Fewer mortgage-related lawsuits in 4Q 2008

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Increased regulatory action at the end of 2008 has not added to the overall number of mortgage litigation cases winding their way through the American judicial system, according to a report just released by MortgageDaily.com in conjunction with the law firm of Weiner Brodsky Sidman Kider PC.

According to the Fourth Quarter 2008 Mortgage Litigation Report, a total of 202 cases were active during the final three months of 2008. Of those, 161 were related to regulatory actions and reflected the declining capital of the weakest U.S. banks. Only 126 such cases were reported during the previous quarter.

Three other categories of litigation experienced increases during the fourth quarter. Four lawsuits related to mortgage-backed securities were filed as were three lawsuits related to mortgage employment and three sustainability cases. No cases in any of these categories were tracked during the third quarter

Most litigation categories, however, experienced a decline during the fourth quarter. Excluding regulatory-only actions, only 46 cases were tracked during the final quarter of 2008, compared to 74 the previous quarter. The fourth quarter level was similar to that reported in 2007.

During the fourth quarter of 2008, only 11 investor class action suits, six cases involving mortgage compliance, five cases alleging mortgage fraud and three secondary marketing lawsuits were tracked. In addition, fewer than half the number of foreclosure lawsuits were filed. Mortgage fee lawsuits declined by 50 percent during the same period and predatory lending actions fell 43 percent.

The declining number of lawsuits is good news for the mortgage industry as the debate begins over the Obama Administration’s mortgage plan. CNN reports that the plan, which provides significant incentives to mortgage lenders, holders and servicers to help reduce the payments of million of at-risk homeowners, does not include provisions that would shield mortgage servicers from investor lawsuits. Mortgage investors have been known to file suits against servicers whose actions in modifying mortgage loans has not been in shareholder interest. Given the magnitude of the current crisis and the steady decline of stock markets around the globe, some experts believe the mortgage companies fear of being sued by shareholders is exaggerated. Last week’s vote by the U.S. House of Representatives to allow bankruptcy judges to modify mortgage terms and reduce the amount of principal owed on a primary residence also threatens to further muddy the legal waters already swirling around the mortgage industry and many financial institutions.

“Bankruptcy will remain, as it always has been a last resort, and modifications will be at the individual discretion of a bankruptcy judge who will determine if a borrower has acted responsibly and if a claim has merit,” Congressional Quarterly (CQ) quotes Rep. Alcee L. Hastings (D-FL) as saying.

The debate over legislation and litigation will no doubt continue regardless of whether President Obama’s proposed plan is passed or not. So will mortgage related litigation. A decline during a single quarter does not make a trend, especially when it does not include the efforts of a new Congress and Administration.