At Wa-Mu, EVERYTHING Was Approved

The stories are just starting to trickle out. Meth-snorting loan officers approving pretty much anything. Of particular interest locally because it mentions Bay area Wa-Mu locations, including Sarasota.

In 10 years there will be plenty of books written and plenty of perspective on exactly how insane the whole thing was.

From the New York Times (registration required):

The Reckoning
By Saying Yes, WaMu Built Empire on Shaky Loans
By PETER S. GOODMAN and GRETCHEN MORGENSON

“We hope to do to this industry what Wal-Mart did to theirs, Starbucks did to theirs, Costco did to theirs and Lowe’s-Home Depot did to their industry. And I think if we’ve done our job, five years from now you’re not going to call us a bank.”

— Kerry K. Killinger, chief executive of Washington Mutual, 2003

SAN DIEGO — As a supervisor at a Washington Mutual mortgage processing center, John D. Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers’. He rarely questioned them. A real estate frenzy was under way and WaMu, as his bank was known, was all about saying yes.

Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.

Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved.

“I’d lie if I said every piece of documentation was properly signed and dated,” said Mr. Parsons, speaking through wire-reinforced glass at a California prison near here, where he is serving 16 months for theft after his fourth arrest — all involving drugs.

While Mr. Parsons, whose incarceration is not related to his work for WaMu, oversaw a team screening mortgage applications, he was snorting methamphetamine daily, he said.

“In our world, it was tolerated,” said Sherri Zaback, who worked for Mr. Parsons and recalls seeing drug paraphernalia on his desk. “Everybody said, ‘He gets the job done.’ ”

At WaMu, getting the job done meant lending money to nearly anyone who asked for it — the force behind the bank’s meteoric rise and its precipitous collapse this year in the biggest bank failure in American history.

On a financial landscape littered with wreckage, WaMu, a Seattle-based bank that opened branches at a clip worthy of a fast-food chain, stands out as a singularly brazen case of lax lending. By the first half of this year, the value of its bad loans had reached $11.5 billion, nearly tripling from $4.2 billion a year earlier.

Interviews with two dozen former employees, mortgage brokers, real estate agents and appraisers reveal the relentless pressure to churn out loans that produced such results. While that sample may not fully represent a bank with tens of thousands of people, it does reflect the views of employees in WaMu mortgage operations in California, Florida, Illinois and Texas.

Their accounts are consistent with those of 89 other former employees who are confidential witnesses in a class action filed against WaMu in federal court in Seattle by former shareholders.

According to these accounts, pressure to keep lending emanated from the top, where executives profited from the swift expansion — not least, Kerry K. Killinger, who was WaMu’s chief executive from 1990 until he was forced out in September.

Between 2001 and 2007, Mr. Killinger received compensation of $88 million, according to the Corporate Library, a research firm. He declined to respond to a list of questions, and his spokesman said he was unavailable for an interview.

During Mr. Killinger’s tenure, WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.

“It was the Wild West,” said Steven M. Knobel, a founder of an appraisal company, Mitchell, Maxwell & Jackson, that did business with WaMu until 2007. “If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”

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Economy Has Some Businesses Facing Eviction Notice

I don't think there's a statistic for the amount of commercial evictions occurring locally, but I would bet the Sarasota/Manatee market is similar to that of Miami/Dade's. It's a tough time to start a business, and just as tough to keep the lights on when your customers are cutting back on spending. Unfortunately, I think we're going to see more of the same. It's certainly as trying of a time for landlords as it is for tenants. A lot of people I talk to are very tentative about expansion and many landlords are equally worried that even good credit tenants may leave. The domino effect this has is pronounced. The good part is there are landlords out there who will attempt to work with their tenants in this market (see story below).

From Daily Business Review, by Polyana da Costa

When the owners of Tiger Allie, a Boca Raton children’s clothing store, signed a retail lease in 1997, they likely never imagined the financial and legal woes they’d face.

More than 10 years later, they are at least five months behind on their rent, a sign advertising a liquidation sale is on the door and a lawsuit seeking the store’s eviction is pending.

When Tamarac Fortune Partnership, which owns a three-story office building on University Drive in Tamarac, leased an entire floor to a group of businesses in the medical field in late 2006, the landlord had no inkling the tenants would default on the five-year lease. In July, however, the partnership sued to evict the businesses, which it says defaulted on lease payments beginning in April.

