- May 25, 2002
- Professional Status
- Certified Residential Appraiser
Sub-prime borrowers are suing loan brokers and lenders, accusing them of deceptive practices. Wall Street firms that bought now-delinquent sub-prime loans are trying to force lenders to buy them back.
Investment-bank shareholders are going after those firms' managers, saying they took excessive risks by loading up on bonds backed by sub-prime mortgages. And investors are suing money managers whose sub-prime-laden funds have suffered hefty losses.
It's, 'What did you know when you sold me this stuff, and what did you tell me about it?' " said Bill Sullivan, chairman of the securities-litigation practice at Paul Hastings in Los Angeles. "Marrying up what was disclosed versus what was known will be an important inquiry in each case."
The banks are likely to argue that sub-prime bonds were bought by sophisticated investors who understood the dangers and that it was impossible to foresee the turmoil that upended the housing market.
But if government regulators show that banks didn't adequately disclose the risks, it "would put this litigation into an entirely different and far more serious category," said Jonathan Macey, a securities-law professor at Yale University.
"That would take these from 'kind of improbable to win' to 'How many zeros are we talking about on the check?' "