Source: Seattle Times

Washington Mutual and its lenders were making so much money on subprime mortgages and other risky loans that they couldn’t stop — even when senior managers and regulators told them to.

Internal company documents obtained by the Senate’s Permanent Subcommittee on Investigations show that despite concerns inside and outside WaMu that its loans were failing at exceptionally high rates and were riddled with fraud, the abuses continued right up to the collapse of the subprime market in 2007.

David Schneider, head of WaMu’s home-loans operation, said in a December 2006 email that the company was being asked to buy back more and more subprime loans that were defaulting soon after WaMu sold them off: “Short story is this is not good… We are all rapidly losing credibility as a management team.”

Three months earlier, chief operating officer Steve Rotella called the situation at Long Beach “terrible,” with “repurchases, (early payment defaults), manual underwriting, very weak servicing/collections practices and a weak staff.”

Later, in August 2007, Rotella said that he had once considered WaMu’s regular home-loans operation “the worst managed business I had seen in my career.” He added: “That is, until we got below the hood of Long (B)each.”

Problems abounded even among WaMu’s allegedly prime home loans, according to documents the Senate subcommittee will make public at its Tuesday hearing on WaMu.

A November 2005 review of loans in southern California found “an extensive level of loan fraud…virtually all of it stemming from employees in these areas circumventing bank policy surrounding loan verification and review.”

At one California office, 58 percent of loans examined in an internal review were fraudulent; at another, 83 percent.

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