WaMu executives knew of these risks but chose to ignore them, according to statements by former WaMu insiders cited in the lawsuit. In a September 2005 confidential "Corporate Risk Oversight Report" obtained exclusively by ABC News, WaMu's own risk management team found that the future performance of popular loans like Option Arms was "untested" and created "major and growing risk factors in our portfolio."
This document shows that the top WaMu executives "were on notice that their own risk management systems had no ability to even measure, let alone control, the extraordinary risks that they were taking," according to Chad Johnson from Bernstein Litowitz Berger & Grossmann LLP, attorneys for the plaintiff shareholders.
But rather than heeding this warning, George said risk managers were told to "lay off." In an October 31, 2005 e-mail also obtained by ABC News, one WaMu executive told risk managers about a "cultural change" at the bank, and urged them to "lead the charge in modifying the perception of compliance and risk oversight from a regulatory burden to a competitive advantage."
George said this had a chilling effect: It told risk managers that they "could not raise meaningful issues" and "really had to sweep negative findings under the carpet."
George told ABC News that he refused to sweep away his findings. He claimed "there were a number of instances where I was pressured to fix a certain rating or upgrade the rating."
In one case, he said he refused to improve the risk rating on a $50 million commercial loan, an improvement that would have allowed the bank to significantly increase the loan. For that, he said he was taken off the project, reprimanded by senior management, and eventually fired when he raised his concerns to top executives. WaMu denied any wrongdoing and said the firing wasn't retaliatory.
To those wondering why no one saw the risks, George responded: "We did. ... WaMu had all these great, experienced risk managers around. But they were ignored."
With no gatekeeper, former WaMu lenders and underwriters described the companywide loan approval process as "very scary." They claimed there was an "abandonment of basic tenants of underwriting and risk" and said loans were made to anyone, because "once you get paid, you don't care what happens," according to legal documents. "It was all about sell, sell, sell," according to a former WaMu lender identified only as Confidential Witness 7.
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."
Larkin blamed senior management, and like George, claimed that she and many others saw it coming.