It seems to be Real Estate Monday, as a series of intriguing articles have broken recently.

First and foremost, the Seattle Times has a fascinating two parter, that you must not miss:  A series of interviews with former WaMu executives and employees, as well as a survey of internal company documents, reveals that management plotted a “reckless course that doomed the bank.”

I always find it instructive to note the people who try to shift blame elsewhere, when it disagrees with their prior world view. Regarding WAMU, the facts are rather damning:

• In its headlong pursuit of growth, WaMu systematically dismantled or weakened the internal controls meant to prevent the bank from taking on too much risk — the very standards and practices that had helped it grow in the first place.

• WaMu’s riskiest loans raked in money from high fees, but because the bank skimped on making sure borrowers could repay them, they eventually failed at disastrously high rates. As loans went bad, they sucked massive amounts of cash that WaMu needed to stay in business.

• WaMu’s subprime home loans failed at the highest rates in nation. Foreclosure rates for subprime loans made from 2005 to 2007 — the peak of the boom — were calamitous. In the 10 hardest-hit cities, more than a third of WaMu subprime loans went into foreclosure.

By the summer of 2004, nearly 60 percent of the loans WaMu was making were the riskiest sort — option ARMs, subprime mortgages and home-equity loans.”

Both parts of the series are well worth your time . . .

>

Source:
Reckless strategies doomed WaMu (Part one)
Execs say WaMu fell victim to the economy &emp; but WaMu caused its demise by embracing risky loans and dismantling safeguards.
Drew DeSilver
Seattle Times, October 25, 2009 at 12:10 AM

http://seattletimes.nwsource.com/html/businesstechnology/2010131911_wamu25.html

WaMu: Hometown bank turned predatory (Part two)
David Heath
Seattle Times, October 26, 2009

http://seattletimes.nwsource.com/html/businesstechnology/2010136506_wamu26.html

Category: Credit, Real Estate, Really, really bad calls, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

12 Responses to “Reckless Strategies Doomed WaMu”

  1. Marcus Aurelius says:

    Reckless Strategies Doomed Us All

  2. catman says:

    The financial press constantly touted WaMu as a “value play”. Pretty sad.

  3. fenner says:

    A question for Barry or anybody else, having little to do with this post. I’ve suspected that the banks and brokers have been giving their govt. money to their proprietary traders who have been running the market up. Do these same brokers benefit when short sellers of, let’s say, SPY, get stopped out? Is it possible that the banks/brokers who would benefit from such covering might coordinate with their proprietary traders to run the market up at key moments and stop others out? Not sure of the mechanics of this, but would love to know if this could not be the game that’s being played?

  4. hue says:

    wamu and its Long Beach affiliate did the ugliest loans at the top. you could come out of a bk, chapter 7, and get a mortgage immediately with surprising high loan to value.

  5. hue says:

    the financial press don’t have inside info. homebanc (like Enron previously) was named the best place to work the same year it blew up http://bit.ly/1AJA4K

  6. The Curmudgeon says:

    WaMu, New Century, Ameriquest…all in a league together, competing for the bottom scraps, willing to lend to anyone with a pulse and a shack. They were nothing more than the local slum lord gone national.

  7. DeDude says:

    There is absolutely no legitimate explanation for an option ARM with a one month teaser rate. It is designed for easy misrepresentation to uneducated borrowers. You can put that low first month number on the line saying “monthly payment” and have the nice banker point his finger at it. If the borrower gets a little uneasy about the monthly payments adjusting you can explain to them that the “option” allows them to just do the minimum monthly payments (as they are use to on their credit cards) if they have a month where they are a little short. It was designed to defraud people of their downpayments and their American dream. Securitizing the loans and getting them AAA-rated was the second leg of that scam. They should all be in jail.

  8. arts like these are interesting, to an extent..though, what wonders me is why anyone, with a mailbox, would consider this ‘news’..

    see: “My Story (First written in 2005)

    Hello and welcome to the expressions of my frustration with Washington Mutual Bank. I hope this information helps to direct you away from doing business with them until they improve their operations, policies, and customer service.

    The behavior of a business usually reflects the guidance and thinking of the people at the top. Because of this
    I fully expect that problems and dissatisfaction in one area is typically reflective of what you will experience in other areas of the business. Because so many people have had problems with Washington Mutual, it is clearly in their corporate culture.

