By Saying Yes, WaMu Built Empire on Shaky Loans

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A story about WaMu from the NYT:

"WaMu pressed sales agents to pump out loans while disregarding borrowers' incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank's executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.

"It was the Wild West," said Steven M. 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."

Here's a charming anecdote:

On another occasion, Ms. Zaback asked a loan officer for verification of an applicant's assets. The officer sent a letter from a bank showing a balance of about $150,000 in the borrower's account, she recalled. But when Ms. Zaback called the bank to confirm, she was told the balance was only $5,000.

The loan officer yelled at her, Ms. Zaback recalled. "She said, 'We don't call the bank to verify.'" Ms. Zaback said she told Mr. Parsons that she no longer wanted to work with that loan officer, but he replied: "Too bad."

Apparently, WaMu's CEO got $88 million in compensation between 2001 and 2007. The most charitable description of what he did for all that money is: he provided a textbook example of the principal/agent problem -- the kind of problem you get when someone (say, a CEO) who is supposed to be working for someone else (say, shareholders) decides to throw their interests overboard and rob them blind, and the structure within which he's working is not set up well enough to prevent him from doing so. The less charitable description is: he looted the company.

The most ludicrous part of the NYT story involves a guy who set up a program whereby real estate agents got $10,000 fees for selling option ARMs to people who didn't speak English. These fees were eventually banned because WaMu thought they might be found to be illegal. But the NYT quotes the guy who designed the program as saying: "I don't think the bank would have let us do the program if it was bad."

http://www.washingtonmonthly.com/