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July 1st, 2009

Lawsuit against Chase and WAMU

Despite recent assurances by CEO’s that banks are using the $700 billion in taxpayer TARP funds to lend money to cash-strapped home and business owners, Washington Mutual Bank ("WAMU") and its new parent, JPMorgan Chase ("Chase") (NYSE:JPM), are not only failing to live up to their promises, they are squeezing consumers by freezing or reducing their home equity lines of credit, according to a federal class action lawsuit filed June 10th.

The suit alleges that WAMU, which is now operated as a division of Chase, has been systematically reducing and freezing customer’s home equity credit lines.

According to the suit, filed in the Southern District of California, the banks used flawed automated valuation models (AVM’s) to intentionally understate home values so they could create a pretext for freezing its customers’ HELOC accounts.

The lawsuit is brought on behalf of Michell Kimball, a small businesswoman in Escondido, California. Kimball first learned that Chase had frozen her WAMU credit line when a check she had drawn on the account was dishonored.

Chase’s actions threatened her home and the viability of her business. According to Kimball: "Because I didn’t have access to my credit line, I was unable to pay my suppliers. I was able to negotiate extensions from them, but if not, I’m not sure what would have happened."

The lawsuit alleges that when Kimball contacted customer service, Chase claimed that an AVM showed Ms. Kimball’s home had lost a significant amount of its available equity. The bank refused to provide information to support that assessment.

A later appraisal told a different story: It showed that the home was actually worth more than 1.5 times Chase’s AVM estimate.

After Kimball’s lawyers intervened, Chase restored her credit line, but did not reimburse her for her losses.

The lawsuit seeks class action treatment for Chase and WAMU’s actions in the reductions, alleging that Chase and WAMU have intentionally used inaccurate formulas to produce low-ball home valuations as a false justification for freezing thousands of such credit lines.

Although federal law mandates that a significant drop in value must first occur and requires that banks act with a sound factual basis in each case, the lawsuit claims that these banks are doing whatever they can to reduce HELOC credit limits or suspend the lines altogether – even if it means, in some instances, ignoring the law.

"The message to former WAMU customers and others is clear: Chase is coming after your home equity credit line," said attorney Jay Edelson, whose firm, KamberEdelson, LLC, previously filed a similar lawsuit against CitiBank. "When banks take billions of dollars in taxpayer money, they have an extra duty to follow both the letter and the spirit of the law. We believe that congressional hearings should commence immediately," Edelson explained.

Edelson is joined on the suit by KamberEdelson attorneys Michael McMorrow, Steven Lezell and Alan Himmelfarb.

5 / 5 (4 Votes)

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Reader Response
  • sharon ross
  • June 29th, 2011 This has been a nightmare. They offered help with a modification and i was one month behind, after months of lost paperwork and delays i was told i was eight months behind! Now i am in Chase Hell, quick sale or foreclosure. I have given up.

    Reader Response
  • David Allen
  • March 22nd, 2011 You think the HELOC scandal is bad, you should try to get a home loan modification out of Chase, especially on a WaMu originated loan. After taking $25 billion in TARP money, $104.6 billion in U.S. Treasury -- taxpayer -- loan guarantees, they now refuse to honor their signed agreement to modify loans for qualifying borrowers.

    The lengths to which they have gone to evade their responsibility under the HAMP-mandate is downright ugly: representatives who answer the phone have no clue about the program and give a different story every time you call; loss mitigation employees destroy application papers and deny modifications for borrower's failure to submit documents, and similar tactics.

    Most people get exasperated and throw in the towel. I've hung in there for 16 long months and now have to file a lawsuit to force them to act -- and that's exactly what I'm doing. The whole scheme is aimed at foreclosing on as many properties as they can so they can engage in proprietary trading, investing offshore in dark markets, and other schemes.

    Worst of all, neither Chase, nor WaMu before them, has a right to foreclose in the first place because WaMu never loaned us a dime. The loan was pre-funded by a mortgage backed security trust which actually owns the security instrument but has no foreclosure rights pursuant to section 2923.5 Civil Code.

    The cardholder scam is bad enough, but at least they don't have a stranglehold on the roof over your head. Consider yourself lucky!

    Reader Response
  • Greg
  • May 16th, 2010 My wife and I are in a similar situation with Chase(WAMU).
    We have been very careful with our money, but with the rate hikes in the Chase credit card system, even making more than the minimum even paying 20% over payment could not take the edge of the hike from 10% to 29.9%. I had 2 payments in 10 years that were 1 day late. Just that justify what they are doing?

    Reader Response
  • NA
  • April 23rd, 2010 Chase bought out WaMu which failed as a bank, so Chase figures that its customers are also failures. However, the people who built WaMu have better financial skills than the leaders responsible for its demise. The securities exchange commission needs to reign in vultures like Chase which prey off the consumers.

    Reader Response
  • January 20th, 2010 I am ready to organize a Statewide Crusade against Chase and all the other Big, Fat, Greedy Banks.

    Please mail me your story.

    Power to the People March.


    Reader Response
  • David HEadley
  • August 10th, 2009 I have two credit cards through Chase which I acquired when it was WaMu. I had perfect payments and paid more than minimum payments every month. Well, Then they switched over to Chase and then things went down hill. They raised my minimum payment, and my percent interest, I never even got close to my credit limit. Then one day out of the blue, I get a letter telling me that after careful consideration due to information obtained from Experian, they had to close my accounts due to three reasons, which are the same bogus reasons everyone else's seemed to get closed over. I've never been late, and I've paid more then the minimum payment every time, this better not hurt my credit score in anyway! I've been very disciplined with my money and the way I use my card, so I don't think I should be treated like this. It feels like consumer credit score sabatosh! This should be illegal. And as I read more, .. they are doing it to many people especially the old WaMu card holders. Very unfair CHASE. Is this how you treat your customers?

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