The panel is holding the first of four hearings Tuesday on the role high risk mortgages played in the financial crisis.
"Using a toxic mix of high risk lending, lax controls and destructive compensation practices, Washington Mutual flooded the market with shoddy loans and securities that went bad," the subcomittee's Chairman Carl Levin (D-Mich), said in a statement.
Levin said his subcommittee looked at the Seattle-based thrift as a case study.
He described it as the story of a 100 year old traditional lender that turned away from safer lending practices to pursue the higher profits reaped from selling high risk mortgages to Wall Street firms.
As it did, the thrift failed repeatedly to bring the hammer down on fraudulent practices rampant in some of its most profitable mortgage centers.
Starting in 2003 WaMu began increasing the production of subprime loans.
And it gets worse, of course. WaMu needed more subprime loans to feed the beast, so when it couldn't get homeowners to buy them, they took more...creative...solutions.
One way WaMu pursued this market was through its subprime lender, Long Beach Mortgage Corporation. In 2006, WaMu securitized $29 billion of the subprime loans purchased by the California-based business, up from the $4.5 billion in 2003.
From 2000 to 2007, the thrift securitized a total of $77 billion of these mortgages even though WaMu shut down securitization at Long Beach for three months in 2003 because of concerns about the poor quality of these loans.
A followup report dated Jan. 13, 2004 by the FDIC and Washington state banking regulators reviewed 4,000 of the warehoused Long Beach loans and found only 950 or 25% were saleable, 800 were unsaleable and the remaining 3,245 contained defiencies "requiring remediation prior to sale."
Senior management, including the head of the bank's home lending business, Dave Schneider were aware of these deficiencies then and emails dated as late at September of 2007 show management was aware the loans being sold for securitization were deficient, yet they didn't shut the operation down.
Hey, it's securitized. The loans behind these mortgages are complete junk, but nobody's going to check as long as home prices don't fall in California or anything, right?
Oops. Yeah. That might be a problem. Oh, and that whole "Senior management aware of deficiencies on loans being sold" thing? That's called securities fraud.
Folks, never forget that in the end, a bunch of people got greedy, a bunch of people got busted, and in the end it ripped trillions of dollars and millions of jobs out of our economy as a result. Because people got greedy, sloppy, and stupid. The most human of failings.
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