Even as the stock prices of investment banks began to fall and foreclosures started
to rise, everyone knew what was coming next.
Lawsuits!
So a study released by Navigant Consulting Inc. last week was hardly a shock.
The study shows that the number of subprime mortgage-related lawsuits
filed in federal courts in the last few months have already outstripped the
number of savings and loan (S&L) suits in the early 1990s.
According to the study, there were 97 such cases filed in the first half of
2007; a number that nearly doubled in the second half of the year to 181 for
a total of 278 filings in 2007. There were 559 cases handled by the Resolution
Trust Company during the S&L collapse, but these cases were over multiple
years. Also, the subprime figures compiled by Navigant include only filings
in federal courts.
Jeff Nielsen, managing director of Navigant Consulting said in a press release,
"The S&L crisis has been a high water mark in terms of the litigation
fallout of a major financial crisis. The subprime-related cases appear on their
way to eclipsing that benchmark."
Forty-three percent of the 278 suits were borrower class actions, 22 percent
were securities cases, and 22 percent were commercial contract disputes. The
remainder was bankruptcy, employment, and other cases.
The study found that virtually every participant in the subprime mess is being
sued. Fifty-six percent of the defendants are Fortune 1000 firms with mortgage
bankers and loan correspondents representing the largest category of companies
at 32 percent. However, mortgage brokers, lenders, homebuilders, servicers,
title companies, appraisers, and loan servicers are all getting a share of the
subpoenas.
Nielsen said "This appears to be just the beginning. 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."
Navigant Consulting is a NYSE firm providing consulting services to government
agencies, legal counsel, and large companies. It focuses on industries undergoing
substantial regulatory and structural change.