Articles Posted in Washington Mutual

The state of Virginia is suing 13 of the biggest banks in the U.S. for $1.15 billion. The state’s Attorney General Mark R. Herring claims that they misled the Virginia Retirement System about the quality of bonds in residential mortgages. The retirement fund bought the mortgage bonds between 2004 and 2010.

The defendants include Citigroup (C), JPMorgan Chase (JPM), Credit Suisse AG (CS), Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), Deutsche Bank (DB), RBS Securities (RBS), HSBC Holdings Inc. (HSBC), Barclays Group (BARC), Countrywide Securities, Merrill Lynch, Pierce, Fenner & Smith Inc., and WAMU Capital (WAMUQ). According to Herring, nearly 40% of the 785,000 mortgages backing the 220 securities that the retirement fund bought were misrepresented as at lower risk of default than they actually were. When the Virginia Retirement System ended up having to sell the securities, it lost $383 million.

The mortgage bond fraud claims are based on allegations from Integra REC, which is a financial modeling firm and the identified whistleblower in this fraud case. Herring’s office wants each bank to pay $5,000 or greater per violation. As a whistleblower, Integra could get 15-25% of any recovery for its whistleblower claims.

JPMorgan Chase (JPM) is suing the Federal Deposit Insurance Corp. for over $1 billion dollars related to the bank’s purchase of Washington Mutual (WMIH). The financial firm said that the FDIC did not honor its duties per the purchase agreement.

When Washington Mutual suffered the biggest bank failure in our nation’s history during the financial crisis in 2008, FDIC became its receiver and brokered the sale of assets. JPMorgan, which made the purchase for $1.9 billion, says that the FDIC promised to protect or indemnify the bank from liabilities. Regulators had encouraged the firm to buy Washington Mutual hoping this would help bring back stability to the banking system.

Since then, however, contends JPMorgan, the FDIC has refused to acknowledge mortgage-backed securities claims by investors and the government against the firm. The bank says that the cases should have been made against the receivership instead. (In its lawsuit, JPMorgan says there are enough assets in the receivership to cover a settlement with mortgage companies Freddie Mac (FMCC) and Fannie Mae (FNMA) and other claims, such as a slip and fall personal injury case involving a Washington Mutual branch.) Meantime, the FDIC maintains that JPMorgan is the one who should be accountable for any liabilities from its acquisition of Washington Mutual.

After months of back-and-forth, the US Justice Department and JPMorgan Chase (JPM) have agreed to a $13 billion settlement. The historic deal concludes several of lawsuits and probes over failed mortgage bonds that were issued prior to the economic crisis. It also is the largest combination of damages and fines to be obtained by the federal government in a civil case with just one company. JPMorgan had initially wanted to pay just $3 billion.

The $13 billion deal is the largest crackdown this government had made against Wall Street over questionable mortgage practices. US Attorney General H. Eric Holder and other lead DOJ officials were involved in the settlement talks with JPMorgan CEO Jamie Dimon and other senior officials.

The settlement is over billions of dollars in residential mortgage backed securities involving not just the firm but also its Washington Mutual (WAMUQ) and Bear Stearns (BSC) outfits. The government claims that the RMBS were based on mortgages that were not as solid as what they were advertised to be.

The federal government has filed a securities lawsuit against 23-ex Washington Mutual employees and a number of WaMu’s subsidiaries. The complaint contends that these persons signed off on documents that included misleading and false information that was used to sell billions of dollars in mortgage-backed securities. The case stems from the government’s MBS lawsuit against JPMorgan Chase, which acquired nearly all of WaMu’s banking assets and liabilities a few years ago. That securities complaint is one more than a dozen brought by the Federal Housing Finance Agency last month against the large banks that packaged and sold MBS at the height of the housing boom.

In this latest lawsuit, the government contends that when Fannie Mae and Freddie Mac bought their 35 issues of securities worth $12.9 billion during the bubble, they depended on the registration statements, prospectuses, and other documents that WaMu and its subprime unit Long Beach Mortgage had filed. Unfortunately, the documents that Fannie and Freddie depended on included omissions and misstatements that misrepresented that the underlying mortgage loans were in compliance with certain underwriting standards and guidelines, including representations that “significantly overstated” the borrowers’ ability to pay back their mortgage loans.

One example cited involves the LBMLT 2006-1, which is a subprime security. Standard & Poor’s and Moody’s had both given it an AAA rating and the offering document noted that almost 73% of the underlying mortgages had an 80% or lower loan-to-value ratio. Less than 25% were supposedly on non-owner occupied homes.

The government is now saying, however, that WaMu pressed appraisers to raise property values so that these lower LTV ratios could be obtained and that, in fact, only 50% of underlying loans in LBMLT 2006-1 had LTV ratios of 80% or lower. Also, the government believes that almost one third of LBMLT 2006-1 loans were on nonowner occupied homes and not the lower percentage that was quoted. Close to 56% of LBMLT 2006-1 have since defaulted, gone into foreclosure, or become delinquent.

Most of the ex-WaMu and Long Beach officers named in the complaint, save for ex-chief financial officer Thomas Case and ex-Home Loans group head Craig Davis, were midlevel employees. It was just earlier this year that the Federal Deposit Insurance Corp. sued three ex-WaMu executives for allegedly gambling billions of the bank’s money on risky home loans while they lined their own pockets.

Defendants named then were ex-Chief Executive Kerry Killinger, ex-Chief Operating Officer Stephen Rotella, and ex-WaMu home loans division president David Schneider. The three men are accused of earning $95 million in compensation between 2005 and 2008.

US banking regulators have sued over 150 bank officials in their efforts to get back at least $3.6 billion in losses linked to the 2007-2009 economic crisis.

If you are an investor that suffered losses related to mortgage-backed securities when the housing bubble burst, you might have grounds for a securities fraud case.

23 ex-WaMu employees named in federal suit, The Seattle Times, September 8, 2011

Ex-WaMu Execs Sued By FDIC For Gross Negligence Over Bank’s Collapse – READ The Lawsuit, Huffington Post, March 17, 2011


More Blog Posts:

$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011

NCUA Sues Goldman Sachs for $491M Over $1.2B of Mortgage-Back Securities Sales That Caused Credit Unions’ Failure, Institutional Investor Securities Blog, August 23, 2011

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