Great Reporting of a Sad Story

If you want insight into what went wrong in the housing world from 2000 - 2006 please read in print or online "Saying Yes to Anyone, WaMu Built Empire on Shaky Loans." This article published today (December 28) in the New York Times and reported by Peter Goodman and Gretchen Morgenson does an excellent job pulling back the curtain on the horrors of the housing-boom lending world.

In researching and writing my own book on this subject, I thought that I had seen and heard everything. But Goodman's and Morgenson's article reveals conduct I had not found: kickbacks to real estate agents for referring mortgage applications to Washington Mutual. This activity would seem to be a clear violation of the Real Estate Settlement and Practices Act (RESPA). And shame on the real estate agents who took the money and then pushed their homebuyer clients (in some cases non-English speaking) into loan products that eventually caused loss and heartache to overextended borrowers.

During the housing boom, Washington Mutual grew on the basis of fraud and deceit. Their system of underwriting was apparently oblivious to the laws of our country - let alone to any sense of fair dealing. In my view, people who knowingly perpetrated these frauds should be investigated and if appropriate, prosecuted.

The fact is that if any citizen of this country presents a false loan application to a bank and then gets approved and the bank loses money, that applicant may well be prosecuted for bank fraud. So, then, why not executives and their no-questions-asked underlings? Washington Mutual shareholders lost billions. But what is worse is that the U.S. taxpayer, the ultimate backer of banking in this country, has lots hundreds of billions on this kind of conduct. And, to add to the pain, many decent people (yes, some were greedy and willing, but some were also naïve and trusting) have lost their savings, their credit rating and their pride because of the conduct of overaggressive bank employees who had no rule but to push debt on people.

This whole system was allowed to function and prosper -- and enrich the bank's executives -- because government regulators were in "hands off" mode. The current Administration did not find reason to question the means when the ends -- a booming housing market (at least for a time) -- justified everything. OK, well now the bloom is off the rose. I hope that with a new Administration some of the excesses that should have been regulated out of existence (but were not) will be investigated and pursued so that at least people will think twice before ever playing these awful games again - and hurting so many average citizens.

Jim Randel is the author of The Skinny on the Housing Crisis (Clover Leaf, 2008).
www.jimrandel.com

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Comments

[drkazmd65]

As a person working hard to cease being a customer of what used to be known as 'WAMU', via a Credit Card I hold that was sold by my holding company TO WAMU about 16 two years ago now,...

I hope their bigwigs rot in a Federal lockup someday for the level of fraud they carried out. It won't happen,... but it should.

I can't pay those bastards off fast enough,...

[tjdestry]

Residential real estate transactions are traditionally under much tighter regulations requiring disclosures and transparency than are seen in the commercial sector, where it is assumed that both parties understand what is going on. There is a principal in law that a person possessing specific expertise is held to a higher standard because the less knowledgeable party to the transaction will reasonably rely on that expertise -- so when a Realtor or lender tells a homebuyer "This is how it works," consumer law is supposed to insist that what they say be not just vaguely true but "true" in the sense of how a reasonable person would interpret what was being said. There are all sorts of people along the line who can and should and won't be held accountable for this mess, and for too long we worked in a world in which the average person was considered a sucker and the laissez-faire extremists growled "You should have known better" at people who had no reason to know better.

[schatsie]

This is a fabulous article and really all the experts should be jailed until this mess is cleaned up...The money all went somewhere and now we are bailing them out for stealing it...

Your response is fabulous, I had forgotten about the Expert being held to higher accountability, now if only we will do that....

[tompoe]

Rindel: You might want to inform your readers that there was overwhelming abuse of applicants that had their applications altered by the lenders. To lay blame on applicants for false paperwork is to do an injustice to the fraud and deception heaped upon the public. This is about lenders who blacklisted those appraisers that didn't bring in suitable appraisals. This is about banks that repackaged loans to sell around the world as rated AAA, when they had no data available to rate them. This is about deregulation by the Bush administration rivaled only by their dismantling of OSHA. Well, the list is legendary at this point. Your attempts to legitimize blame on the public is disgraceful.

[davidly]

http://thomas.loc.gov/cgi-bin/bdquery/z?d106:SN00900:@@@X

[Jim Randel - Huffpost Blogger]

tompoe: sorry you misread my post ... i am not laying blame on applicants ... i am laying blame on the underwriters and originators and others who pushed them into bad products and too much debt... pls read the post again and perhaps it will be clearer...

[ORSunshine]

Where were the regulators? As a taxpayer and 401k investor, I would rather have my tax-dollar pay for good regulation than bailouts!