A Harvard Law School discussion paper from 2008, right around the time
of the subprime mortgage industry crisis, highlights the legal and economic
consequences of current difficulties in the subprime mortgage market. In
Legal and Economic Issues in Subprime Litigation, authors Jennifer E. Bethel, Allen Ferrell, and Gang Hu provide basic
descriptive statistics and institutional details on the mortgage origination
process, mortgage-backed securities, and collateralized debt obligations,
and examine several aspects of these markets, including the identity of
MBS and CDO sponsors, CDO trustees, CDO liquidations, MBS insured and
registered amounts, the evolution of MBS tranche structure over time,
mortgage originations, underwriting quality of mortgage originations,
and write-downs of investment banks.
The authors also discuss the distinction between reasonable ex ante expectations
and the occurrence of ex post losses; the distinction between the transparency
of the quality of underlying assets being securitized and the transparency
as to which market participants are exposed to subprime losses; and, finally,
the distinction between what investors and market participants knew versus
what individual entities in the structured finance process knew, particularly
as to macroeconomic issues such as the state of the national housing market.
Even eight years later, the country is still feeling some of the effects
of the 2008 financial crisis. This paper is a fascinating look into how
this crisis occurred, the unprecedented levels of litigation that have
resulted from it, and some of the main legal issues that will play an
important role in this litigation. We encourage you to follow the link
above to read the full text of this analysis.
Facing foreclosure? Sulaiman Law Group, LTD may be able to help.
Give our office a call today at (312) 313-1613.