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Washington Mutual believes the integration of Providian, the credit card giant acquired by WaMu last year, is going smoothly. But analysts at CreditSights say that WaMu's exposure to subprime mortgage debt could put unexpected pressure on WaMu's booming card business.
Specifically, CreditSights said that an industrywide buildup in nonprime mortgage debt may pose a threat to credit card quality, saying that subprime mortgage debt reached $465 billion at year-end 2005.
Subprime MBS issuance has risen from 7% of all MBS in 2000 to over 20% in 2005 and over 40% for June of 2006, according to CreditSights. In addition, market acceptance of leveraged mortgage structures such as payment-option adjustable-rate mortgages, interest-only and negative-amortizing loans, as well as 40- and 50- year amortization periods, also has increased potential credit pressure on mortgage borrowers.
"We believe that the average mortgage borrower could be much more...
