Back in 2001-2002, I had my first inkling that something wasn't right in the credit world. I worked in commercial lending at Fleet Bank in the central NJ market. I distinctly remember the Washington Mutual invasion of the residential mortgage market (a different line of business). I had never heard of WaMu before (they were a west coast bank, and banking even then was still more of a regional business) but they were expanding into the residential market in our area and people were baffled by their business practices.
WaMu's credit standards were pathetic and their pricing made no sense. It seemed like they threw sound banking practices out the window (spoiler alert - they did). How could anyone make good loans that way? (they didn't!) WaMu was my first inkling of a credit (and real estate) bubble. And the fallout continues from WaMU's lousy credit practices, long after WaMu imploded.
Ah. Can't get rid of that underlining. Thanks, Obama!Perhaps no other example illustrates JPMorgan's scorched-earth legal approach better than the disputes over the estate of Washington Mutual (WaMu), which the firm acquired from the FDIC in September 2008. JPMorgan portrays its purchase of WaMu during the depths of the financial crisis as a patriotic act performed by a well-run bank. Its public statements and regulatory filings tell a different tale.
In August 2009, Deutsche Bank, as trustee for about $92 billion of notional WaMu securitizations, filed suit against the FDIC demanding the repurchase of billions of dollars of mortgages that they argued violated representations and warranties in the pooling agreement. The FDIC moved to dismiss the complaint, arguing that JPMorgan had assumed the liabilities in the WaMu purchase. Consequently, Deutsche Bank amended its complaint to add JPMorgan[i]. JPMorgan is protected by a broad gag order that has sealed away, from public view, any internal communications on Washington Mutual. We have had to rely on public information and information provided as a result of freedom of information requests.
After several years of agreeing with the FDIC's position and acknowledging that it acquired the mortgage liabilities of Washington Mutual[ii], JPMorgan appears to have changed its mind when it realized the enormity the industry's mortgage putback risks[iii]. JPMorgan is now boldly demanding indemnification from the FDIC Insurance Fund.