WASHINGTON, April 12 (UPI) -- Washington Mutual executives made subprime home loans they knew were likely to fail and then bundled them into risky instruments, U.S. Senate investigators say.
Documentation released Monday by the Senate Permanent Committee on Investigations indicate WaMu executives knew in 2006 of trouble within the company's subprime unit, based in Southern California, the Los Angeles Times reported. The documents included internal e-mails and reports quoting WaMu executives as saying the subprime subsidiary firm Long Beach Mortgage Corp. was "a real problem" for the bank.
"Short story is this is not good," David Schneider, WaMu's former president of home loans, wrote in an e-mail sent in December 2006, the newspaper said. "We are all rapidly losing credibility as a management team."
Subcommittee Chairman Sen. Carl Levin, D-Mich., said the bank's home mortgage operation was "a conveyor belt that dumped toxic mortgage assets into the financial system like a polluter dumping poison into a river."
"Using a toxic mix of high-risk lending, lax controls, and destructive compensation policies, Washington Mutual flooded the market with shoddy loans and securities that went bad," Levin said. "As the debate on financial reform begins, it is critical to acknowledge that the financial crisis was not a natural disaster, it was a man-made economic assault."
Washington Mutual collapsed in 2008 in the largest bank failure in American history.
Former WaMu executives are scheduled to testify Tuesday on Capitol Hill, followed by regulators later in the week, the Times said. The Office of Thrift Supervision and the Federal Deposit Insurance Corp. are expected to issue a report Friday blaming regulators for the failure, the newspaper said.