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).