WaMu Executives Knew Of Rampant Mortgage Fraud And Failed To Act - HuffPo

[WillyT]

WaMu Executives Knew Of Rampant Mortgage Fraud And Failed To Act
HuffPost Investigative Fund | David Heath First Posted: 04-12-10 05:59 PM | Updated: 04-12-10 06:13 PM

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One of the central unanswered questions of the financial crisis is whether bank executives knew fraud was rampant within their mortgage loans.

A Senate committee tomorrow will present evidence that in the case of Washington Mutual Bank, the largest bank failure in history, executives knew about the fraud - and in some cases failed to take much corrective action. By doing nothing, the bank could report higher profits and employees could earn higher bonuses.

So far no criminal charges have been brought against any senior executives as a direct result of the subprime meltdown. And today Sen. Carl Levin, the Michigan Democrat who will chair the hearing, sidestepped questions about whether Washington Mutual executives broke criminal laws.

But Levin's committee has unearthed documents that show that in 2005, WaMu's own internal investigation of two top-producing offices making subprime loans in southern California found that fraud was out of control. At one office in Downey, Calif., 58 percent of mortgages were found to be fraudulent. At an office in Montebello, Calif., the rate was even higher: 83 percent.

Yet "no steps were taken to address the problems, and no investors who purchased loans originated by those offices were notified in 2005 of the loan problems," Levin's Permanent Subcommittee on Investigations stated in a report released in advance of the hearing.

Some problems persisted two years later. A follow-up internal review of the bank's Montebello operation, in 2007, still found a fraud rate of 62 percent.

The results of WaMu's 2005 internal investigation were sent directly to David Schneider, president of Home Loans. A committee aide said it was also shared with Kerry Killinger, Washington Mutual's president, chief executive officer and chairman at the time.
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Examples of fraud found included phony identifications for borrowers, buyers who acted as fronts for real buyers and phony credit histories. An internal report concluded, "Throughout the process, red flags were over-looked, process requirements were waived, and exceptions to policy were granted."

A report by the Huffington Post Investigative Fund found similar problems, including reports that supervisors approved loans even after staff tried to raise red flags. The story detailed how management practices at Washington Mutual became an invitation for fraud. Within Long Beach Mortgage, former employees described how some sales people taught brokers how to break the rules, including using fake and forged documents.

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More: http://www.huffingtonpost.com/2010/04/12/wamu-executives-knew-of-r_n_534800.html

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[aquart]

1. "Failed to act"??? They ENCOURAGED it.