Golden West was an active proponent for sound public policies for the banking industry, even when positions put the company at odds with others in the industry. On many occasions, Golden West advised and warned regulators and others about potential risks in the banking system, and the company repeatedly called for greater regulatory oversight, transparency and accountability in the industry.
Greater Regulatory Oversight of Mortgages in the 2000s.
The company was one of the only, if not the only, major mortgage lenders sounding alarms to regulators and others about the risks emerging in the mortgage industry, including the emergence of more aggressive lenders who were generating greater volumes of loans for securitization and sale to investors. See, for example, a letter to the regulators, dated March 29, 2006, in which the company urged that the potential risks of “new Option ARM lenders who hold minimal capital and rely on the secondary market” were worthy of greater regulatory scrutiny. [View March 2006 letter to regulators]
The Need for Capital.
The company spoke repeatedly with regulators, members of Congress and their staffs, administration officials and others that banks needed to be required to maintain sufficient capital as a financial cushion against mistakes or difficult economic periods. Golden West was the only major bank that argued against a proposed new capital regulation, Basel II, that would have permitted banks to use internal models to set their own low capital levels. See, for example, the following letters sent to regulators urging them not to allow banks to reduce the amount of capital they hold, including for mortgages, under a proposed new Basel II regime. [View 2003 letter] [View November 2003 letter] [View 2005 letter] [View 2006 letter]
Stopping Predatory Lending Practices.
Golden West consistently argued against practices in the industry that could be predatory, including risk-based pricing (charging higher rates based on internal risk profiling) and abusive loans (including mortgages, overdraft fees, and payday lending). A charitable foundation funded by the former CEOs of Golden West has provided substantial support to several organizations that advocate on behalf of consumers and repeatedly warned about emerging subprime and other mortgage problems, including the Center for Responsible Lending and the National Consumer Law Center.
Savings and Loan Crisis.
During the savings and loan crisis in the 1980s, Golden West and its leadership brought to the attention of Congress and others risky and improper lending activities in the market, testified before Senate and House committees, and urged immediate action to minimize risk and avoid further problems. The company also took out the following full-page advertisement in the Washington Post after the Savings and Loans crises to emphasize the importance of capital. [View Washington Post full-page ad]
Other Early Warnings.
During its history, Golden West also spoke out against a variety of other factors that increased risk in the mortgage industry and the banking system generally, including “mark-to-market” accounting rules, the SEC’s and accountants’ insistence of not allowing the build-up of reserves, the growth and practices of government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, the acquisition of securitized mortgage assets by Federal Home Loan Banks, and “gain on sale” accounting rules that encouraged the push for loan volume by mortgage banking operations.