Former Washington Mutual Chief Executive Kerry Killinger charged regulators unfairly seized the thrift in September 2008, even as the head of a congressional panel accused the savings and loan of creating a mortgage time bomb in its quest for profits.
In prepared testimony before the Senate Permanent Subcommittee on Investigations, Killinger said that, while the company suffered from rising loan losses, it was working its way through the financial crisis.
It was with great shock and sadness that I read of the seizure and bargain sale of Washington Mutual on September 25, 2008, he said. JPMorgan Chase & Co
Killinger, who was paid more than $100 million between 2003 and 2008, was forced out in 2008, just weeks before the bank was seized.
Senator Carl Levin, the chairman of subcommittee, blasted the bank's management for ignoring warning signs that bank employees often disregarded the bank's credit standards.
Levin told reporters on Monday that he would leave it up to the U.S. Department of Justice whether any executives at Washington Mutual should be charged with criminal wrongdoing.
Levin's panel found that the thrift contributed to the financial crisis by making hundreds of billions of dollars in shoddy loans - many lacking documentation or based on fraudulent paperwork - that were packaged and sold to investors as mortgage-backed securities.
To keep that conveyor belt running and feed the securitization machine on Wall Street, Washington Mutual engaged in lending practices that created a mortgage time bomb, Levin said on Tuesday in opening the hearing.
FORMER RISK OFFICER
In shining a spotlight on Washington Mutual, the subcommittee is focusing on the role high-risk loans played in the financial meltdown.
James Vanasek, WaMu's chief risk officer from 1999 to 2005, told the subcommittee that the mortgage industry generally began taking on more risk ahead of financial crisis.
The dangers were recognized by some but ignored by many, said Vanasek, who faulted a broad swath of industry players including loan originators, lenders, regulators, rating agencies and investment banks.
Vanasek said he had tried to cap the percentage of high risk and subprime loans in the thrift's portfolio but was thwarted by lower-level managers.
Asked by Levin whether Washington Mutual had effective risk management review for its subprime lending affiliate, he responded: No sir, they did not.
Regulators seized Washington Mutual less than two weeks after Lehman Brothers filed for bankruptcy and touched off a global panic that led to the freezing of credit markets and the biggest U.S. financial crisis since the Great Depression.
Washington Mutual was the largest savings and loan in the country with more than $300 billion in assets and $188 billion in deposits.
The subcommittee began looking into the causes and consequences of the financial crisis in November 2008. It said it reviewed millions of documents and conducted over 100 interviews and depositions as part of its investigation.
The Seattle-based thrift was a traditional home mortgage lender for more than 100 years, focusing on 30-year, fixed-rate and government-backed loans, before it decided to chase after riskier borrowers.
The panel reported that Washington Mutual's emphasis on high-risk home loans, such as subprime mortgages and so-called Option ARMs that offered initial teaser rates and then higher interest rates down the road, was driven by a quest for greater profits.
Washington Mutual's parent company, Washington Mutual Inc
Its plan to exit bankruptcy court includes a rights offering to raise an undetermined amount of money to support the company, which would reorganize itself around an investment subsidiary and a mortgage reinsurer.
(Reporting by Dan Margolies; Editing by Tim Dobbyn)