The Hard Facts about the Soft Numbers in Subprime Litigation
1 March 2011
By Dr. Thomas L. Porter
Allegations in many subprime litigation cases claim that investors in subprime mortgage-related securities were misled with false information. Such allegations frequently point to the accounting disclosures made (or not made) with regard to subprime mortgage portfolios. In this article from the Securities Litigation Journal, NERA Vice President Dr. Thomas L. Porter points out that, in cases involving allegations of false and misleading accounting information, it is important to have an understanding of the accounting life of a mortgage loan and loan portfolios. It is also important to consider the degree of estimation associated with each number. Dr. Porter argues that, by its nature, accounting for subprime mortgage loans involves a high degree of estimation that, when exposed, may reveal that reasonable minds could arrive at different estimations that would both be in accordance with generally accepted accounting principles. It is important to have a thorough understanding of when and how estimates are made, the places one would look to determine that, and the ability to assess the reasonableness of those estimates.
