Meola's next award recipient was Tom Ramirez, a WaMu loan consultant who had become a mortgage lender legend in Southern California. Ramirez worked out of WaMu's office in Downey, a largely Hispanic neighborhood of cracked sidewalks and graffiti-marked homes, east of downtown Los Angeles. WaMu called the Downey officer a Community Fulfillment Center, the bank's name for home loan branches that served minority communities. Those centers often used even looser guidelines for making loans, allowing lower credit scores and less income documentation. Ramirez specialized in Option ARM lending.
... He had pioneered a program that allowed real estate agents to collect referral fees for sending clients to WaMu. Those agents made 1 percent off the total loan cost, which the borrower paid at closing. (Whether the borrower knew this remains unclear.) Real estate agents loved the idea. They arrived in Downey from all over Los Angeles with loan applications. Because the program proved so successful, Wa Mu expanded, filling a neighboring building with more loan processors.
At WaMu ... also had a stellar reputation. ... [CEO Kerry] Killinger had singled him out for praise, lauding his work with minority borrowers. ... Ramirez and his loan consultants wanted to approve borrowers with lower FICO scores, bypassing a senior underwriter's approval, and allow assets to count on a loan application, even if they weren't yet in a customer's account. By counting money in a bank account before it was deposited, for example, a customer might qualify for a loan even if the money ultimately didn't show up. [COO Stephen] Rotella didn't think Ramirez's demands were unreasonable. "I met them last year and I was so impressed, I suggested we use them to spawn similar operations in Hispanic communities across the U.S., if possible using them to model, train, and certify the work," Rotella write in a glowing e-mail about Ramirez and his team, which also questioned [David] Schnieder for failing to meet the group's demands. "Frankly, not much has happened," Rotella wrote. "We should fall all over ourselves to have a business segment that attracts minorities, is almost all Option ARMS, is not price driven, delivers great quality, and is oriented toward the average guy, our market."
For 17 straight years, Ramirez had received one of the highest honors at the President's Club, the number-one loan consultant. He had funded more units than any other WaMu office nationwide. In 2005, he made more than 2300 mortgages, a feat announced that night at President's Club. ...
At prices prevailing in 2005 at the peak of the bubble, 2300 mortgages would be about $1 billion dollars. That's ten million dollars in kickbacks paid to real estate agents.
"In our world of superstars, he is bigger than a Brad Pitt, George Clooney, or Tom Cruise. He's at the Henry Fonda, Burt Lancaster, John Wayne legendary status," Meola said in announcing Ramirez's award.
Several months earlier a disturbing internal report had come out about the quality of the loans made in the Downey branch, as well as that of another Community Fulfillment Center in the neighboring East Los Angeles city of Montebello. For three years, rumors had circulated at WaMu about fraud in the two locations.
Never trust Montebello. I had my 7 and 9-irons stolen at the Montebello municipal golf course ten years ago. I've often left a couple of unused irons on the tee of a par 3 like that, but every other time some fellow golfer behind me brings them along. It's not like a couple of random golf clubs are worth much to the thief (but it's very expensive for the victim to replace them with clubs that match the rest of his set). Montebello is the only golf course where my clubs have vanished.
... In the summer of 2005, WaMu launched a review of the mortgages made in Downey and Montebello. The review found an "extensive level of fraud," as was later noted in an email circulated among mangement. Among the hundreds of loans that borrowers had received from the Downey office in the previous two years, nearly half contained fraud. At Montebello, fraud rates exceeded 80 percent.
Not too mention golf club theft rates. But I'm not bitter ...
All of it, the reviewer wrote in the email, was "attributable to some sort of employee malfeasance or failure to execute company policy." The fraud was outrageous, even in the age of bloated incomes on mortgage applications and false bank statements.
On one loan application, everything about the buyer was made up ... "The credit package was found to be completely fabricated," the review concluded. ...
The fraud report had come out not long before President's Club, yet here was Tommy Ramirez, the top producer not only in the Downey office but in the country, walking up on stage to shake Killinger's hand accept his trophy. Of loans that had been referred to Ramirez, 58% contained fraud, a rate that one WaMu executive would later describe as "eye-popping."
Luis Fragoso, another high-volume loan consultant at the nearby Montebello office, posted a fraud rate of 83% for loan referrals. He was also honored at President's Club.
|Not the Montebello Municipal Golf Course|
"No one in history has put more people into their first home," said Meola, up on stage. "Please put your hands together for an extraordinary man, Tom Ramirez!" The audience cheered. In 2005, WaMu made $3.4 billion in profit.
Of course, a lot of that "profit" was not exactly cash flow, but was instead deferred interest on negatively amortizing Option ARM mortgages.
Here's another classic WaMu TV commercial from the series that was playing on TV as they went belly-up.