There’ve been a couple of good installments this week in The New York Times’ series called “The Reckoning,” in which the paper’s reporters examine the various players in the American housing and mortgage securitization boom that left the global economy in its current state.
This weekend the paper reported from San Diego, looking at Washington Mutual, a bank the paper says “built an empire on shaky loans.”
It’s been well-reported that Washington Mutual gave loans to anyone who could fog a mirror, as the expression goes, and incentivized its brokers to dole out the riskiest possible loans in exchange for perks and bonuses. But the details in this story make for fascinating reading.
Here’s the intro anecdote:
SAN DIEGO — As a supervisor at a Washington Mutual mortgage processing center, John D. Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers’. He rarely questioned them. A real estate frenzy was under way and WaMu, as his bank was known, was all about saying yes.
Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.
Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved.
“I’d lie if I said every piece of documentation was properly signed and dated,” said Mr. Parsons, speaking through wire-reinforced glass at a California prison near here, where he is serving 16 months for theft after his fourth arrest — all involving drugs.
While Mr. Parsons, whose incarceration is not related to his work for WaMu, oversaw a team screening mortgage applications, he was snorting methamphetamine daily, he said.
“In our world, it was tolerated,” said Sherri Zaback, who worked for Mr. Parsons and recalls seeing drug paraphernalia on his desk. “Everybody said, ‘He gets the job done.’”
The story describes WaMu as a bank that launched new branches as quickly as a fast-food chain might, and says it “stands out as a singularly brazen case of lax lending.”
Another story in the series from last week profiles World Savings Bank, a savings and loan formerly owned by Herbert and Marion Sandler. Wachovia bought the bank in 2006.
World Savings captured a huge share of the option ARMs — the loans they called “Pick-A-Pay” that allowed borrowers to make monthly payments that were less than even the interest that was accruing on the loan.