Over the past several months, there have been an unprecedented number of subprime-related suits filed. The worsening economic conditions will result in many more lawsuits being filed this year. Navigant Consulting, Inc., is a global consulting firm providing dispute, investigative, operational, and risk management. Navigant recently released a report showing that 448 subprime mortgage and related cases were filed in federal court in the first nine months of 2008. This number exceeded by more than 50% the total filed for all of 2007. Filing volume in the September 2008 quarter was the third highest on record with 131 new filings. The total number of cases filed reached 742 for the 21-month period ending on September 30, 2008.
The Navigant report, titled Third Quarter 2008 Update: Breaking New Ground, also shows the subprime-related cases further outstripping the 559 U.S. savings-and-loan cases of the early 1990s. That had been a previous high-water mark in terms of litigation fallout from a major financial crisis. Jeff Nielsen, who leads Navigant Consulting’s Financial Services Disputes & Investigations group, observed:
The bottom line is that new cases continue to be filed much more rapidly than existing cases are being disposed. We are looking at a traffic jam that will take many years to untangle.
Mr. Nielsen also emphasized that the disastrous market conditions of late 2008 would mean that new cases will continue to be filed. For example, the Chapter 11 bankruptcy filing by Lehman Brothers in September 2008 – the largest such filing in U.S. history and perhaps the defining moment in the current credit crisis – has resulted in its own cottage industry of litigation. The report also notes that while the volume of new case filings continues unabated, the litigation is showing signs of maturing based on the breakdown of new cases filed.
For example, borrower class action filings – which lead all categories over the seven quarters tracked by Navigant – fell precipitously in the third quarter, as the underlying loan transactions become more remote in time. Meanwhile, the number of securities lawsuits and contract disputes increased sharply, registering their highest quarterly totals to date. An increase in the number of cases brought by investors and institutions was reported as affected parties take stock of their losses and the recriminations follow from there.
Source: Insurance Journal
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