Washington Mutual tie severed
GJ firm steered clear of risky mortgage market
A local company that once did business with Washington Mutual Inc. on the secondary mortgage market is glad the companies hadn’t been doing business for a while.
WaMu, which was the nation’s largest savings and loan institution, was seized Thursday night by the Federal Deposit Insurance Corp., which then sold WaMu’s assets to JPMorgan Chase and Co.
“We haven’t sold WaMu loans in four or five years,” said Dennis Edson, co-founder of Unifirst Mortgage in Grand Junction. “We used to sell them a lot of loans, but they weren’t subprime loans. They quit buying loans from correspondent lenders like us. They went into a new venture called option adjustable rate mortgage, or ARM loans, which would give the homeowner the option of making payments under three different scenarios.”
The three scenarios were: Customers could pay interest only; they could pay on the basis of negative amortization — paying less principal than owed according to their monthly payment schedules — which would push up the balance of the loan principal; or they could pay the full principal and interest each month as required, as with a conventional loan.
Edson said he believes that venture was ultimately what cost WaMu.
“I think they had good intentions, but I think some lenders abused them,” Edson said. “We had the option to make option ARM loans in Grand Junction, but we chose not to. I didn’t think we had the expertise to advise the client. And I know my loan officers, and they would just want to go make the sale. We’re in a small community, and those people come back to you here. I didn’t want to be known for selling bad loans.”
Although WaMu was a savings and loan entity, it took deposits like commercial bank and offered with checking and savings accounts. Edson said Washington Mutual did a lot more option ARMs loans than he’s used to seeing.
Quintin Shear, branch manager for Bank of the West in Grand Junction, said WaMu and IndyMac were longtime weak links in the banking industry.
“This is probably something that didn’t happen overnight,” Shear said. “Neither of them were true commercial banks. There’s a bunch of banks in town that are brick and mortar.”
Peter Waller, CEO and president of First National Bank of the Rockies, said it wasn’t a surprise to hear about WaMu’s seizure.
“It was almost common knowledge that they were in trouble,” Waller said. “They were shopping for a buyer for quite a while.”
Waller said he doesn’t think anyone locally would be affected by the WaMu failure.
“More importantly,” Waller said, “the depositors were all made whole, and it didn’t cost the FDIC fund a penny. That fortifies my assertion that the commercial banking system is in very good shape.”
Norm Franke, regional president for Alpine Bank, said it’s important to note that large commercial banks such as JPMorgan Chase are the only entities strong enough to purchase their assets and serve the customers.