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

"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.

The Hugheses said it took a long time to save that money, and that "it's absolutely horrifying to go from something to really nothing. .. then have to start all over, change all of your plans, your entire life."

And they said it shouldn't have happened. Tedda told ABC News that she did her research by diligently reading research and investor reports and checked the stock price daily. She said that up until the end, even hours before the bank collapsed, WaMu's investment division kept assuring shareholders that they had more than enough money to weather the storm.

"We understood that there was a risk," she said, "but we didn't think that the company was just going to go under."

"It felt like robbery. It felt like a violation," said Tedda.

The Hugheses said they're scared and angry, their anger amplified by the fact that WaMu executives like former CEO Kerry Killinger took home more than $51 million in cash and stock from 2004 to 2007, while they lost everything.

ABC News' Arash Ghadishah and Beth Tribolet contributed to this report.

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