November/December 2008 / Cover Story
Litigation, Criminal Charges, Hit the Subprime Industry
Two articles look at legal aspects of the crisis that the subprime mortgage industry has become. One addresses the widening range of subprime-related litigation, while the other discusses criminal charges targeting players at virtually every link of the subprime chain and the prospect for further indictments.
The author of the litigation article refers to a study that finds the pace of case filings in this areas is substantially outpacing what occurred during the S&L crisis. Recent litigation has taken the form of borrower claims, securities class actions, and public regulatory claims. The next wave, the authors says, “will include bankruptcy litigation and various creative actions on behalf of investors and borrowers.” Many of these, he says, are likely to include claims relating to unrealistic debt ratings and improper valuations.
The second article notes that by late summer, criminal actions against individuals and companies had included the arrest of 67 people in a single DOJ/FBI initiative dubbed “Operation Malicious Mortgage,” and multiple state complaints filed against Countrywide Financial Corp. and its chairman. These cases are likely to be the tip of the law-enforcement iceberg, the author says. The list of targets or potential targets could include executives, mortgage lenders, credit-rating agencies, insurers, banks, brokerage firms and investment funds.
