Yes, you can.
"What's worse" means that the leaky pipes are a bigger problem than the termites, while "To make matters worse" just means that the leaky pipes compound the problems, rather than necessarily being a bigger problem individually.
Otherwise, the only difference is that the contraction in "What's worse" makes it more conversational/informal, and less appropriate in formal writing. "What is worse" is, to me, OK in all types of writing.