(CN) - A federal judge approved a class-action settlement for more than 42,000 borrowers who claim Washington Mutual entered into captive reinsurance arrangements to get kickbacks, referral payments and unearned fee splits.
Robert Alexander and James Lee Reed claim that they obtained residential mortgage loans from Washington Mutual Bank in Dec. 2005 and April 2007, respectively. Both purchased required private mortgage insurance from an insurer with whom WaMu had a captive reinsurance arrangement.
Alexander and Reed sued Washington Mutual, Inc. and its affiliates in the eastern district of Pennsylvania in Oct. 2007, alleging that WaMu entered into captive reinsurance arrangements in order to receive kickbacks, referral payments and unearned fee splits, which were collected in the form of excessive reinsurance premiums from private mortgage insurers to whom it referred borrowers, in violation of the Real Estate Settlement Procedures Act (RESPA).
After several years of litigation, the parties reached a settlement. WaMu created a $4 million settlement fund, which includes payments to all class members on a pro rata basis, a case contribution award for the representative plaintiff, fees and costs, and a release and waiver in exchange for the class members' relief.
Reed filed an unopposed motion for preliminary approval of a class action settlement in June 2012.
Three weeks later, the court entered an order preliminarily approving the settlement, conditionally certifying the class for settlement purposes, approving the form and manner of class notice, and setting a date for a final approval hearing.
A notice of class action settlement was mailed to more than 42,000 potential class members and posted on a dedicated website in August, and as of Nov. 7, only 5 members had opted out.
The court held a fairness hearing on Nov. 27, where both parties' counsel - and no objectors on behalf of the class - appeared.
Reed filed an unopposed motion for final approval of class action settlement, certification of settlement class, approval of plan of allocation, appointment of class representative, and appointment of lead class counsel and class counsel.
In addition, WaMu, its Mortgage Reinsurance Co., and successor by merger to WaMu, J.P. Morgan Chase Bank, filed a submission concerning the settlement.
U.S. District Judge Thomas O'Neill granted Reed's motion on Tuesday, Dec. 4.
O'Neill found that Reed met all requirements for class certification.
"Allowing the more than one thousand covered homeowners in the settlement class in this action to file individual lawsuits would waste judicial resources in the event of litigation, since representative plaintiff contends that each lawsuit would likely involve the same evidence regarding defendants' reinsurance programs as well as the same issue as to whether the programs violated RESPA. A class action here promotes judicial economy, avoids inconsistency, and provides a single forum to resolve numerous common claims. I find that the superiority requirement is satisfied in this case," the 19-page opinion states.
The judge ultimately approved the settlement, indicating that "continued litigation would be complex, expensive and lengthy." O'Neill later added that "counsel have capably pursued this litigation on behalf of the class and negotiated the settlement on behalf of plaintiffs. Their work on the claims in this case has involved the expenditure of a substantial amount of time resources. I conclude that counsel's work on this case and their prior experience suffice to show that these firms are qualified to fairly and adequately represent the interests of the settlement class," the court concluded.
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