The number of subprime-related court filings has reached an unprecedented level and is expected to continue skyrocketing as economic conditions worsen, according to a new report by Navigant Consulting Inc.
The Chicago consulting firm released a report Dec. 18 showing the number of subprime mortgage and related cases filed in federal court during the first nine months of 2008 already exceeds by more than 50 percent the total for all of 2007. A total of 448 cases were filed so far this year, compared to 294 last year.
Filing volume in the September 2008 quarter was the third highest on record with 131 new matters, while the total number of cases filed reached 742 for the 21-month period ending on Sept. 30, 2008.
The Navigant report, titled "Third Quarter 2008 Update: Breaking New Ground," shows subprime-related cases outstripping the U.S. savings-and-loan cases of the early 1990s, the previous high-water mark in terms of litigation fallout from a major financial crisis.
"The bottom line is that new cases continue to be filed much more rapidly than existing cases are being disposed," said Jeff Nielsen, who leads Navigant's Financial Services Disputes & Investigations group.
Nielsen, who advises clients in a number of subprime-related matters, added, "We are looking at a traffic jam that will take many years to untangle."
Nielsen also emphasized that the disastrous market conditions of late 2008 mean that new cases will continue to roll off the assembly line through year-end. For example, the Chapter 11 bankruptcy filing by Lehman Brothers Holdings Inc. in September 2008 -- the largest such filing in U.S. history and perhaps the defining moment in the current credit crisis -- has spawned its own cottage industry of litigation.
The report 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 led all categories over the seven quarters tracked by Navigant -- fell precipitously in the third quarter, as the underlying loan transactions became older.
Meanwhile, the number of securities lawsuits and contract disputes increased sharply, registering their highest quarterly totals to date.
"What we're seeing is a relative increase in the number of cases brought by investors and institutions, as affected parties take stock of their losses and recriminations follow," said Nielsen.
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Number of Subprime-Related Suits Reaches Unprecedented Level
The National Law Journal
December 19, 2008
