By July 2007, the US sub-prime mortgage crisis had morphed into a global financial crisis. Some early casualties, such as New Century Financial Corporation, were compelled to cease operations, exit the sub-prime lending business, and file for bankruptcy. The blame game has become something of a national pastime. In no particular order, homeowners who took on too much debt, the prevalence of adjustable rate mortgages that adjusted in the wrong direction for homeowners, predatory lending practices of sub-prime lenders, appraisers inflating home values, investment banks selling mortgage securities without properly testing underlying assets, and even the lack of proper government oversight came in for their share of the blame. Amidst the suffering, fear and personal and financial disruption, one group has emerged as ready, willing and able to make the best of a bad situation. That, of course, would be US litigation attorneys.
The list of claims that will be pursued in the US courts is daunting. There are already suits pending against sub-prime lenders by shareholders seeking damages. We understand that investigations of sub-prime lenders by the SEC, various state attorneys general, the New York Stock Exchange and the US Department of Justice are underway. These can be expected to result in the initiation of a variety of legal actions. The filing of law suits by, or involving, banks, investment banks and other institutional investors who have lent to sub-prime lenders is a virtual certainty. Sub-prime borrowers will also initiate class action law suits against sub-prime lenders and others. Loan brokers, appraisers and real estate agents and even accountants and lawyers are also likely to be forced to assume a place at the litigation table. We could even envision the possibility that rating agencies will be involved as litigants. In short, the litigation possibilities are virtually endless and the significance of the losses that have been suffered will assure that plaintiffs will attempt to recover from a broad array of participants in the sub-prime market. And while US litigation attorneys may feel their pain, their tears will be decidedly reptilian.