WASHINGTON — Washington Mutual Inc. recently announced that it has eliminated some of its riskiest subprime mortgages to borrowers with poor credit or heavy debt. Other major banks feeling the sting of the subprime securities market and rising deterioration in the credit quality of mortgage and home equity lines have set aside greater reserves to cover bad loans. The list includes Citigroup, (which put aside $2.5 billion in the second quarter, an 75% increase over last year) JP Morgan (which upped its reserves 300%) Wells Fargo and Bank of America (which added 80% to its reserves).

With housing in the worst slump in a decade and all banks and credit unions awaiting new lending standards guidelines, adding to reserves for loan losses is old fashioned common sense, say analysts, but the action had a connection to Bear Stearns acknowledgement that its two subprime-backed hedge funds previously valued at $1.5 billion was now zero.

Still others see only opportunity in the sudden void to securitize subprime loans. The firm Cerberus Capital Management, a large private equity firm has already bought a 51% stake in GMAC, General Motors financing giant and notably has opted to buy the Chrysler Corporation. Last April it sought to buy the H&R Block subprime unit, Option One.