In the first day of Senate testimony on the collapse of Washington Mutual, we learn the bank knew about rampant mortgage fraud going on in its various branch offices. The fraud includes the typical shenanigans like lying on income statements of borrowers, fake employment statements, etc.
But the real bombshell occurred after WaMu discovered the fraud in their own investigation and still decided to package the mortgages into mortgage-backed securities and sell them off to Wall Street. Oops. It seems WaMu didn’t care that much about about the fraud (they even awarded certain loan officers with trips to Hawaii) and those packaging the securities never asked whether the fraud-tainted mortgages had been removed from the securities they were packaging.
“You had evidence of fraud and you didn’t check” that the mortgages were not part of the securities, asked Sen. Carl Levin, chairman of the committee looking into the bank’s failure. David Beck, WaMu’s former head of capital markets, said he didn't ask. “Isn’t that your job,” Levin said. Beck said it was someone else's responsibility.
“These are securities that happened on your watch,” Levin said.