WaMu execs saw warning signs of deteriorating loans

[UpInArms]

Source: Seattle Times

Washington Mutual and its lenders were making so much money on subprime mortgages and other risky loans that they couldn't stop — even when senior managers and regulators told them to.

<snip>

A November 2005 review of loans in southern California found "an extensive level of loan fraud...virtually all of it stemming from employees in these areas circumventing bank policy surrounding loan verification and review."

At one California office, 58 percent of loans examined in an internal review were fraudulent; at another, 83 percent.

Tuesday's hearing will go over much of what has become familiar ground to WaMu watchers: the thrift's headlong plunge into the murky world of subprime loans, pay-option adjustable-rate mortgages, no-documentation loans and other "innovations" that eventually killed WaMu and nearly sank the rest of the financial system.

The company, subcommittee chairman Carl Levin said, seemed to be focused on feeding investment banks' insatiable appetite for high-risk loans that could be bundled, sliced up, sprinkled with financial fairy dust and sold as investment-grade securities.

Read more: http://seattletimes.nwsource.com/html/businesstechnology/2011590020_wamu13.html

[niceypoo]

1. Just let the market take care of it

Yeah, right...

[sandnsea]

2. 2006 - As Homeowners Face Strains, Market Bets On Loan Defaults

"The ease with which folks such as Mr. Spirou were borrowing against their homes (from WAMU) sent warning signals to some investors. The concern: that in their rush to attract customers amid the housing boom, mortgage lenders were lowering their standards. In 2005, for example, the share of interest-only loans grew to about 18% of all subprime loans, from next to nothing in 2001, according to data provider First American Loan Performance. Over the same period, the share of subprime loans that required little or no documentation of the borrower's income grew to more than 16% from about 10%.

"We looked at this and thought we're going to see lenders who are misusing these tools," says Mr. Whalen. "We're going to see the performance of their bonds deteriorate."

At about the same time, in early 2005, Wall Street bankers were developing a new kind of derivative contract that would allow investors such as Mr. Whalen to make bets based on their misgivings. Called a credit-default swap, it had previously been applied mainly to corporate and sovereign bonds. Like an insurance contract, it pays off if a subprime-backed bond suffers a certain amount of losses to defaults. The holder, known as a protection buyer, makes regular payments to a bank or other counterparty for the insurance, and also has the right to resell the contract. If defaults prove higher than expected and the bond starts to look riskier, the value of the contract rises, and the holder can resell it at a profit."

http://www.realestatejournal.com/buysell/mortgages/20061031-whitehouse.html

[katanalori]

3. Let's blame the "employees"

I see a theme here. WHERE was management? NO quality control?

I am not buying it. Bank execs want to pretend it is all the "lowly" employee's fault for not providing analysis of documentation. WaMu - Nobody "higher up" checked the verifications (employment, credit scores, etc.)?

Humph.

[Lucky Luciano]

5. those employees were probably not that lowly either to be honest. nt

[Mopar151]

4. Forseen by prophets

"They're goin' to ruin us all, by and by
I'm tellin you all beware
I think they don't really care
And they just sit up there
And just get high"

Nice acoustic version - Van Zant brothers

http://www.youtube.com/watch?v=g-2SqsB_Vuc

Live, in the day

http://www.youtube.com/watch?v=PGVbWy-pYDc&feature=related

It did'nt matter how bad the loans stunk. They could be written up on dead fish and there's brokerages clamoring for them - 'cuz they can sell 'em, and bet against them (with credit default swaps) at the same time. Tell me there ain't loaded dice in this game, and that the cops ain't on the take. Tell me, please, 'cuz I missed the Easter Bunny.

[Gormy Cuss]

6. Wait -- I thought it was just greedy home owners who caused the mortgage meltdown

:sarcasm:


I also agree with the other poster re: blaming the employees -- that's only valid if the senior managers are also taking the blame AND greater penalties because they are after all senior management, paid to be in charge.

[BR_Parkway]

7. It was only the low income homebuyers that Clinton forced on the market

that caused all of this, get with the program!!!

[Gormy Cuss]

8. I stand corrected!

I forgot---everything is the CLENIS's fault.