NYT on WaMu

Finally, a good article in the NYT’s series “The Reckoning.”  Past articles in this series have been weak, as Yves noted over at Naked Capitalism.  Besides the two pieces she cogently criticized, I was unimpressed with the story on Herb and Marian Sandler, the inventors of the option ARM.  I felt useful details were left out.

Lucky for NYT subscribers, the latest installment in the series, this one about WaMu, is quite good.

There are colorful stories about unqualified borrowers:

[E]ven by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.

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

More colorful stories about, um, unqualified loan officers:

“I’d lie if I said every piece of documentation was properly signed and dated,” said Mr. Parsons, speaking through wire-reinforced glass at a California prison near here, where he is serving 16 months for theft after his fourth arrest — all involving drugs.

Details about the “sweatshop” atmosphere in which WaMu employees pitched loan products:

Branches were pushed to increase lending. “It was just disgusting,” said Ms. Zweibel, the Tampa representative. “They wanted you to spend time, while you’re running teller transactions and opening checking accounts, selling people loans.”

Employees in Tampa who fell short were ordered to drive to a WaMu office in Sarasota, an hour away. There, they sat in a phone bank with 20 other people, calling customers to push home equity loans.

“The regional manager would be over your shoulder, listening to every word,” Ms. Zweibel recalled. “They treated us like we were in a sweatshop.”

Referral fees paid by WaMu to real estate agents, who often advised clients to take WaMu loans virtually guaranteed to blow up:

WaMu’s retail mortgage office in Downey, Calif., specialized in selling option ARMs to Latino customers who spoke little English and depended on advice from real estate brokers, according to a former sales agent who requested anonymity because he was still in the mortgage business.

According to that agent, WaMu turned real estate agents into a pipeline for loan applications by enabling them to collect “referral fees” for clients who became WaMu borrowers.

And why no one in the executive ranks at WaMu cared to stop any of it:

For WaMu, variable-rate loans — option ARMs, in particular — were especially attractive because they carried higher fees than other loans, and allowed WaMu to book profits on interest payments that borrowers deferred. Because WaMu was selling many of its loans to investors, it did not worry about defaults: by the time loans went bad, they were often in other hands.

Loan production was the name of the game.  More loans equaled higher “profits” equaled bigger bonuses.  Risk management was the last thing on anyone’s mind.

There’s more great stuff in the article.

Posted in accounting, banking, housing |