Lawyers Feeding on Mortgage Mess

In some ways, the mortgage meltdown reminds lawyers and their class-action plaintiffs of the Enron scandal. After the fall of Fannie Mae, Freddie Mac, and Lehman Brothers, lawyers are pushing class-action litigation to try to recover losses for investors caught up in the mortgage mess.

If you happen to own shares of Fannie Mae, Freddie Mac, or the virtually defunct Lehman Brothers, you can expect to start getting a lot of solicitation mail from lawyers who want to include you in class-action litigation.  This also happened following the Enron collapse. You may not hear from these mortgage meltdown attorneys unless you own preferred stock, because common stock shareholders have fewer protections during this widespread subprime mortgage mess. But given time, lawyers who specialize in sticking it to Wall Street will probably crank up some class-action suits against institutions like Fannie and Freddie-especially if they can get the judicial system to rule on some preliminary cases to give them precedent ammunition for future ones.

Litigation hounds

Meanwhile, teams of eager lawyers are going forward with their claims of shareholder or lender abuse. Their inventory of accusations includes examples of executive excess in the form of golden parachute severance packages, accounting fraud, lack of disclosure, and collusion with the ratings agencies that value the worth of mortgage securities. If that's not enough, to invoke flashbacks to the days of Enron corruption, they can also bring up the fact that some fat cats and their companies held lavishly expensive executive parties at posh resorts in the days following the bailout. That's just the kind of evidence of blatant disregard for ordinary Americans that inspires taxpayers and shareholders into an angry class-action frenzy.

Mortgage meltdown and class action

It's not just Main Street that's upset. Many large institutional investors lost millions, or even billions, when companies like Fannie Mae, Freddie Mac, and Lehman Brothers imploded. There are also many big companies who were hurt badly and are looking to litigation as their last option for getting someone else to cover their losses and accept the blame for gigantic financial problems brought on by the mortgage meltdown.

Lawyers who represent parties in class-action lawsuits are pointing to statements and actions of the regulators in charge of the mortgage meltdown bailout and rescue plan. One suit filed in September by Fannie Mae shareholders, for example, blames the government plan to buy shares of the company, and then take it over, as the main reason that share prices got so depressed. The lawsuit also accuses some major players on Wall Street of making untrue statements about the financial condition of Fannie Mae, saying that those erroneous claims undermined investor confidence at a critical time.

Class-action litigation is lucrative for lawyers, and industry insiders say that more mortgage disaster litigation would already be happening, were it not for the fact that plaintiffs can't yet figure out how much money they have actually lost in this gigantic financial crisis.