After an investigation the Senate panel found that Washington Mutual could have prevented the downfall of their company. Executives at the firm had knowingly approved borrowers for loans they knew eventually the borrower was not going to be able to afford. Further investigation found that loans were even given to individuals who had provided false financial information, which they would later pass along to investors, of course without informing them about the fraudulent activity. WaMu had guided borrowers who had originally qualified for prime loans into subprime loans, which was sold to investors.
Loan officers and processors received commissions on the number amount of mortgages they can close. This causes competition and the race to high commission and rewards. The top employees who became members of the company’s President’s Club, had all expense paid trips to Hawaii or the Caribbean.
“Using a toxic mix of high-risk lending, lax controls and destructive compensation policies, Washington Mutual flooded the market with shoddy loans and securities that went bad…”, Senator Carl Levin (D-Mich.) stated . Now the general public will have to go through the consequences due to a few greedy individuals who intentionally created the financial strain our economy is in today.
The Justice Department is also conducting further investigation on WaMu and its Seattle based company that was taken over by federal regulators and sold to JPMorgan Chase & Co. for $1.9 billion. There were warning signs, the Senate report found internal e-mails that clarify the problem was evident, but was ignored. An email from one of the unit’s chief stated that in 2007 they would need to find alternate ways to increase revenue. Over 100 interviews and depositions were conducted; over 50 million documents were found to show WaMu was approving risky loans in 2003 to increase their profits.
Former WaMu executives are scheduled to testify in a hearing regarding the banks 2008 failure. Office of Thrift Supervision and the Federal Deposit Insurance Corp. is considered at fault for the lack of supervision over the bank.
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