U.S. Subprime Lawsuits Outpace S&L Cases, Study Finds

September 11, 2008

The U.S. subprime-mortgage crisis has now spurred more federal lawsuits than the savings and loan debacle of the late 1980s and early 1990s ever did, data released Wednesday shows.

The number of new mortgage-related civil lawsuits filed in federal courts, such as borrower class actions, securities fraud cases brought by investors and commercial contract disputes, totaled 607 for the 18 months ended June 30, according to the report.

That compares with 559 legal cases that grew out of the savings-and-loan crisis and were handled by the Resolution Trust Corp., an agency created to oversee the savings-and-loan cleanup and which was later dissolved.

“It is perhaps of little surprise that as the current credit crisis takes on unprecedented scale, the related litigation would as well,” Navigant Consulting Inc., a financial services and litigation consulting group that conducted the study, said in the report.

In the first six months of 2008, there were 310 newly filed subprime-oriented cases, compared with 297 filed cases brought in full-year 2007.

But the pace has slowed since this year’s first quarter, with 121 new cases filed in the April-to-June period, compared with 189 in the January to-March quarter.

In the second quarter, more than three new cases were filed for every one dismissed, settled, or otherwise disposed of, Navigant said. The report did not examine state court filings, only those in federal courts around the country.

There are some signs that certain types of filings are beginning to slow, Navigant said. It said the number of new borrower lawsuits related to subprime mortgages that are seeking class-action status, for instance, fell more than 60 percent from the first quarter.

New types of litigation could still emerge from recent episodes such as the rising number of bank failures, Navigant said.

“One lesson of the S&L crisis is that, while a bank can be seized and even reconstituted over a weekend, the resulting litigation can linger for years,” said Jeff Nielsen, leader of Navigant’s Financial Services Disputes and Investigations group.

(Editing by Andre Grenon)

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