Wave Of Subprime Litigation Forecast
Analysts predict it’s only a matter of time before the fallout of the subprime mortgage crisis comes full circle and unleashes a tidal wave of subprime lawsuits from investors and institutions alike.
The storm of litigation hasn’t happened as expected but, as Business Week writer Michael Orey reported March 24, 2008, all signs point to the fact it will. Industry observers say one of the reasons the litigation floodgates have been slow to open is that much of the subprime debt – particularly in the forms of Collateralized Debt Obligations and Mortgage Backed Securities – is held by institutions. Institutional investors typically take a more deliberate wait-and-see approach to litigation issues, thoroughly evaluating their options to determine if the situation improves before heading to court.
Also, the complexity of the investments and the inflated valuations assigned to many of the derivative securities means many investors are still trying to determine the full extent of their losses.
In addition, a number of investigations by both federal and state regulators – including probes by the FBI – are still ongoing. Plaintiffs could be waiting for those results before moving forth with their own cases.  Among the areas at issue are whether subprime securities were reasonably and consistently valued; how subprime securities were sold; whether investment firms performed adequate due diligence; and whether investment firms adequately disclosed certain facts and risks of which they were aware.
A report by Fortune magazine lends gives further support to the theory that a tsunami of subprime litigation is on the horizon. By the end of 2008, some 15 million homeowners will owe more on their mortgages than their home is worth and, that ultimately, more than 20 million homeowners will have negative equity in their homes. The same article estimates mortgage investors could be looking at $1 trillion in losses when all is said and done. Â
Make no mistake – the tsunami is gaining strength by the day. For those still on the fence regarding their own subprime litigation, now is the time to get your facts in order.
Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses.Â
