SEATTLE – Bank examiners were concerned as far back as 2005 that Washington Mutual was cutting corners and lending imprudently, but agency higher-ups repeatedly blocked attempts to rein in the giant thrift until it was too late.
Examiners from WaMu’s primary federal regulator, the federal Office of Thrift Supervision, repeatedly identified significant problems with the Seattle thrift’s lending practices, loan quality and risk management between 2003 and 2008, a Senate investigative panel found.
“Washington Mutual promised year after year to correct identified problems, but failed to do so,” the panel’s report says. “OTS failed to respond with meaningful enforcement actions, resisted (Federal Deposit Insurance Corp.) recommendations for stronger measures, and even impeded FDIC examination efforts.”
The Senate report parallels one to be formally released today by the inspectors general for the FDIC and the Treasury Department. That report found that the OTS repeatedly deferred to WaMu management, held off on issuing enforcement orders contrary to its established practice, and even relied on WaMu’s own tracking system to monitor the thrift’s compliance with its recommendations.
The FDIC’s own examiners were consistently more critical of WaMu’s operations and compliance actions, but both reports faulted the agency for, in essence, letting the OTS push it around.
Officials from both agencies are scheduled to testify today before the Senate’s Permanent Subcommittee on Investigations. It’s the second of four hearings the panel has scheduled to look into the roots of the financial crisis in risky mortgage lending.
The first hearing, on Tuesday, used WaMu as a case study in how mortgage lenders’ sloppy lending practices, short-term, sales-driven culture and inadequate risk controls combined to inject billions of dollars of dodgy home loans into the financial system