Subprime Securities Litigation: Key Players, Rising Stakes, and Emerging Trends
3 July 2008
By Dr. Faten Sabry, et al.
Subprime Securities Litigation: Key Players, Rising Stakes, and Emerging Trends won a "5-star" award for being the most-read US article on Mondaq during July 2008. Mondaq is a comprehensive electronic resource of thousands of articles offering legal, regulatory, and financial commentary and information. All content is supplied directly by hundreds of the world's leading professional advisors, in more than 80 countries.
The subprime mortgage market -- which consists of loans to borrowers with high credit risk and the mechanisms that have evolved to originate, service, and finance those loans -- is rapidly contracting due to mounting defaults and delinquencies. As a result, a number of allegations have been made against market participants in recent subprime-related lawsuits.
To address these matters from an economic perspective, NERA's Securities and Finance Practice has created NERA Insights: Subprime Lending Series, a series of papers dedicated to the analysis of the subprime lending crisis. In Part III of the series, "Subprime Securities Litigation: Key Players, Rising Stakes, and Emerging Trends," NERA Senior Vice President Faten Sabry and co-authors Anmol Sinha and Sungi Lee examine the ongoing subprime mortgage-related securities litigation to assess the trends, major players, and issues. The paper traces the litigation to suits that initially involved mortgage lenders, then the issuers and underwriters of securities backed by mortgages, and now investors who either purchased these securities or packaged them into other securities. The authors report the types of allegations brought by and against the different market participants involved with subprime assets -- mortgages, mortgage backed securities, collateralized debt obligations (CDOs), etc. -- compiled from various sources.
In Part II of the series, "The Subprime Meltdown: Understanding Accounting-Related Allegations," NERA Vice President Dr. Thomas Porter and Senior Consultant Dr. Airat Chanyshev focus on certain accounting issues that are cited in current litigation involving mortgage originators. The authors address questions related to loan loss provision, allowance for loan repurchase losses, and residual interest in securitization and provide suggestions for how to analyze the pertinent accounting issues in subprime lending cases.
In Part I of the series, "The Subprime Meltdown: A Primer," NERA Senior Vice President Dr. Faten Sabry and Senior Consultant Dr. Thomas Schopflocher provide a brief overview of the subprime mortgage industry and the process of securitization. Forthcoming topics in the NERA Insights: Subprime Lending Series will include the anatomy of a fraudulent conveyance and the economics of complex mortgage transactions. To learn more about the series, please contact Dr. Sabry.
"Subprime Securities Litigation: Key Players, Rising Stakes, and Emerging Trends" has been published in the Fall 2008 issue of The Journal of Alternative Investments.
