Thrift Supervision.

Washington Mutual Chief Executive Kerry Killinger said problems are starting to show up in home loans made to borrowers with strong credit records because real estate prices continue to slide.

The CEO of Seattle-based WaMu — the country's biggest thrift and a major mortgage lender — said he supports additional interest-rate cuts by the Federal Reserve, as well as temporary extensions of Fannie Mae and Freddie Mac's funding capacity.

"I'd be supportive of whatever it took for the industry to be on stronger footing," Killinger said.

He also said the government needs to help pump more life into the nation's housing market.

Most mortgage-industry executives praised the Treasury-led plan.

Daniel Mudd, chief executive of government-backed mortgage finance company Fannie Mae, called it a "positive step," saying that many borrowers will be able to avoid foreclosure if they are given more time. "Largely, the industry is beginning to reconstruct itself," Mudd said.

Yet the outlook of executives attending the conference was bleak.

Angelo Mozilo, CEO of Countrywide Financial, said he also supports Fannie and Freddie being allowed to buy bigger home loans and keep more of them on their books as a way to improve liquidity for the battered industry. The Bush administration has opposed such efforts, which are backed by congressional Democrats.

"This is the time for [Fannie and Freddie] to step up to the plate and take action and try to bring liquidity back to the market," Mozilo said.

However, Democrats and Republicans continue to debate the issue even as Fannie's and Freddie's profits plunge and their stock prices crash.

An effective compromise anytime soon is unlikely, said Brian Gardner, a policy analyst with Keefe, Bruyette & Woods.

"There are too many conflicting interests," Gardner said.

Echoing the complaints of consumer advocates who have long pushed for mortgage-lending reform, Robert Toll, chief executive of luxury homebuilder Toll Brothers, said stronger restraints are needed to prevent a recurrence of today's problems.

"We had mortgages available to the alive and standing and that was the only criteria," he said. "There's no reason why we can't set limits."

Mark Zandi, chief economist at Moody's Economy.com, predicted that, if the economy were to slip into a recession or if efforts to modify loans don't pick up substantially, the housing market downturn could last through the end of the decade.

"This is the most serious housing downturn since the Great Depression," Zandi said.

Many analysts say next year is likely to be worse.

With $361 billion in subprime loans made to borrowers with weak credit resetting at higher interest rates next year, foreclosures will peak in the third quarter of next year and won't drop back to more normal levels until 2011, said a Banc of America Securities report out last month.

Meanwhile, a Goldman Sachs report last month said more than $100 billion in additional bank write-offs and losses are on the horizon due to bad mortgage investments. And it warned that credit-card debt and auto loans could be the next sectors to suffer.