And at Boca Raton’s tony Mizner Park, at least two stores, an art gallery and an antique shop, have fallen behind in payments, according to eviction lawsuits filed against those stores.

As the economy flirts with recession, these and hundreds of other small South Florida businesses — including medical offices, art galleries and clothing stores — are struggling to keep pace with their rents. Increasingly, they’re failing. That means a sharp uptick in evictions, a boost in work for real estate lawyers and greater strains on the legal system.

The volume of all evictions filed in Miami-Dade, Broward and Palm Beach counties is up an average of 10 percent compared to last year, according to the clerk’s offices in each jurisdiction.

For example, June was a record month for lawsuits seeking evictions in Palm Beach County — 1,076 were filed compared with 877 in the same month last year. (The figures include residential evictions since the clerk’s office does not track separate actions against commercial tenants.)

Most store owners facing eviction lawsuits don’t want to comment. Representatives of Tiger Allie, the Boca Raton clothing store facing eviction, did not return a phone call.

The suits seeking evictions represent only a small number of commercial tenants who’ve fallen behind on their rents. Many landlords are choosing to work out deals with struggling tenants, said John Scott, director of client solutions at Cushman & Wakefield.

Scott said the company, which manages about 10 million square feet of office, warehouse and retail space, has not seen a mass of evictions at its properties. It has helped its landlords work with tenants who are financially strapped. The options have included lowering tenants’ rents for a period of time and rolling over the shortfall to the end of the lease, he said.

“Landlords aren’t just looking to eliminate their tenants,” he said. “The market is not as strong as it was a couple years ago. It’s hard to replace a tenant in this market. Our brokers have been working harder than ever.”

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Copyright 2008, Daily Business Review

Moody's: Commercial Real Estate Prices Dip in June

NEW YORK - Commercial real estate prices continued to decline in June, according to Moody's/REAL Commercial Property Price Indices, Moody's Investors Service said Wednesday (8/20).

The index fell 3.3 percent from May, and was down 9.6 percent from the year-ago level.

June was the fourth consecutive month that the index declined, Moody's (nyse: MCO - news - people ) said. The CPPI now stands 11.8 percent below its peak in October 2007.

The index is based on repeat sales of the same properties across the U.S. at different points in time.

All four property types measured by the index went negative during the second quarter, Moody's said. The national industrial market saw the largest price drop, down 9.3 percent during the quarter. National apartment market prices fell 7.1 percent, while office prices slipped 5.9 percent and retail declined 4.6 percent.

Through the first half of the year, transaction volume dropped more than 25 percent compared to the first half of 2007, Moody's said. There was a slight increase in both number and dollar value in June from the previous month, the company said.

The June uptick may be the first sign of stabilizing transaction volumes, which could point to future price stabilization, said Moody's Managing Director Nick Levidy. However, "it may also be a transient or seasonal effect, and future data will need to be examined in order to identify any trends." From Forbes.com

Copyright 2008 Associated Press. All rights reserved.

Report: Real estate agents willing to cut commission

When it comes to residential real estate these days, it seems everything is subject to negotiation.

That includes the real estate broker's cut on the deal, according to a report issued Monday by Consumer Reports. Based on a recent survey of home sellers, 46 percent of people trying to sell their homes through agents tried to negotiate a lower commission rate. Of those home sellers, 71 percent succeeded in getting the real estate agent to take less.

Haggling, the nonprofit Consumers Union publication noted, didn't mean home sellers were getting less from their agents or were less satisfied with the outcome. Sellers who paid commission rates of 3 percent or lower were just as satisfied with their broker's performance as those who paid 6 percent or more, the report noted.

Despite the nationwide slump in residential real estate sales, 86 percent of Consumer Reports' readers who put their homes on the market made a sale, while only 8 percent gave up and took their homes off the market.

Agents with large brokerage firms scored just as well as independent brokers when it came to customer satisfaction, but the magazine recommends home sellers base their choice of agents on factors that include personal recommendations.

The magazine recommends home sellers price their homes realistically, and drop their asking price between 4 percent to 6 percent if they don't receive an offer within four to six weeks.

The Washington (D.C.) Business Journal is a sister publication of The Business Journal Serving Greater Milwaukee.