Washington Mutual, Inc. had existed for 119 years, and on Thursday September 25, 2008, Washington Mutual‘s assets were acquired by JPMorgan Chase. Washington Mutual was seized by the government in the largest failure ever of a US bank.
Washington Mutual ran into problems after it got caught up in the booming part of the mortgage business that made loans to people with bad credit - known to us as subprime borrowers. It seems as though troubles appeared to spread through parts of Washington Mutual’s home portfolio first, its adjustable rate mortgage loans were the cause of the down fall of Washington Mutual Bank.
The bank had a loan program which gave the option of having very low introductory payments that let borrowers defer some interest payments until later years. After realizing that these types of loans were leading the bank to failure the bank stopped offering the back loans in June. By June this problem in Washington Mutual’s home loan was too large to be controlled. Washington Mutual’s problems were first revealed when the bank reported that the home loan division lost 48 million in 2006, compared with their net income of about 1 billion in 2005. However, the problem was not thought to be as big as it was until 2007.
In 2007, after the bank’s release of the company’s financials, the bank reported a slow-down of subprime loans, which then lead to the switch in CEO’s , and news began to surface about more borrowers becoming delinquent on their mortgages.
Washington Mutual developed a strategy to help troubled customers refinance their loans as a way to avoid default and foreclosure. Washington Mutual invested another 2 million in this effort, however, it was too little too late for Washington Mutual Bank.
Due to fears of growing credit problems investors were no longer willing to invest which kept the bank from the selling of debt backed loans drying up the source of cash for the bank. In December, Washington Mutual shuttered its subprime lending...