FDIC Settles Claims Against WaMu
The FDIC Settles Claims Against WaMu’s Top Officers. What’s the FDIC’s Case Against LSI Appraisal Worth?
In March of this year, the FDIC sued Washington Mutual’s former CEO Kerry Killinger, its former chief operating officer Stephen Rotella and its former head of residential lending David Schneider for $900 million in alleged damages resulting from their “gross negligence” in running WaMu’s residential lending business. The FDIC claimed that their negligence caused what it is the biggest bank failure in U.S. history. It also alleged that two of them unlawfully transferred assets to their wives to protect the assets from potential collection efforts. Despite those strong allegations, however, the FDIC is now settling that case in a settlement that apparently stipulates for a cash payment of only $40 million — almost all of that coming from WaMu’s insurers. From their own pockets, the former CEO will pay only $275,000, the former chief operating officer will pay $100,000, and the former head of WaMu’s residential lending will pay $50,000.
Here’s an interesting comparison — individual residential real estate appraisers have had judgments entered against them by the FDIC relating to just one bad loan for much more than the total amount that the three former WaMu officers will pay out of their own pockets. To be sure, the former officers of the failed lender did give up their right to collect “unpaid bonuses” and “severance pay.”
Leaving aside that comparison, how is it that the settlement value of a case which the FDIC originally said was worth $900 million is now worth settling for only $40 million in cash plus some incidentals? I can’t offer guidance as to how the parties in that case valued the FDIC’s case against WaMu’s former officers, but I can offer a peak into part of an analysis that I prepared last summer of the FDIC’s case against WaMu’s former appraisal management company LSI Appraisal (a subsidiary of Lender Processing Services), which the FDIC is presently suing for $154 million. he assessment sheds a little light on how the FDIC sometimes comes in blazing with bold allegations when the value of its case is really much smaller. Three pages of the 12-page memorandum are copied below.
This assessment was prepared August 7, 2011, just after LSI Appraisal filed a motion to dismiss (and is therefore outdated now). It was an early stage assessment of the case. At that time, I offered that the settlement value of the FDIC’s case against LSI Appraisal was $XX million based largely on a prediction that the FDIC’s gross negligence claim would be dismissed and a variety of additional factors, despite the FDIC’s demand for $154 million in damages.
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“..individual residential real estate appraisers have had judgments entered against them by the FDIC relating to just one bad loan for much more than the total amount that the three former WaMu officers will pay out of their own pockets…How is it that the settlement value of a case which the FDIC originally said was worth $900 million is now worth settling for only $40 million in cash plus some incidentals?”