WaMu documents yield some surprises

How's this for irony?

Washington Mutual threw a President's Club bash in Hawaii for its top writers of mortgage loans in 2006 where officials paraded on stage "a coffin imprinted with large Countrywide (Financial) logos."

The presenter, according to a script, declared that WaMu's biggest competitor met a bad end even though "so many of us warned the dearly departed about the risky — some would say reckless — behavior they engaged in."

Yes, this was same the annual conference cited by Sen. Carl Levin, D-Mich., in one of the sharpest exchanges at last week's WaMu hearings before a Senate subcommittee. He told former home-loans chief David Schneider that instead of firing lending officers who made loans using phony documentation, "when there was fraud you rewarded the people involved with trips."

And this was the same year WaMu heard from its own chief of securities sales that its bundles of poorly vetted subprime loans were "among the worst performing paper in the market."

The script for the faux funeral in Hawaii was just one tasteless morsel in the cornucopia of documents released by the Senate's Permanent Subcommittee on Investigations. Some were thoroughly aired in the hearings, but a few got overlooked and deserve their moment in the sun here.

The orator at the funeral ceremony — backed by a marching band, a "Rest in peace" graphic and four pallbearers dressed in black — criticized Countrywide for "throwing money around like Paris Hilton and selling products they don't really understand."

Its demise, the script went on, meant that "now borrowers across the nation will all be better served with 'Simpler Banking and More Smiles'! (One of WaMu's slogans at the time.) And some really scary and dangerous people won't be on the street any more.

"All of a sudden the dark cloud over the mortgage world has been replaced by blue skies and sunshine! And all of us will make more money and have more fun."

(Countrywide Financial did tank, but not until 2007 — by which time WaMu itself was beginning the spiral of losses that ended with its seizure by regulators and sale to JPMorgan Chase.)

Another tacky bit at that same President's Club fete was the self-described P. Club Posse, which refitted Seattle rapper Sir Mix-a-Lot's " Baby Got Back" with new lyrics:

"I like big bucks and I cannot lie

You mortgage brothers can't deny

That when the dough rolls in like you're printin' your own cash

And you gotta make a splash

You just spends

Like it never ends

Cuz you gotta have that big new Benz

All of that bling you're wearin'

Shining so bright peoples starin'

It's crazy, I gotta ski Aspen

That's all I'm askin'. "

Fortunately for the WaMu executives, the senators last week only pressed them on loan fraud, not rhyme fraud.

Elsewhere in the newly revealed WaMu documents there's an exchange between Chairman/CEO Kerry Killinger and President/COO Stephen Rotella on revising the bank's 2008 executive-bonus plan — changes that helped fuel a shareholder revolt when they were disclosed.

"As you know folks feel very burned by the way their paper was tied to performance targets that they now see as unrealistic," Rotella wrote on Jan. 3.

"The 2008 bonus targets need to be achievable and controllable by our team," Killinger agreed. "We should find four measures that we feel good about and will motivate the correct behavior."

He added: "We have to convince our folks that they will all make a lot of money by being with WaMu."

Rotella agreed, but he had more on his mind, "specific items... (that) revolve around broadening and strengthening our relationship, which I think has been very good, but can and should move to an even higher level at this crucial time. At the same, time I would like to get more insights about the future for me."

How'd all that work out?

The bonus plan they devised for nearly 3,000 top executives was curiously structured: The cost of soured real-estate loans and foreclosure expenses was excluded when figuring net operating profit, thereby sheltering the biggest component of the bonus plan from the mortgage problems ravaging the real bottom line.

Shareholders raised such a ruckus that Killinger had to tell them at the annual meeting in April 2008 the plan would be revised.

As for the relationship between Killinger and Rotella — let's just say there was an empty chair and a lot of space between them when they sat down to answer the senators' questions Tuesday.

Comments? Send them

to Rami Grunbaum: rgrunbaum@seattletimes.com or 206-464-8541.