SAN FRANCISCO — Washington Mutual Inc., the country’s third-largest subprime mortgage lender, is angling to get more of the lucrative market being abandoned by other lenders.

To raise its share of the subprime mortgage business to double-digits, the Seattle company will use the same “buy and build” strategy that has won it a 10% share of the single-family market, said Craig Davis, president of Washington Mutual’s home loans and insurance services group.

“When there are opportunities to accelerate growth through acquisition, when it makes sense, we will do that,” Mr. Davis said in an interview last week. He said Wamu sees subprime “as an important part of being in the home loan business.”

But subprime isn’t for everyone, as last week’s announcement by Bank of America Corp. showed once again. The Charlotte, N.C., company said it had found buyers for its 96 subprime mortgage branches and that it planned to sell its $26 billion loan portfolio.

Bank of America cited higher costs to manage the business, and that probably included expense related to heightened regulatory and public scrutiny of predatory lending.

But Mr. Davis said Bank of America’s withdrawal points to larger issues.

“I don’t think this is just specifically focused on subprime,” he said. “That’s the topic of the day, but a lot of folks have decided the mortgage business is a scale-required business and they don’t have the commitment or the capital or the desire to be a leader.”.

Washington Mutual got into subprime residential lending relatively late and didn’t do much of it before its 1999 acquisition of Long Beach Mortgage of Orange, Calif. It also makes some subprime loans through Washington Mutual Finance Corp.

Wamu sells most of the subprime loans it originates. Its current portfolio of subprime residential loans — the largest category of subprime credits it makes — is about $7 billion, or 5.5% of its $128 billion single family residential mortgage portfolio.

But Wamu originated $2 billion of these loans in the first quarter, or 5.9% of the loans made, according to National Mortgage News.

Signs of worsening consumer credit quality have cast a pall over a business that lends to the most high-risk borrowers. Banks’ credit card loan portfolios, typically one of the first consumer asset categories to sour in an economic downturn, because of their unsecured nature, have already started to show more delinquencies. Credit Suisse First Boston in a report released Friday noted that among the 15 bank-owned credit card portfolios that it tracks, the median delinquency rate rose 4 basis points from June to July, even though loss rates dropped.

Real estate-secured loans are not as vulnerable to default levels that can hit credit card loans, but their generally lower interest rates provide less protection from losses.

“Small increases in real estate loans” that go bad “might start impacting a company sooner,” said Thomas Abruzzo, a director with the Fitch ratings agency who covers consumer finance companies. If a company “is not being properly compensated for risk, it’s an astute move to go away” from subprime lending, he said.

Foreclosure rates in the first quarter rose 1 basis point, to 0.31%, and the number of foreclosures in process at the end of the three months was up 5 basis points, to 0.90%, according to the most recent data available from the Mortgage Bankers Association.

While it’s no surprise that subprime loans are the first consumer credits to show problems in economic downturn, this risk has been priced into Washington Mutual’s loans, Mr. Davis said. “We have been able to consistently meet thresholds we’ve set in the subprime market.”

For Robert Gnaizda, general counsel with the Greenlining Institute in San Francisco, the more regulated banks and thrifts that lend to subprime borrowers, the better.

“Our position from the beginning has been that we want every major regulated bank doing subprime,” he said. “We want CEOs to take personal responsibility, and want the Federal Reserve and the OCC to reward those who set high standards and swiftly punish those who don’t.”

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