CORRECTION: A reader points out that Washington Mutual affiliate Long Beach Mortgage Co. was a huge subprime player in 2006. Long Beach Mortgage made $18.2 billion in high-priced loans in 2006, according to federal mortgage statistics. WaMu closed Long Beach Mortgage in 2007 and did not report any loans under that name to the Fed. WaMu and Long Beach together made $23.79 billion in subprime loans in 2006, $4 billion more than WaMu reported making in 2007.
HERE’S WHAT RAN PREVIOUSLY:
So how did Washington Mutual, once a financial juggernaut, become the biggest failed bank in history?
One clue comes in newly released numbers from the federal government. According to the Fed’s Home Mortgage Disclosure Act database, WaMu nearly quadrupled its investment in high-risk subprime (and to a lesser extent Alt-A) loans after the housing boom ended.
In 2006, WaMu made $5.56 billion in high-priced home loans; that was a bit over 5 percent of its total home-loan volume. In 2007, as the housing market began to seriously tank and subprime defaults soared, WaMu, uh, bet the bank on subprime. It made $19.7 billion in high-priced home loans — more than any other lender nationwide. That was 19 percent of its home-loan business. (The government tracks subprime by interest-rate charged, instead of credit score of borrower.)
WaMu had plenty of company making bad bets on subprime in 2007. The second- and third-biggest subprime lenders in 2007 were Countrywide Home Loans (absorbed by Bank of America) and IndyMac (closed by the FDIC).
We’re analyzing the 2007 HMDA data, all 26 million records worth, right now. But if you’d like to look up home mortgage statistics for your favorite bank, CLICK HERE.
And for more on WaMu’s colorful past….
- JPMorgan buys seized WaMu, deposits are safe
- WaMu to slash money for loan losses
- Washington Mutual ousts CEO, reaches deal with regulator
- Washington Mutual offers 5% CD
- How bad are things at WaMu?
- Washington Mutual cuts 1200 jobs after big losses
- WaMu Bets on Blemished Borrowers With Credit Cards
And more mortgage meltdown coverage…
- O.C. financial stocks hit after busted bailout
- Oil under $100, O.C. energy stocks hit
- O.C. mortgage rates dip amid turmoil
- Miller said he had to vote yes
- Bailout voted down. Agree? Dow plunges
- Sanchez is a no on the rescue plan
- Campbell urged colleagues to vote yes
- Citigroup buying Wachovia banking operations
it’a unreal what is happening, if wamu is out who has left?
Not just subprime.
Wamu also had huge Alt-A, Option ARM, and home equity lending in 2007. If it was bad, they were doing lots of it. I took a look at their balance sheet back in Oct 2007 and the only way it made sense was if they intended to drive the company into bankruptcy.
Where do you get access to the individual HMDA records? All I see on that website are aggregate reports.
I’m Ron Campbell, a Register reporter and the author of the blog post. In answer to Walt’s question, I don’t know how individuals can get access to individual HMDA records. I bought the whole database from a journalists’ group, Investigative Reporters & Editors, which in turn bought it from The Fed; this group cleans up the data (changing loan amounts from character fields to numbers, for example), and then sells it to news organizations. It does not sell to the public.
But here’s an offer: If Mortgage Insider readers are interested, I’d be happy to write and post a readers’ guide to HMDA. In return, I’d like your ideas on how to analyze this massive — and suddenly very newsworthy — database. Eventually I’ll be writing something on HMDA for the dead-trees edition. But I’d like, with Matt’s permission, to float some ideas and analysis here on Mortgage Insider first.
You can post your comments here on the blog or, if you’d rather keep you comments private, e-mail me: rcampbell@ocregister.com
The Fed site I mentioned above has specific info on individual lenders. But it is pretty clunky. If you’ve got questions about an individual lender and can’t find an answer on The Fed’s site, feel free to ask.
And thanks for reading.
Ok, so call me a conspiracy theorist, but it looks like some folks were making bad loans on purpose… in hopes that the govt would buy them. This bailout idea seems to have been in the works for some time.
Pimco starts a vulture fund of distressed debt, Bank of America grabs Countrywide, JP Morgan takes over Bear Stearns and WaMu. That’s a lot of bad debt being gobbled up cheap. Why would companies amass such a horde of toxic debt without the means to dispose of it for a profit?
People seemed surprised when the $700 Billion Bailout was first proposed/demanded. And yet, such a bailout was written about back in February of this year. I cannot seem to post the link here, but it was published on February 23, 2008 in the New York Times. It was titled, “A ‘Moral Hazard’ for a Housing Bailout: Sorting the Victims From Those Who Volunteered”
-Here’s an excerpt from the article-
The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes.
To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.
“We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market,” the financial institution noted.
In practice, taxpayers would almost certainly view such a move as a bailout. If lawmakers and the Bush administration agreed to this step, it could be on a scale similar to the government’s $200 billion bailout of the savings and loan industry in the 1990s. The arguments against a bailout are powerful. It would mostly benefit banks and Wall Street firms that earned huge fees by packaging trillions of dollars in risky mortgages, often without documenting the incomes of borrowers and often turning a blind eye to clear fraud by borrowers or mortgage brokers.
A rescue would also create a “moral hazard,” many experts contend, by encouraging banks and home buyers to take outsize risks in the future, in the expectation of another government bailout if things go wrong again.
-end of excerpt-
To take a look at this proposal which was drafted earlier this year (and probably even sooner than that) go here. You will have to use your PDF viewer to rotate the document clockwise by 90 degrees to make it easier to read:
http://www2.nationalreview.com/dest/2008/06/20/bofa.pdf
The conspiracy theorist in me thinks market conditions were manipulated to create a crisis so that the bailout could be rammed through while people were panicking so that they would not have time to look at it more closely. The realist in me thinks that market conditions deteriorated faster than they anticipated and the administration was forced to play its hand before it was ready.
In either case, it seems that we seeing the return of the robber barons and they are going to make out like bandits. JP Morgan, himself, would be proud.
We will have to see what happens with “Bailout II: The Quickening.”
I think the government planned this. They are not our friend. They lowered interest rates so everyone could buy a home and refinanced to do remoldes etc. then they raised the interest rates so fast which made all the ARM loans raise the mortgages in the hundreds of thousands. So now everyone’s home is upside down and not worth keeping with the price you have to pay. So everyone forecloses and tries to do shortsales, they say the lenders help you but they don’t. Bush comes out with a saving grace but when you talk to the banks there is no money for it. So my point you ask… well it is that the government bails out the banks and then every has to get 1099′ed on the money lost for their homes, how does the gov. make money on taxing everyone, all the hundreds of thousands of people who lost their homes will have to pay taxes on the difference. That is our government for you. They bail out the banks and the banks win and we have to pay back the money in taxes and then everyone pays taxes on the differences of the loans that are foreclosed on and shortsaled through the bank. Make sense now….