WaMu Ordered to Rehire Whistleblower

Theresa Hagman, a former vice president of the custom construction loan fulfillment disbursement center, worked for the Seattle-based thrift for about three years. In December 2003, she began raising concerns to her direct supervisors and other bank managers that WaMu was possibly violating federal regulatory requirements by improperly underwriting and funding custom home construction loans. Three months later, she was terminated, according to a Labor Department preliminary order document that Hagman’s attorney Marc Susswein says was mailed to him this week.

Last May, Hagman filed a complaint with the Labor Department alleging that WaMu had discriminated against her in violation of employee-protection provisions of the Sarbanes-Oxley Act, which Susswein said protects employees against corporate retaliation for alleging fraud.

In particular, the concerns raised by Hagman were that the bank was not following its written policies as required by law and thus loans were being funded and underwritten without proper documentation or other safeguards, the document said.

The labor government branch found in favor of Hagman that “she reasonably believed the bank was engaged in illegal activity and that this activity could expose its shareholders to financial risk.”

In addition to reinstating Hagman to her former position, the department’s preliminary order requires WaMu to reimburse her back pay with interest, attorneys fees and other compensation exceeding $167,000.

“We strongly dispute the allegations by our former employee,” said WaMu spokesman Alan Gulick in an e-mailed statement to MortgageDaily.com. “At the time the allegations were raised, we took them very seriously and began an immediate investigation. After two separate reviews, we found no merit to the claims.

“We found that our operations in the Custom Home Construction area were, and continue to be, sound.”

The department noted Hagman was an experienced person in her industry who worked in positions that afforded her the opportunity to observe the lending practices. Additionally, “several credible witnesses” shared Hagman’s concerns regarding WaMu’s lending practices, but unlike her were not vocal in expressing them to the company.

Susswein, of New York-based Liddle & Robinson L.L.P, commented, “Adhering to their own policies and sound lending practices is the heart of the bank’s obligation to its borrowers and central to the bank’s integrity as a lender.

“Washington Mutual failed in both of these areas and then terminated Hagman’s employment in retaliation for her raising those issues in the first place.”

Regarding Hagman’s termination, Gulick said the “former employee’s position, unfortunately, was one of the thousands of positions cut last year in our mortgage business.”

WaMu downsized the number of its mortgage employees by more than 10,000 last year as production sank 39% annually to $254.6 billion. The massive layoffs started after reaching milestone volume of $128 billion in the third quarter 2003 as rates picked up steam and the refinance boom busted.

However, the department said that WaMu did not provide sufficient evidence to substantiate that the termination was due to a companywide mandate to flatten management and because Hagman was a poor performer.

According to the preliminary order, the alleged deficient performance of Hagman was supported only by a performance evaluation written by an executive, who had supervised her for approximately six weeks at the time of the evaluation and performed reviews on six other managers with the professed intention of eliminating one to flatten management.

“At least one of seven managers had a documented history of poor performance, and the evidence showed that none appeared to have as superior an employment record” as Hagman, yet she received “the lowest rating of all seven, thereby selecting her as the manager to be eliminated,” the department said in the order. “This termination constitutes an adverse action against” her.

Gulick said WaMu might appeal the department’s preliminary order.