Two former executives at Washington Mutual (WaMu), who paid fines to the Federal Deposit Insurance Corp. (FDIC) last year for the thrift's "reckless" lending practices, are eyeing a return to mortgage lending.

David Schneider, who in August was named chief executive of specialty servicer Vericrest Financial, hired his former boss Steven Rotella in September to a four-member advisory board. The board was created to provide "insight and recommendations," on the nonbank servicer's strategy including plans to get back into residential lending, Schneider said in an interview.

Originating loans "has been at the forefront of our discussions," Schneider said. Though Vericrest, which is owned by the private-equity firm Lone Star Funds, is focused on servicing now "over the longer term we'll think about whether originations is something that makes sense to us," he added.

Schneider is the former home loans president at Washington Mutual and Rotella is WaMu's former president. They were accused last year by the FDIC of "putting borrowers into homes that they simply cannot afford," by pushing high-margin subprime, home equity and option adjustable-rate mortgages at the Seattle thrift.

Schneider and Rotella both rigorously denied wrong-doing in WaMu's collapse, claiming they made prudent decisions based on information they had at the time, and even made efforts to ratchet back subprime lending.

"The industry went through a significant challenge and we've all learned from that and been a part of it," Schneider said.

The settlement agreement did not prohibit Schneider and Rotella from further participation in the banking industry, though Schneider said he opted to go with a nonbank because the largest servicers are scaling back. Though mortgage servicing is still concentrated in the hands of Bank of America, Wells Fargo and JPMorgan Chase, banks are actively selling off mortgage servicing rights to nonbanks in part because of Basel III requirements.

"Servicing portfolios are moving out of the hands of larger servicing shops, and it's important that private capital come into the servicing space," Schneider said.

Schneider gave no timetable for when Vericrest, with $6.5 billion in servicing assets, might expand into loan originations but the recent appointment of Rotella to the board suggests it is moving in that direction. In addition to Rotella, Vericrest's advisory board also includes Donald Bisenius, a former executive vice president at Freddie Mac who was charged by the Securities and Exchange Commission in December for misleading investors about the government-sponsored enterprises' high-risk mortgage holdings.

Laurie Goodman, head of RMBS strategy team at Amherst Securities Group, said the move illustrates the revolving-door nature of the lending industry.

"Origination is a profitable activity and a lot of these guys had mortgage expertise and this is the best way to redeploy it," she says.

She even suggested that there wasn't much of a problem with the WaMu executives' return: "Like a reperforming loan, there has to be some rehabilitation," Goodman said. "Most people with specialized knowledge of mortgages were blemished."

WaMu, the largest bank failure in U.S. history, was the sixth-largest bank when it collapsed in September 2008, and was sold at a fire-sale price of $1.9 billion to JPMorgan Chase.

In December, the two former Wamu executives along with Kerry Killinger, WaMu's longtime chief executive, settled the FDIC's allegations of negligence for $64.7 million.

Schneider paid $50,000 in cash as part of the agreement and gave up a claim to $5.8 million in compensation; Rotella paid $100,000 and forfeited an $11.5 million claim. Most of the payments came from directors' and officers' liability insurance policies paid for by the thrift.

Schneider was head of servicing and default at JPMorgan Chase, where he played a role in the national mortgage settlement. He described Rotella and Bisenius as "people with in-depth knowledge of mortgage banking. They are truly mortgage banking experts."

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