The repercussions from the 2008 housing and financial crisis continue in the home lending arena. Just this month, two more significant lawsuits have been filed concerning alleged questionable mortgages entered into years ago. The first case involves a putative class action and claims that Morgan Stanley encouraged a unit of now-bankrupt New Century Financial Corp to disproportionately target African American borrowers with expensive loans that had a strong possibility of failing. What is unusual about the allegations is that Morgan Stanley did not write or otherwise fund the loans. Your humble Fair Housing Defense Blog editor was asked to comment on the lawsuit – comments you can read about here: http://www.reuters.com/article/2012/10/15/us-morganstanley-aclu-lawsuit-idUSBRE89E0Q520121015
And just yesterday, the U.S. Department of Justice sued Bank of America for $1 billion alleging the company committed fraud by selling defective mortgages to investors such as Fannie Mae and Freddie Mac. The suit suggests that Bank of America (and an entity it purchased) failed to properly underwrite loans, eliminated quality controls, and essentially cut corners in an effort to earn fees. Large mortgage losses led to a government takeover of Fannie and Freddie in September 2008.
What does all this mean? The financial crisis from four years ago continues to rage on and the courts will ultimately decide who is responsible (at least in part) and who must write large checks (either to plaintiffs if the actions are successful and to defense lawyers in any event).
Just A Thought.