    In 2002, I decided to reduce the amount of direct mail I was getting by calling all the companies that were sending the stuff to me and asking them to stop sending it. Simple, right? For those of you that don’t know, it is your full and legal right by Federal law to ask someone to stop sending you direct mail, and they must stop! Most of the organizations I contacted were more than happy to take me off of their mailing list. Now, being a homeowner, mortgage refinance solicitations make up about 30% of all junk mail I get. Thirty percent! That is HUGE! Washington Mutual is by far the largest abuser of this form of direct mail!

    When I first started contacting WaMu to stop sending me the mortgage refinance junk mail, I actually already had a home loan with WaMu. That I already had a mortgage with WaMu and yet brokers from all over California were sending me refinance offers just baffles me. At that time I was also registered with their privacy department to not receive any offers from them. For those of you that don’t remember, earlier this decade, financial institutions lobbied for and got the ability to share your sensitive financial information with outside entities for marketing and promotional purposes. What they had to do to get this was to agree to send opt-out notices to you where you could opt out of all information sharing as well as whether you wanted to receive any solicitations from them…”
    http://www.washingtonmutualsucks.org/
    as a + http://www.targetmarketingmag.com/search/search.html?text=Top+50+mailers&sort=Hits+ASC

    meaning, these dudes were casting such an indiscriminating Net, it is little wonder that their by-catch was less than Grade A..
    http://www.thefreedictionary.com/indiscriminate%20

    hue,

    the financial press doesn’t have ‘inside info’ b/c it seldom falls in their lap..
    most of these Journos are totally brain dread, and wouldn’t know the difference between ‘following a lead’, and ‘burying the lede’..

  9. hue says:

    MEH,

    i’ve had many careers and the first was a journo, a general assignment dog, then a biz journo, before i became a trader during the Internet boom, then mortgage broker. (two bubbles for me.) reporters are writers, we can only repeat what we are told. if we had the skinny, then we would make money with it, instead of writing about it. i guess i understand the media’s power (or lack of it) and its limitation.

    my grammar, typos are atrocious for a former reporter. i would make a better biz reporter now from what i know through experience, but then newspapers are like the Big Three auto makers …

  10. hue,

    not that it matters, though, w/this: “..if we had the skinny, then we would make money with it, instead of writing about it…”

    check out http://www.spj.org/ethics.asp#

    and, w/this: “i guess i understand the media’s power (or lack of it) and its limitation.”

    see:
    A cynical, mercenary, demagogic press will in time produce a people as base as itself.
    Joseph Pulitzer

    An able, disinterested, public-spirited press, with trained intelligence to know the right and courage to do it, can preserve that public virtue without which popular government is a sham and a mockery.
    Joseph Pulitzer

    I am deeply interested in the progress and elevation of journalism, having spent my life in that profession, regarding it as a noble profession and one of unequaled importance for its influence upon the minds and morals of the people.
    Joseph Pulitzer
    http://www.brainyquote.com/quotes/authors/j/joseph_pulitzer.html#

    for starters.

    and w/this: “but then newspapers are like the Big Three auto makers …”
    you mean controlled by the ‘Government’?
    http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Operation+Mockingbird+The+mighty+Wurlitzer

  11. hue says:

    “if we had the skinny” what i meant is that if you have knowledge, real expertise about stocks or football, you wouldn’t become a writer. you would work for a hedge fund or become a coach, something in the field where you have the knowledge. writing/reporting has long been a poor man’s profession. most of the reporters don’t work at networks or the NYT.

    some one like Barry or Calculated Risk will provide you with much better information because they have knowledge and can write, then most reporters who needs to get sources to write. reporters can cover breaking news, but we can’t do analysis. we’re not allowed to, and we don’t have a capability.

    Big Three auto makers as in a death spiral, a dying business. newspapers survived radio, TV, but not the freemium internet. Chris Anderson at Wired says if newspapers got rid of the paper editions, it would lose half of its cost, but 75% of its revenues. craig’s list and many other sites have already poached the ad revenues. car companies don’t buy ads in papers anymore. many people think papers are dying because of ideology, technology is the bigger killer.

  12. papermoney says:

    It is interesting to note that the Ray Romano, who was Chief Credit Officer of WaMu from 2001 to 2004, is now the Executive VP and Chief Credit Officer of Freddie Mac.

    He was actually kicked upstairs in April of this year. I guess that makes sense because he, after all, is an expert in understanding management system weaknesses.

    BTW, his official bio on the Freddie Mac website doesn’t mention WaMu at all:

    Prior to coming to Freddie Mac, Romano served as senior vice president and chief credit risk officer and other executive positions at different major financial institutions including North American Mortgage Company in Tampa, Dime Savings Bank of NY, and with Citicorp’s Investment Bank.
    http://www.freddiemac.com/bios/exec/romano.html