Study: Subprime Mortgage Lawsuits Outpacing Savings & Loan Crisis

February 15, 2008

The number of subprime-related lawsuits filed in federal courts is dramatically outpacing the savings and loan litigation of the early 1990s.

That’s accordng to a study by Chicago-based Navigant Consulting, Inc.

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 Corp. (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.

“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.

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

Source: Navigant Consulting

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