Levin Uses Wamu in Push for Key Reform Provisions

By Hopkins, Cheyenne | American Banker, April 13, 2010 | Go to article overview

Levin Uses Wamu in Push for Key Reform Provisions


Hopkins, Cheyenne, American Banker


Byline: Cheyenne Hopkins

WASHINGTON - As the Senate prepares to debate regulatory reform legislation, Sen. Carl Levin is using the failed Washington Mutual Inc. as evidence that the bill's most contentious provisions are necessary.

The chairman of the Permanent Subcommittee on Investigations is prepping four hearings related to the financial crisis, the first of which is scheduled April 13 and will focus on Wamu's risky lending practices.

Based on an 18-month investigation, Levin said, he believes that certain provisions of the reform legislation, such as the creation of a consumer protection agency and a requirement that lenders maintain a stake in loans they sell to the secondary market, could have helped avoid, or lessen the impact of, the thrift company's failure.

"A lot of proposed reforms will gain additional support, we believe, from these findings," Levin said. "It is my hope that these hearings, these findings, give a boost, a momentum to strong regulatory reform in many, many different ways."

Levin began his investigation in November 2008, two months after Wamu's failure. The panel did more than 100 interviews and collected millions of documents, some of which are to be released today.

The investigation focused on four areas - lending practices at Wamu, supervision by bank regulators, credit rating agencies and investment banks. Levin argued that Wamu is a case study in poor lending practices that infected the entire banking industry.

Today's hearing is to feature past executives, including Kerry Killinger, Wamu's former CEO, while a hearing scheduled Friday assesses more broadly the banking agencies' performance during the crisis.

During a press conference Monday, Levin said the $300 billion-asset Wamu failed because of poor underwriting, an aggressive appetite for securitization and compensation incentives based on the quantity, not quality, of loans.

Senate Banking Committee Chairman Chris Dodd's reform bill could have prevented some of the damage to the thrift, Levin said. For example, he argued, the proposed consumer protection agency would probably have banned some of the most egregious products, including negatively amortized loans, and ensured that lenders did not make mortgages that borrowers could not repay.

"There is no good purpose served by having people pay less than the interest owed," said Levin. "I don't know if there would be amendments to this, but I would certainly support an amendment that prohibited the negatively amortizing loans."

Risk-retention is just as critical, he said. The Dodd bill would require lenders to keep at least a 5% stake in any loan they sell to the secondary market.

"To do shoddy loans and pass along the risk - that is what happened here by the billions," Levin said.

"There are a lot of ways to stop that. One way is to require securitizers to maintain [ownership of] a percentage of the securities that they issue."

Levin said Wamu was one of many banks that sold loans to the secondary market in order to remove risk from its books.

"This hearing is less about Wamu's failure than it is about a pattern of selling toxic mortgages into our financial system, poisoning the secondary market," he said. "That market had a huge appetite for subprime and high-risk mortgages. The quality was not the key thing. It was whether or not they could get a stamp of approval and it could be sold. These toxic sales upstream played a central role in the financial crisis. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • A full archive of books and articles related to this one
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Levin Uses Wamu in Push for Key Reform Provisions
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.