mortgage banking industry

SubPrime Default & Foreclosure Meltdown

BuyBack Litigation (Wall Street vs. Lenders / Brokers / Borrowers)

One Industry Example: Let’s look at the mortgage banking industry since they are recently in the news and about to be under the microscope over the next few years. Lending industry participants are holding conferences wherein instead of discussing their exposure in the marketplace (and with Wall Street), they spend 75% of their time at the conference pointing the finger at the consumer (borrower). Without comment on that point, this will cost them dearly.

Why? (1) New laws aimed at Lenders/Brokers are coming down the line like a runaway freight train {and their apparent strategy is to deny that they owe a (suitability) duty} (2) Legal judgments or settlements are already staggering, but the industry fails to conference this material issue. For example, on our LendingLiabilityCheckUpReport™ before the May 2007 subprime lending conference we attended, our associates in one law firm alone had long reported verdicts for Predatory Lending Lawsuits of $580,975,000; $50,005,000; $45,000,000; $34,500,000; $2,000,000; $1,600,000; and settlements of $4,100,000; $1,750,000; $1,500,000; $1,240,962; $1,100,000; and $1,000,000. (3) Worse yet for the Lending / Broker professions industry, Wall Street is not sitting around waiting to lose-their-shirt in this recent SubPrime Default & Foreclosure Meltdown. Wall Street has implemented a policy of demand and litigation against the Lenders for buy-backs of bad loans. We call this BUYBACKLITIGATION. This move has the potential to allow Wall Street to buy the bad and good loan portfolios for pennies on the dollar in bankruptcy court. The kicker is, they will do so without the liability exposure, leaving the risk and liability to the Lenders/Brokers. Talk about follow the money! That area itself will be subject to huge litigation challenges for “public policy violations” to say the least.

Lending/Broker Industry Lesson: This tells you among many things, that huge awards are probable especially when pushed to trial! It also tells you that Wall Street is making an end run around liability, leaving the Lending/Broker industry holding the bag. Lender/Brokers are you ready for this? What is this your risk mitigation policy? Well it won’t work very well over the next decade. It’s time for the Lenders and Brokers to open there eyes and consider Optimal Best Practices. Lenders and Brokers need an immediate LiabilityCheckUp!

Richard Ivar Rydstrom, Esq. LL.M.