Years ago, I worked with a guy who made about $30,000 a year. Over half of his salary was going to child support, another third was going to the government for unpaid taxes. After all of the deductions, he was literally left with enough money to eat and get to work. Long story short, he was able to get a mortgage for a house that cost $250,000. Sounds cheap, but this was just before the housing bubble, today that same house would easily go for half-a-million. The guy eventually left and got a better job, but I always wondered how he was able get approved for a loan when he had pocket change at the time his mortgage was approved.
Yesterday, the International Herald posted a great article about Washington Mutual’s (aka WaMu’s) loan practices, that made them one of the fastest rising banks of the last ten years, only to come crashing into Wall Street this September due to their ‘Power of Yes’ philosophy. “Yes” was what all loan officers were encouraged to stamp on any application that crossed their desks. The ultimate goal: sell the mortgages to investment banks, who sold them in mortgage backed and asset security packages to investors around the world.
I’m not sure where my work friend got his loan, but I wouldn’t be surprised if it was Washington Mutual.
They approved loans for secretaries claiming CEO salaries, baby sitters sitting on college president money and school teachers peeling back green like Warren Buffet. Eventually word got out that Washington Mutual was the place to go if you wanted a mortgage. Credit checks and income meant nothing, you want a loan? You got it.
In the article a former WaMu mortgage supervisor described just how rigid the loan approval process was. One applicant said he made six figures as a Mariachi singer. OK, some people are able to make a lot of money in unusual ways, but this guy didn’t have any proof of his income. So the supervisor simply had him take a picture of himself in front of his house wearing the Mariachi outift. Wow, this guy’s doing well.. loan approved!
Here’s the full story at Washington Mutual, a relentless urge to approve any loan
If that’s hard on the eyes, have a dude in a polo shirt explain the subprime/us banking crisis.
Subprime US Banking Crisis Explained - Part 1
Yup.. it’s all related.