Thread: O.J.? Oy-vey!

The collapse of WaMu brought on by risky lending policies is getting a closeup inside look by Seattle newspaper reporters.

http://seattletimes.nwsource.com/html/b ... amu25.html

WaMu's overall business strategy fueled its implosion. Since riskier loans had more profit potential than safer loans, the bank paid its loan consultants and independent mortgage brokers more for making them. It pressured appraisers to inflate home values. It told its underwriters to find ways to make loans "work," regardless of WaMu's own standards.

The strategy's momentum was so powerful and pervasive, one former top executive said, that the few dissenting voices inside upper management "were blown off." Rather than avoiding the housing bubble, he said, "Washington Mutual chose its destiny, to be right smack dab in the middle to the hilt."

Classic story in first installment is about the second mortgage to OJ Simpson.

Even the most notorious murder case of the 1990s made a cameo appearance, as Chapman learned in early 2007.

"Someone in Florida had made a second-mortgage loan to O.J. Simpson, and I just about blew my top, because there was this huge judgment against him from his wife's parents," she recalled. Simpson had been acquitted of killing his wife Nicole and her friend but was later found liable for their deaths in a civil lawsuit; that judgment took precedence over other debts, such as if Simpson defaulted on his WaMu loan.

"When I asked how we could possibly foreclose on it, they said there was a letter in the file from O.J. Simpson saying 'the judgment is no good, because I didn't do it.' "

As standards eroded, WaMu's option-ARM volume exploded — from less than $5 billion in the first quarter of 2003 to $19.6 billion in the second quarter of 2005. WaMu bundled many of its option ARMs into securities as fast as they could be written and sold them to investors, who thought the higher yields justified the added risk.

Guaranteed many of those investors doled out shares in the investments to accounts they managed. The whole thing smells to high heaven.