At Washington Mutual, a relentless urge to approve any loan

[Liberal_in_LA]

At Washington Mutual, a relentless urge to approve any loan

http://www.iht.com/articles/2008/12/28/business/wamu.php

As a supervisor at a Washington Mutual mortgage processing center, John Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling those of stockbrokers. He rarely questioned them. A real estate frenzy was under way and WaMu, as his bank was known, was all about saying yes.

Yet even by WaMu's relaxed standards, the mortgage on one home four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.

Parsons could not verify the singer's income, so he had the applicant photographed in front of the home, dressed in his mariachi outfit. The photo went into a WaMu file. Approved.

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"It was the Wild West," said Steven Knobel, a founder of an appraisal company - Mitchell, Maxwell & Jackson - that did business with WaMu until 2007. "If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan."

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On one loan application in 2005, a borrower identified himself as a gardener and listed his monthly income as $12,000, Zaback recalled. She could not verify his business license, so she took the file to her boss, Parsons.

He used the mariachi singer as inspiration: a photo of the borrower's truck emblazoned with the name of his landscaping business went into the file. Approved.

[bluesbassman]

1. It wasn't just WaMu...

There was tremendous pressure to "find a way" to do loans during that period because if your company didn't do it, the borrower would walk down the street and find someone who would. Part of that pressure came from Realtors who would quit sending you their "good" clients if you declined their "questionable" ones. Doesn't make it right, just was what was happening then.

[aquart]

2. "Relaxed standards," my ass. It was deliberate, codeified policy.

They would not hire you unless you filled out a questionaire agreeing to push loans on unqualified people. A push poll of prospective hires.

[ProfessorGAC]

3. And I Don't Believe Part Of This Story

In alignment with your comment, i don't believe that most of these people lied about their incomes. The quote about babysitters with CEO salaries, i don't believe for a moment.

These banks were pursuing an expansion of loan portfolios believing there was no end to the upward swing. When the "end" did come, they were caught without sufficient asset to cover the lost revenue from the bad loans. Their own fault. No applicants had to lie to them for this to happen.
GAC

[aquart]

4. I agree. They flat out falsified the income figures.

Since the 80s, that's pretty near standard Wall Street behavior. I know this because I once sat on a jury that put a number of these greedy twits away. Our jury was given a crash course in financial scamming. I know what they did.

[KharmaTrain]

5. So This Is News???

In the late 90's, I had a contact at the "Investment Desk" of a major brokerage house...these were a lot of the dot coms that were trying to get big money and then "go public" with their stock. My friend would read me some of the pending applications for millions of dollars in loans with business plans that looked like they were written by a kindergardener. Many had no real model for earning real money, just the illusions and "potentials"...but that was good enough for many of these companies to get green-lighted...and with it millions in commissions and bonuses the banks and investment house invovled made in moving this money around and suckering money into the market. It was a con game that was so blatant it was amazing it was happening in almost plain sight...and then no surprise when it came crashing down.

Fast forward to 2007 and again we had another big investment bubble...the markets and investment houses had created a real estate boom that made a lot of money for those inside...from realtors to house inspectors to investment houses...lots of hands in the pie and as long as the bubble kept being inflated and pumped up, who cared how it was done.

The unfortunate side of this will be how difficult it will be for new and small businesses to try to get rolling. Right now it's impossible to get a loan and the criteria for future loans will be very high and will keep many from going near the investor game for long time.

The mess we're in was not only predicted, it was expected...

[gratuitous]

8. "Millions in commissions and bonuses"

There it is right there. As long as the overheated real estate market was churning away, lenders could write a loan in January, sell it in June (or April or March, timelines got shorter and shorter as the bubble expanded to near bursting) with a "strong" payment record, and pocket the commissions and bonuses. Those loans got packaged together and sold in big chunks that nobody really knew what was in them, and swapped like Monopoly deeds. Whoever got caught at the end was ridiculed, but there were a bunch of players all counting on the same roulette odds that their package wasn't going to similarly explode before they could unload it. And when the first wave of blow-ups happened, it was only a matter of time before more and more of them went south.

And they kept writing loans, "earning" those commissions all the way down the death spiral. Thankfully, Wall Street has fixed on the proper scapegoat for this mess: All those non-capitalized borrowers who forced the lenders to write fat loans for big commissions.

[FreakinDJ]

6. Another example of "Top - Down" corruption

The mortgage crisis was fueled by corrupt greed, directed by the "Top Echelon" of the Banking Industry - nothing less.

So tell me why are they still receiving $10million dollar bonuses

[HeraldSquare212]

7. The banking industry pushed the mortgages so they could securitize them

and make a fee on selling the securities, and then they got their bonuses based on all the income they brought in via fees. So they've already been paid handsomely for getting us into this mess and now they still get paid well. Crazy.