Wednesday, June 10, 2009, 12:55pm PDT
WaMu, JPMorgan named in home equity credit suit
Puget Sound Business Journal (Seattle) - by Kirsten Grind
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A California woman has filed a lawsuit against JPMorgan Chase and Washington Mutual, alleging the two companies illegally reduced or froze customers’ home equity credit lines.
The 19-page suit, filed in federal court in Southern California, alleges that JPMorgan, the new owner of Washington Mutual, restricted its customers’ access to “hundreds of millions of dollars worth of credit at a critical time,” the suit alleges.
A jury trial is demanded. The size of the group involved in the lawsuit is unclear.
A Seattle spokeswoman said New York-based JPMorgan does not comment on pending litigation against the company.
According to the suit, JPMorgan (NYSE: JPM) recently sent letters to thousands of customers with home equity credit lines across the country, informing them that their accounts had been suspended because of the decline in value of the property securing those lines of credit.
The bank hasn’t disclosed to customers how much the value of their property has fallen or how that value was calculated, the suit alleges.
JPMorgan and WaMu are in violation of federal law for using a “dubious” formula for reducing or freezing credit limits that is “vulnerable to manipulation,” the suit alleges.
The banks also intentionally concealed their process for re-evaluating the credit line limits and their handling of customer complaints was “unfair and illegal,” according to the suit.
“Chase and WaMu lacked a sound factual basis for reducing or freezing their customers (Home Equity) credit limits,” the suit states.
The lawsuit was filed by Michell Kimball, a San Diego-area resident who took out a $500,000 home equity credit line from Washington Mutual in the fall of 2007.
WaMu’s valuation of the property securing that line is unclear and JPMorgan refuses to disclose the information to Kimball, according to the suit.
JPMorgan froze Kimball’s account in April, claiming that the value of the property securing the line of credit had sunk to $731,071 and a value of at least $812,722 was needed to restore the credit line, according to the suit. Kimball was also told she had to use an appraiser approved by the bank.
The appraiser valued the property at about $1.2 million and the bank reinstated the credit line, according to the suit.
In the months before its failure last September, WaMu was quietly reducing customers’ home equity credit lines as it moved to get out of the business.
www.bizjournals.com/seattle/stories/2009/06/08/daily32.html