Banking Law

When Housing Wire observed last month that the biggest winners of the current mess in the mortgage markets would be lawyers, he wasn't whistling "Dixie."

Navigant Consulting, Inc., a global provider of business, regulatory and financial advisory services, released a study today that shows the number of subprime-related cases filed in federal courts dramatically outpacing the savings-and-loan (S&L) litigation of the early 1990s.

According to the Navigant study, the number of subprime-related cases filed in 2007 already equals half of the total 559 S&L cases handled by the Resolution Trust Corporation (RTC) over a multiple-year period. The subprime numbers represent only federal court filings.

"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," said Jeff Nielsen, managing director of Navigant Consulting.

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.

Mr. Nielsen also opined that "this is only the beginning." It makes you wish you were a litigator instead of a regulatory and transactional attorney, doesn't it? No? I agree. The worst part of being a trial attorney is that you're always being distracted by passing ambulances. On the plus side, it's easy to get those billable hours in when all you have to write down is "worked on trial preparation" or "conferred re: case."

This news is especially welcome for both Pacific and Atlantic coasters.

Geographically, around half of all cases filed are in California and New York courts.

The best part? To paraphrase the late, great Carpenters, "we've only just begun."

"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.

The Wall Street Journal's Law Blog confirmed this happy news, and identified some of the overjoyed recipients of this litigation largess.

Leading the list of plaintiffs firms that have filed borrower-driven putative class-actions: Law Offices of Jeffrey K. Berns in Tarzana, Calif., and Beverly Hills, Calif.-based Kiesel, Boucher & Larson, LLP. The firms told the Law Blog they?ve jointly filed more than 50 suits, including many alleging violations of disclosure requirements during the sale of certain adjustable-rate mortgages, called ?option ARMs,? that ensnared even borrowers with good credit.

[...]

Wannabe securities class-actions brought by investors of mortgage-backed securities and others made up about one-fifth of the filings, or more than 60 suits, and it?s perhaps no surprise to learn that San Diego-based plaintiffs powerhouse Coughlin Stoia Geller Rudman & Robbins LLP filed the most?more than a dozen?followed by Keller Rohrback in Seattle, according to Navigant.

I'm uncertain what the blogger is trying to convey with the term "wannabe securities class-actions," but whatever he means, I'm sure that there will be plenty of sharks all over that chum.