Dora Bank Puerto Rico, a Puerto Rico-based bank, filed a lawsuit against Washington Mutual Acceptance Corporation and WaMu Capital Corporation, two Washington Mutual subsidiaries that are participants in the Washington Mutual securitization programs. The law suit alleges that these two entites, which were responsible for the disclosure of information in the public offering documents of the securitization, didn’t properly disclose information relating to the underwrigint standards practiced by WaMu.
The suit was filed in the U.S. District Court, Western District of Washington
Since the sale of WaMu to JPMortgage Chase & Co. last year was an asset sale, it may be that this liability will have to be fought in bankruptcy court since the bank’s holding company is in bankruptcy.
According to the suit, WaMu issued securities backed by WaMu branded residential "Option ARM" (also called "pick-a-payment" mortgages) “whose interest rates adjusted (after an initial fixed rate period) and included a negative amortization feature.” The pass-through securities issued in the securitization trusts, however, began to experience significantly higher rates of default.
“Following the issuance of the certificates, disclosures began to emerge revealing the routine disregard for the guidelines in mortgage loan origination of the collateral underlying the certificates,” the suit alleges.
This will stand as a test case as to whether adequate disclosure was provided in the Prospectus and Prospectus Supplements with respect to Underwriting Standards and the exceptions thereto.
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