June 9 (Bloomberg) -- Washington Mutual Inc. tumbled as much as 14 percent, leading mortgage companies lower in New York trading, after UBS AG analyst Eric Wasserstrom said the Seattle- based lender is underestimating losses on home loans.

Washington Mutual, nicknamed WaMu, will lose about $21.7 billion from mortgages through 2011, more than the $12 billion to $19 billion the company forecasted, Wasserstrom wrote in a report today. He cut his 12-month share price target to $8.50 from $11.

Concern about mortgage industry earnings flared anew as Lehman Brothers Holdings Inc., one of the leading underwriters of mortgage securities, reported a loss three times worse than the most pessimistic analyst's estimate. WaMu, the biggest U.S. savings and loan by assets, had ranked among the largest U.S. lenders to home buyers with the weakest credit.

Washington Mutual ``will not demonstrate meaningful profitability until late 2010 or later,'' and total losses may be about $27 billion, Wasserstrom wrote.

WaMu fell 95 cents to $12.62 at 3 p.m. in New York Stock Exchange composite trading after earlier dropping as low as $6.51. Decliners included a 14 percent drop at National City Corp., Ohio's largest bank and subprime lender. It's the worst- performing company tracked by the KBW Bank Index this year with a 72 percent drop.

Wachovia Corp., the nation's fourth-biggest bank, tumbled as much as 9.5 percent. Wachovia is operating without a permanent chief executive officer after ousting Kennedy Thompson a week ago, in part because of bad home loans. Regions Financial Corp., ranked 10th by assets, slid as much as 8.8 percent.

Mortgage Insurers

PMI Group Inc., the second-largest U.S. mortgage insurer, fell more than 14 percent, and Radian Group Inc., the third- largest U.S. mortgage insurer, fell 18 percent. MGIC Investment Corp., ranked No. 1, declined more than 8 percent.

Company spokesman Derek Aney said Washington Mutual doesn't comment on analyst reports. Washington Mutual had to write down the value of its home-loan unit by $1.6 billion in the fourth quarter, slashed the dividend twice this year and forecast losses through 2012 on home loans.

Billions in losses from the collapse of subprime mortgages helped to displace Washington Mutual as the largest U.S. savings and loan by stock market value. Paramus, New Jersey-based Hudson City Bancorp took over the top spot this month. Washington Mutual removed CEO Kerry Killinger as chairman June 2, replacing him with an independent director.

Killinger in April raised $7 billion from a group led by David Bonderman's TPG Inc. after a first-quarter loss of $1.14 billion. The world's largest financial institutions reported more than $392 billion in asset writedowns and credit losses tied to the U.S. housing slump, according to Bloomberg data.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Linda Shen in New York at lshen21@bloomberg.net

Last Updated: June 9, 2008 15:26 EDT