It all rolls down hill”¦litigation picking up steam

Housing Wire reports on a subject that every broker and lender still kicking after this meltdown will have to contend with - a massive up-tick in litigation.   Wall Street is coming looking to recoup some costs associated with bad loans, and fraudulent activity on the part of brokers who are still standing will be pursued to the fullest.

From the post on mortgage litigation on Housing Wire:

The number of subprime-related cases filed doubled during the second half of 2007, from 97 to 181 (for a total number of 278) cases. These cases included borrower class actions (43 percent), securities cases (22 percent), and commercial contract disputes (22 percent), along with bankruptcy, employment, and other cases.

“This appears to be just the beginning,” said Nielsen. “We are already observing a steady acceleration of continuing litigation activity into 2008. The course of regulatory investigations, the prospect of government intervention and marketplace variables may affect the volume of filings, but the explosion of cases in 2007 suggests a daunting forecast of what is still to come.”

The study found that virtually every participant in the subprime collapse is being sued.

Fortune 1000 companies were named in 56 percent of cases. Mortgage Bankers and Loan Correspondents represent the highest percentage of defendants (32 percent) but defendants also include mortgage brokers, lenders, appraisers, title companies, homebuilders, servicers, issuers, underwriting firms, bond insurers, money managers, public accounting firms and company directors and officers, among others.

It makes sense that correspondent lenders would see the brunt of litigation.  Take a close look at those seller agreements and you’ll see that the language has all been written in a heavy-handed, one-sided manner to allow the maximum recourse for lenders damaged by seller malfeasance, fraud and poor risk management.  The broker agreements aren’t much better; but the theory probably goes something like this: “Correspondents are better capitalized, have more binding guarantees and therefore have more blood” than traditional brokers which are undercapitalized and would quickly captiulate via corporate bankruptcy in the face of buybacks or other litigation.

When was the last time you looked at your seller agreements?  And how many did your legal team redline prior to accepting the terms?

This post was found on BlownMortgage
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