Remember in Sept. 2008, when Washington Mutual went from being the sixth-largest bank in the U.S. to the biggest bank failure in U.S. history? Well, newly released documents show just how reckless and money-grubbing WaMu was in its final months — and how some employees were reaping huge rewards as the bank sunk into the quicksand.
In documents released by the Senate Permanent Subcommittee on Investigations, it becomes clear just how careless WaMu’s lending behavior had become during the height of the sub-prime mortgage boom.
Per the NY Times:
Loan officers received more money for originating higher-risk loans, and loan processors were rewarded for speed and volume, rather than quality… Loan officers and sales associates were paid even more if they overcharged borrowers through points or higher interest rates, or included stiff prepayment penalties in the loans they issued.
From its investigation into the WaMu fiasco, the Senate panel figures that Between 2000 and 2007, WaMu and its affiliate, Long Beach Mortgage Company, packaged and sold at least $77 billion in sub-prime mortgages.
“Using a toxic mix of high-risk lending, lax controls and compensation policies which rewarded quantity over quality, Washington Mutual flooded the market with shoddy loans that went bad,” says the Senate panel’s chairman, Sen. Carl Levin, Democrat of Michigan. “They built a conveyor belt that dumped toxic mortgage assets into the markets like a polluter dumping poison into a river… Down river, there was Wall Street, with its huge appetite for these mortgage-backed securities. They bottled that polluted water, slapped a label on it from the credit rating agencies that said it was safe drinking water, and sold it to investors.”
Today, seven former WaMu execs — including ex-CEO Kerry Killinger, who received a $15.3 million severance package in 2008 — are to testify before the subcommittee.
Memos Show Risky Lending at WaMu [NY Times]