Judge Rejects $10M WaMu Mortgage Loan Class Action Settlement

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A California federal judge has rejected a proposed $10 million class action settlement between Washington Mutual Mortgage Securities Corp., WaMu Asset Acceptance Corp. and a class of plaintiffs who claimed they were deceived into buying unfavorable mortgage loans, finding that the new class definition was too broad.

U.S. District Judge Josephine L. Staton said the proposed class action settlement includes a class definition that reaches much further than the class that had previously been certified by the court. She claims that this definition is overly broad and raises “serious concerns” about the typicality and commonality requirements. “Plaintiffs gave no explanation for the broader class, other than to state that it was necessary because under the existing class definition, class members could not be ascertained ‘without significant expense,’” Judge Staton said.

Under the proposed class action settlement, the class was expanded to include all California residents who obtained an Optional Adjustable Rate Mortgage (ARM) loan from WaMu Asset Acceptance Corp. and Washington Mutual Mortgage Securities Corp., whereas the court had previously limited class members to those who had obtained loans with deceptive omissions and representations. The plaintiffs argued that the class expansion was necessary because the definition of the class “includes criteria that cannot be identified through database queries and cannot be otherwise identified without significant expense.”

Plaintiffs Timothy and Cheryl Peel filed their class action lawsuit in 2010, claiming that Washington Mutual tricked consumers into purchasing the Optional ARM loans with a “teaser” interest rate that was effective for 30 days but failed to tell them about the interest rate hike that would follow.

In their class action lawsuit, the plaintiffs accused the two Washington Mutual units of violating California’s Unfair Competition Law, breach of contract and fraudulent omission. They claim that the Option ARM loans “were designed to cause negative amortization.” Although the breach of contract claims were dismissed, a judge certified the class action lawsuit.

Earlier this year, the parties participated in mediation and agreed to a class action settlement valued at $10 million to be paid by the defendants.

On Oct. 29, Judge Staton found that the Peels failed to present evidence that every Option ARM loan bought by the proposed settlement Class Members contained the allegedly deceptive omissions and representations. Because the expanded class definition could result in payouts to individuals whose mortgage documents did not contain deceptive language, she could not approve the class action settlement.

Further, Judge Staton found that the plaintiffs failed to give an estimate of their expected recovery and therefore she could not determine whether the proposed class action settlement was reasonable. She gave the plaintiffs 30 days to address her concerns and refile their motion for approval.

The plaintiffs are represented by Spiro Moore LLP, Williams Cuker Berezofsky LLC and Berns Weiss LLP.

The WaMu Mortgage Loan Class Action Settlement is Timothy R. Peel, et al. v. BrooksAmerica Mortgage Corporation, et al., Case No. 8:11-cv-00079, in the U.S. District Court for the Central District of California.

 UPDATE: Instructions on how to file a claim for the WaMu mortgage loan class action settlement are now available! Click here or visit www.WMMSCSettlement.com for details.

UPDATE 2: The WaMu mortgage loan class action settlement received final approval on April 6, 2015.