A local tale in the mosaic of WaMu failure

Brenda Carpenter's modest red brick rowhouse in South Philadelphia cost her $69,900 two years ago, but it played its part in the spectacular collapse of Washington Mutual Inc., which with $307 billion in assets is by far the largest bank to fail in U.S. history.

Carpenter, 48, a U.S. postal worker and single mother of two who is deaf, bought the house with no money down. She financed the purchase with an adjustable-rate loan from Long Beach Mortgage Co., a unit of the Seattle-based bank specializing in subprime mortgages.

She wound up with an initial interest rate of 13.6 percent, more than double the 6.51 percent average fixed rate being offered then to people with sounder credit. She paid on time for about a year, but then Carpenter fell behind, unable to pay the $810.58 monthly on her annual $56,221 gross salary.

What happened to Carpenter - multiplied many times - explains why Washington Mutual's aggressive nationwide lending left it with a huge portfolio of underperforming or just plain bad loans.

Washington Mutual may now be nothing more than a smoldering wreck, but Carpenter still wants to remain in her house, where the living room's textured ceiling has paint that sparkles, though the wall paint is peeling in places.

"I like the house," Carpenter said, using sign language as her sister, Verna Cotton, interpreted. "I want to stay."

Carpenter has a shot at that.

"JPMorgan Chase will honor all WaMu agreements," a JPMorgan spokeswoman said yesterday. Washington Mutual, the nation's largest thrift, was seized Thursday by federal regulators, who then brokered a sale of most parts of it, including mortgages, to JPMorgan Chase & Co.

Few banks dealt more in subprime loans like Carpenter's than WaMu. Her piece of its recent rise and fall begins at the door of her 1,133-square-foot house on Wharton Street, where two white columns frame a small porch.

"The block is OK itself. But late at night, it's good to stay in the house," said Cotton.

Carpenter's house is comfortably furnished. A console TV sits guard by the front door, near the sofa.

The dining room, which has one table for eating, one for a computer, also holds a diploma Carpenter earned for a clerical-skills training program and a certificate for perfect attendance at a group for deaf parents with hearing children.

Carpenter's job is steady, and she has been commended during her more than 25 years with the Postal Service. Taxes and deductions from her paycheck, including payments for loans through her credit union, shrink her annual take-home pay by tens of thousands. She has a heavy debt load, but aside from the mortgage, she is current with other bills, said Brendi Lopez, a housing counselor helping Carpenter.

"I have a small amount," Carpenter says, "but I stretch it out."

In April 2006, she bought her rowhouse with no down payment and a 30-year loan from Long Beach Mortgage, which the agent handling the sale told her to use, Carpenter and Cotton said.

WaMu's acquisition of Long Beach in 1999 helped the bank become one of the top subprime lenders in the country. Long Beach was closed last year as the riskiness of some of its loans began roiling housing markets.

Even as she bought the house, Carpenter worried whether she could afford it. But people she trusted - wrongly, she now acknowledges - told her the mortgage payments would be affordable.

In 2007, Carpenter injured her ankle and missed work because of required surgery. She fell behind on her mortgage and has been playing catch-up ever since.

Cotton took up her sister's cause and thought she had negotiated for her an interest-rate reduction, to 4.5 percent, with WaMu in April. Subsequently, a WaMu employee called Cotton and told her the representative who had made that offer was not authorized to do so, and it was withdrawn.

According to a WaMu document, Carpenter's file was given to a new employee "due to departmental organization changes." In May, WaMu offered a rate of 6.313 percent.

Then, Carpenter made a big mistake: She paid off the overdue amount, borrowing money for two back payments from her credit union.

Because Carpenter's mortgage became current, WaMu pulled the reduced-interest-rate offer off the table. In an interview this month, WaMu's Sara Gaugl said it was not the bank's intent to penalize customers for paying delinquent balances.

From that point in May until early August, Cotton said, she heard from no one at WaMu. Meanwhile, the bank reassigned Carpenter's case to yet another employee.

On Sept. 12, WaMu sent Carpenter a letter stating she would have a reduced, fixed interest rate of 6.313 percent and a $458.74 monthly payment beginning in November.

JPMorgan Chase's takeover will not change that, a spokeswoman said yesterday, adding: "All customers should feel very good."