Tuesday, October 02, 2007

WaMu: A calculated risk

Washington Mutual, a top-10 bank and mortgage lender has decided to admit that the subprime lending crisis was the fault of mortgage brokers. While the company didn't admit this directly, the Seattle Times reports that WaMu will now require that brokers fully disclose the evils of certain loans to borrowers and will "try to call every borrower represented by a broker to review the terms of a loan before closing."

The company didn't say whether its post close QA/QC department would spend any time calling borrowers that originated loans in its own branches.

See, it was the mortgage brokers who caused all of this and now that Congress has let the cat out of the bag by openly criticizing them, WaMu figures it may as well come clean and admit that it will have to rein these boys in. Never mind the facts that brokers can only sell loan products made available to them by lenders like WaMu and that these lenders are responsible for underwriting the loans (the act of making sure that the borrower actually qualifies for the loan) before they are funded.

The risk here is that brokers will observe WaMu seeking positive press by making them the scapegoats and refuse to broker loans for them in the future. These bankers have doubtless thought of this and are probably betting that (1) brokers are the Black Water of the mortgage industry and will continue to hire out to anyone who pays them, (2) WaMu has great brand equity it has been working to develop for years, (3) WaMu has a strong retail branch network and can survive quite comfortably without brokers.

They may be right. If you see the company start losing market share to Countrywide, you'll know they weren't.

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