Wamu End game

It should be noted that the appraisal company that I work for quit doing appraisals for Washington Mutual prior to when I started with the company in 2002. It appears that they were putting pressure on appraisers even then.

In their effort to grow the bank very fast they cut a lot of corners and ignored what had been standard, good bank practice for most of their history. Instead , their new business model called for them to initiate as many loans as possible, push the values of the homes they are loaning money on so they can charge higher loan fees and lower standards by which they will loan money to people. They embraced so-called liar loans were potential borrowers simply stated the amount of money they made and it was not verified.

Most of these loans could be sold to the new mortgage backed derivative markets that were packaging large numbers of loans and selling them all around the world. The bank also hung onto many of the highest margin loans for their own portfolio. these loans paid the highest interest but were also the most risky since they included a great number of the liar loans the bank initiated.

As could of and should have been predicted, this business model could not continue for an extended time until bad things started to happen. There came a time starting in about 2007 were the amounts the bank set aside for loan losses was far less than the actual amount of money they were losing on all the loans they were holding. The borrowers that gladly accepted this money just 1 to 3 years earlier had quit making payments in very large numbers. Incredibly, the banks solution for this crisis was to generate more fees by writing even more liar loans. As we all know by now , this strategy did not work and during its last year of existance even an infusion of seven billion dollars from ptivate investors could not save the bank from itself.

It seems incedible that such reckless business practices could go on for so long without someone saying - wait a minute, this is not only not going to work but it will destroy the bank. During the early years of this decade there was a lot of that kind of business practice going around, how else could the global economy have been effected so badly.

Next: home values, were to now?