Here's a stunning look inside the corporate culture at Washington Mutual, via a former top loan officer there who says that WaMu was throwing money at whoever asked for it. Excerpt:
AS a senior mortgage underwriter, Keysha Cooper was proud of her ability to spot fraud and other problems in a loan application. A decade of vetting mortgage documents had taught her plenty, she says.But as a senior mortgage underwriter at Washington Mutual during the late, great mortgage boom, Ms. Cooper says she found herself in a vise. Brokers squeezed her from one side, her superiors from the other, she says, and both pressured her to approve loans, no matter what.
"At WaMu it wasn't about the quality of the loans; it was about the numbers," Ms. Cooper says. "They didn't care if we were giving loans to people that didn't qualify. Instead, it was how many loans did you guys close and fund?"
[snip]
WaMu was seized by federal regulators in late September, the biggest bank failure in the nation's history. It was sold to JPMorgan Chase for $1.9 billion.
The shareholder complaint depicts WaMu's mortgage lending operation as a boiler room where volume was paramount and questionable loans were pushed through because they were more profitable to the company.
When underwriters refused to approve dubious loans, they were punished, she says.
Ms. Cooper started at WaMu in 2003 and lasted three and a half years. At first, she was allowed to do her job, she says. In February 2007, though, the pressure became intense. WaMu executives told employees they were not making enough loans and had to get their numbers up, she says.
"They started giving loan officers free trips if they closed so many loans, fly them to Hawaii for a month," Ms. Cooper recalls. "One of my account reps went to Jamaica for a month because he closed $3.5 million in loans that month."
Although Ms. Cooper couldn't see it, the wheels were already coming off the subprime bus.
"If a loan came from a top loan officer, they didn't care what the situation was, you had to make that loan work," she says. "You were like a bad person if you declined a loan."
I devoutly hope and pray that the first thing the Obama administration does is staff up the FBI and start criminal investigations and then prosecutions of all these corporate criminals.
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Zak,
I have to think it was a little less innocent than that on WaMu's part. They were propping up demand artificially and approving the bad loans, too. Under normal conditions, the market would still have some demand (keeping housing prices high) if the financial firms only loaned to those with good or even acceptable credit.
But approving high-risk loans hand-over-fist would only end in any demand being rapidly sated. Construction firms and businesses with loans saw the hot market and overbuilt.
Then housing prices fell due to sated demand and interest rates rose when the dollar started swirling the drain. Then the defaults started piling up, and housing prices plunged further as everyone who wanted a house already had one, the newcomers weren't as numerous as the defaults, and building jobs planned while the market was hot and being finished, empty, and awaiting buyers and lessees, were creating a glut of supply while the demand was in negative numbers.
This was nothing more than a short-term get-rich-quick scheme by a select few, make no mistake.
If one presumes that housing prices will perpetually increase, the question of whether or not a borrower can repay, or even service, a loan becomes far less relevant to the profitability of a given loan. Even a loan wherein borrower default is inevitable can become a rational business proposition given sufficiently rapid housing inflation, since appreciation of the collateral's value can allow the lender to (still) turn a profit in the event of foreclosure.
Of course we now know that yes, Virginia, nationwide housing price deflation is possible. But if I'd had a nickel for every time someone told me, "Nah, housing prices will _never_ go down...."
Zak, yes, that was my thinking. Jude offers some plausible points, about which I know little to comment. MI offers another bit of sane perspective on the mindset that something will "always"... go up, be better, be positive. No business person I've ever met would consider that anything close to a sound attitude on which to base decisions, short- or long-term.
Whew! I can't believe I was ever a WAMU customer! That bank is an absolute nightmare.
WAMU's merchant account scam has been holding my two companies hostage and depriving me of the right to earn a living for almost a year now. My case against them is pending with the courts and because of this non-sense my landlord took me to court to put me on the street because I owe him money that he no longer wants to wait for. This is the last straw so I am not worried about it because God Almighty is in control of the situation. What was meant to harm me will ultimately turn out the be a blessing in disguise. My landlord hired a pitbull lawyer to make the case and put me on the street....but little do they know that they put me on speed-dial to something bigger and much better. I am ready to move out of death valley by the grace of God.
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