PSI Hearings on WaMu Next Week

I wrote this story in The American Lawyer (.pdf) last year on the U.S. Senate’s Permanent Subcommittee for Investigations, which is one of a handful of congressional committees that defense lawyers in D.C. actually take seriously.

Lawyers joke that PSI stands for “pretty scary investigations.” If you’re getting pulled before the PSI, a criminal indictment may not be far off.

As I reported, everyone knew the PSI would be investigating the financial crisis. The question was: Who was the target?

Next week, the PSI will hold hearings on Washington Mutual Bank.

Seattle-based WaMu became the biggest bank failure in U.S. history Sept. 25, 2008 when it was seized by the government and sold to JP Morgan Chase following  a classic run on the bank. When it closed, WaMu had $300 billion in assets, $188 billion in deposits and 43,000 employees.

“The recent financial crisis was not a natural disaster; it was a man-made economic assault,” said Sen. Carl Levin, D-Mich., the PSI chairman. “People did it. Extreme greed was the driving force. And it will happen again unless we change the rules.”

The first of two hearings on April 12 hearing will focus on the role of high risk home loans in the financial crisis, using as a case history high risk home loans originated, sold, and securitized by Washington Mutual Bank, according to a committee news release.

The second hearing on April 16 will focus on Long Beach Mortgage Company, a WaMu subsidiary, and the role bank regulators played.

Long Beach was the king of bad Alt-A and subprime mortgages issued between 2005 and 2007 in Stockton, Sacramento and Memphis, according to this Office of the Comptroller of the Currency analysis (.pdf).

Federal agents in Sacramento have been investigating Long Beach since at least 2007. A Long Beach loan coordinator has pleaded guilty to lying about $100,000 in illegal kickbacks from a mortgage broker for processing fraudulent loan applications. A Long Beach salesman was indicted in 2008.

The Huffington Post Investigative Fund investigated Long Beach in a story published in December.

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