Exclusive: WaMu Insiders Claim Execs Ignored Warnings, Encouraged Reckless Lending

Dorothea Larkin, a former WaMu senior underwriter, told ABC News that she was uncomfortable with what she said were loose lending standards. "It was all about making the numbers, closing all the loans that came through the door," she said -- loans like higher risk option arms and subprime.

WaMu's underwriters were told not to question whether or not a home loan should have been approved, but just to ensure certain lending procedures were followed, according to Larkin. She called this hands-off underwriting approach "unusual."

Larkin described a bank eager to loan money at any long-term cost. For example, she said WaMu lent millions to a borrower even after he defaulted on a multimillion dollar home construction project. "We just kept giving him money," she said, "and I'm sure that's one of the foreclosures WaMu is still sitting on."

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Larkin blamed senior management, and like George, claimed that she and many others saw it coming.

"The executives are the ones who made the decision to take WaMu in this direction," she said. "Too many of the middle folks like myself said this is wrong, we're making loans we shouldn't be making, we're qualifying borrowers who we know are going to struggle to pay the loan back."

Undated internal documents obtained by the shareholders' lawyers suggest that to increase profits, WaMu pushed risky loans on just about anyone, even borrowers likely to default.

In a WaMu Option Arm presentation titled "Washington Mutual Option ARM: At last a mortgage that puts your clients in control of their monthly payments," the company described the "Arm Borrower" as being "All Ages," "Any Social Status," and "All Economic Levels." Johnson said this shows a bank "trying to shove this extraordinarily risky mortgage on everyone out there."

Investors Lose All, Accuse Company of Lying

While just a year ago, WaMu stock traded at about $36 a share, it's now essentially worthless. Angry investors now taking WaMu to court claim they were lied to.

"WaMu was saying, consistently, up to the end, that they were conservative, prudent, rigorous," said Johnson. But in reality "it was run in a way that was irresponsible, reckless, dangerous," he contended.

The bulk of WaMu investors are pension funds, "funds that were looking out for firemen, for teachers, for nurses, for policemen alike," claimed Johnson.

People like Tedda and Benjamin Hughes, a San Francisco couple who invested almost their entire savings, $27,000, into WaMu stock because they said they really liked the bank and thought it was a safe long-term investment.

Tedda, a stay-at-home mother, and her husband, Benjamin, a teacher earning $55,000 a year, said they now must skimp on everything. "If there was a corner that can be cut, we do it. We're driving a thousand-dollar car, we rent this place. ... I clean with vinegar instead of getting a fancy product," she told ABC News.