March 30, 2012
Litigation concerning mortgage-backed securities (MBS) is heating up in 2012, as the courts are denying many of the defendants’ motions to dismiss. This is leading to a long and involved discovery process, as both sides will have to examine the mortgage loans underlying the securitizations in great detail.
Typically, the complains in these lawsuits allege:
- The mortgage loan originator did not follow its underwriting guidelines or industry standards
- Appraisals were artificially increased and did not follow industry appraisal standards, resulting in incorrect loan-to-value percentages.
- During securitization, the due diligence process of reviewing mortgages for inclusion in the MBS was flawed or ignored.
- Mortgage terms were modified by servicing organizations and these new terms were not in the best interests of the investors of the MBS.