WaMu CEO Defends Bank At Senate Hearing
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From NPR News, this is ALL THINGS CONSIDERED. Im Michele Norris.
ROBERT SIEGEL, host:
And I'm Robert Siegel.
It was the largest bank failure in U.S. history. Washington Mutual was seized by federal regulators in September 2008, another casualty of the subprime mortgage crisis. Senate investigators say that before its demise, WaMu - as the bank was known - underwrote a substantial number of fraudulent loans. Today, the bank's former chief executive told a Senate panel that regulators should not have shut the bank down.
NPR's Jim Zarroli reports.
JIM ZARROLI: Washington Mutual was a stodgy century-old thrift company that suddenly became a powerful player in the lucrative subprime mortgage business. Employees were pressured to sell as many of the loans as possible, loans that were repackaged as securities and sold to investors. And Michigan Senator Carl Levin says employees quickly learned to cut corners.
Senator CARL LEVIN (Democrat, Michigan): Because volume and speed were king, loan quality fell by the wayside, and WaMu churned out more and more loans that were high risk and poor quality.
ZARROLI: Levin chairs the Senate Permanent Subcommittee on Investigations, which is looking into WaMu's failure. Today, the subcommittee heard from some former top officials of the bank. Chief Risk Officer James Vanasek noted that WaMu gave bonuses to employees who sold a lot of mortgages regardless of whether the borrowers could afford them.
Mr. JAMES VANASEK (Former Chief Risk Officer, Washington Mutual): It was inevitable that certain people would coach borrowers to meet the minimums. They gamed the system from time to time. But as I indicated in my earlier statement, it was extremely hard to catch.
ZARROLI: By 2006, so many bad loans were issued that delinquencies were soaring. Vanasek said he repeatedly warned senior officials about what was going on but nothing was done. At one point, an audit revealed that 83 percent of the mortgages processed by a top loan officer in Southern California were fraudulent in some way, yet the employee was allowed to keep working at the company.
And meanwhile, WaMu kept packaging its mortgages and selling them to investors. Senator Levin asked former WaMu official David Beck whether he knew about the level of fraud in the company's loans.
Mr. DAVID BECK (Former Chief Investment Officer, Washington Mutual): I understood that there was fraud and I understood that there were...
Sen. LEVIN: Shouldn't you have checked to make sure that the fraudulent, tainted mortgages were not part of those securities before you peddled them? Isn't that part of your job?
ZARROLI: For their part, WaMu officials said today that they realized losses were mounting around 2006. In emails released by the subcommittee, senior executives expressed growing fear about the company's position. It is ugly, one email says. So WaMu began pulling out of the subprime mortgage business, but the boat was filling up faster than they could bail it out.
Still, chief executive Kerry Killinger insisted today that WaMu could have survived if federal regulators hadn't stepped in.
Mr. KERRY KILLINGER (Former CEO, Washington Mutual): Washington Mutual should not have been seized and sold for a bargained price, but should have been allowed to work its way through the financial crisis.
ZARROLI: But regulators weren't willing to give the bank any more time, and WaMu, which once had $300 billion in assets, was sold to JPMorgan Chase for the fire-sale price of $1.9 billion. And what was once the largest thrift in the United States became a relic of the subprime mortgage bust.
Jim Zarroli, NPR News.
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