JPMorgan Partly Escapes WaMu Takeover Mortgage Liabilities

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JPMorgan Chase & Co. won a round in a long-running dispute with the Federal Deposit Insurance Corp., avoiding some of the liabilities tied to its 2008 takeover of Washington Mutual Inc.’s banking operations.

A federal judge ruled in a lawsuit over more than $6 billion in securities backed by flawed WaMu mortgages that JPMorgan wasn’t responsible for damages beyond those on the failed bank’s books at the time. JPMorgan argued its liabilities were limited under its 2008 purchase agreement with the FDIC and the regulator should pay for any damages owed in the case.

U.S. District Judge Rosemary Collyer in Washington issued the two-page order Wednesday in the lawsuit filed in 2009 by Deutsche Bank AG, which was the mortgage-bond trustee.

Collyer ruled in favor of the FDIC on at least one part of the dispute, saying JPMorgan was responsible for one WaMu unit’s liabilities. The opinion explaining her ruling is under seal and more details of her reasoning won’t be known until a public version is filed by June 17.

Under the ruling, JPMorgan won’t be on the hook for liabilities that weren’t listed on WaMu’s books and records at the time the FDIC negotiated the sale of the failed bank.

The FDIC argued the sale was intended to transfer all of WaMu’s assets and liabilities to JPMorgan, including off-balance sheet items, so the mortgage obligations should belong to the bank.

Barbara Hagenbaugh, an FDIC spokeswoman, declined to comment on the ruling. Brian Marchiony, a spokesman for JPMorgan, didn’t immediately respond to phone and e-mail messages seeking comment on it.

Regulators appointed the FDIC as the receiver for WaMu, once the largest U.S. savings and loan. WaMu filed for bankruptcy the day after the $1.9 billion sale.

The case is Deutsche Bank National Trust Co. v. Federal Deposit Insurance Corp., 09-01656, U.S. District Court, District of Columbia (Washington).

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