Lenders Who Made Bad Loans Are Being Sued by Their Investors

Subprime loan fraud litigation continues to find new classes of plaintiffs. In the latest class actions, lenders are being sued by their investors. People who bought stock in Countrywide Home Loans and New Century Mortgage have brought class action lawsuits against the lenders for their reckless lending activities, according to an article by Alison Frankel of The American Lawyer. The Federal District Judges who oversee these cases have recently denied the lender’s motions to dismiss the actions. Cited in the ruling in the Countrywide case, the plaintiffs have made a preliminary showing that the lender recklessly changed its lending procedures with a goal to not deny any mortgages, despite knowing that these loans were incredibly risky. The crux of plaintiff’s action is that the giant lender continued to loosen its loan underwriting standards to the point of near non-existence, all the while holding out to investors that their underwriting standards had not changed. In December, 2007, the lender admitted that billions of dollars in loans made during 2005 and 2006 would not have been possible under their old underwriting standards. According to the opinion and article, Countrywide went so far as to create an “Exception Processing System” to address loan applications that did not meet the standard for prime loans. Through this system, Countrywide would approve loans as “prime” based on exceptions designed wholly to allow them to issue and fund the loans. The problem this creates for the investors is that there are loans that are deemed by Countrywide as “prime” loans that share many of the characteristics of “subprime” loans, which would discount the value of the loan to an investor. To accommodate these loans in the short run, Countrywide would simply charge the borrower higher fees. Therefore, Countrywide took greater earnings on these subprime loans immediately while knowing they had a much higher default rate.

If you are a member of a group that has invested in mortgage backed securities, you may have a cause of action on your own or you may be a part of a class action already underway. At Higgins, Himmelberg and Piliponis, we represent individuals who have been harmed by loan fraud, predatory lending, and fraud through investments. Our firm has lawyers licensed in Tennessee, Kentucky and Georgia.

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