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Subprime-Related Litigation on the Rise

Almost every market participant in the securitization process—which transforms illiquid assets such as mortgages, auto loans, and student loans into tradable securities—has been named as a defendant.


A new report from NERA Economic Consulting takes a look at emerging trends in litigation as a result of the subprime crisis and broader credit crunch.
The article, Subprime Securities Litigation: Key Players, Rising Stakes, and Emerging Trends, is the third in a series on subprime topics, following last June’s Subprime Meltdown Primer and December’s Understanding Accounting-related Allegations.

“Unsurprisingly, litigation has been on the rise,” NERA says. “As of 21 April 2008, there had been 132 securities lawsuits related to subprime and credit issues, of which 56 were filed since January 2008. New York has the most filings, with 48%, while California follows with 14% and Florida wraps up the top three with 7%.”

The majority of the early lawsuits have been against mortgage lenders. As various other market participants reveal the extent of their losses and exposure, they too are being dragged into litigation. The plaintiffs include shareholders, investors, issuers and underwriters of securities, plan participants, and others.

The report covers lawsuits against lenders, issuers, ratings agencies, bond insurers, and asset management companies; and also suits related to asset-backed commercial paper, failed deals, corporate debt losses and auction rate securities.

Most of the lawsuits are still in their initial stages and it is too early to predict the outcomes, NERA says. The first subprime-related class action lawsuit against New Century Financial Corporation was dismissed in January 2008 without prejudice.

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