The abrupt slowdown in the home loan refinance market apparently has sent some lenders on a mission to clean house of all bad loans.

Washington Mutual last week filed a lawsuit against IndyMac Bancorp for alleged breach of contract involving loans it acquired from IndyMac after buying PNC Mortgage Securities in 2001.

WaMu is seeking $50 million in damages for more than 300 loans IndyMac sold to PNC between 1997 and 2000. The loans allegedly fall into three categories: delinquent payments, improper borrower credit verification and overvalued property appraisals, according to the complaint.

Fifty million dollars might seem a paltry sum for one of the nation’s largest financial corporations, but WaMu may be trying to recoup some old losses in light of the slowing mortgage market. The company reported an 11 percent drop in 2003 fourth-quarter earnings of $842 million compared with $941 million during the same quarter in 2002.

Lenders now are facing lower borrower demand for mortgages due to slower home sales and higher mortgage interest rates that have snuffed out the refinance market.

WaMu certainly felt the sting of the post-refinance market in its year-end operating results. The lender’s home loan volume fell to approximately $57 billion in the fourth quarter of 2003 compared with nearly $100 billion in the fourth quarter of 2002.

WaMu spokesperson Libby Hutchinson wouldn’t comment on the lawsuit.

IndyMac also refused to answer questions. A company statement said the two lenders previously were involved in “good faith negotiations” and a voluntary exchange of settlement offers.

“The filing of this lawsuit will not impact our resolve to continue to negotiate in good faith to amicably conclude the matter,” IndyMac said.

A letter WaMu sent IndyMac July 11, 2003, demanded IndyMac repurchase or compensate WaMu for the loans that allegedly failed to satisfy contract requirements.

WaMu has since identified additional loans that allegedly do not satisfy contract requirements, according to the complaint. However, it doesn’t specify how many loans it has found.

IndyMac reported earnings of $43 million in the fourth quarter of 2003, up 22 percent from $36 million during the fourth quarter 2002. Mortgage loan production was $6.6 billion in the fourth quarter of 2003, unchanged from the fourth quarter 2002, but down 23 percent from $8.7 billion in the third quarter 2003.

WaMu has fought a shrinking mortgage market by cutting thousands of staff in recent months. The company laid off 4,500 full-time positions in its home lending service centers during the last four months of 2003, and it anticipates cutting 2,900 more personnel during this quarter.

Washington Mutual operates 1,700 banking operations in 14 states.


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