|  | | 2008 News and Press Releases | | |
HEADLINE NEWS:
Is There A Legal Defense To The Mortgage Mess?, Litigation arising from the subprime market collapse will hinge on lenders' good faith.
Anthony Lendez and David Hille
The National Law Journal. April 21, 2008
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EXCERPT: Thus, key issues in these mortgage-lender lawsuits will be whether certain defendants made a good-faith and reasonable effort to arrive at the accounting estimates used to account for the company's assets and liabilities, taking into consideration information that existed at the time the estimates were made. The significant changes in market conditions that occurred during 2007 will be the lens through which many of the mortgage lenders' accounting estimates are viewed in these cases. Take, for example, the allowance for loan losses and the effect that changes in the trend of real estate values and foreclosures in 2007 may have had on the level of allowances previously established by a given lender. Allowances for loan losses are established for loans that were maintained on the mortgage lenders' books and classified on their balance sheets as 'loans held for investment.' These are loans that were not sold to investors either through whole-loan sales or securitizations that qualified for sale treatment. For loans held for investment, mortgage lenders are required to establish an allowance for loan losses based on their estimate of losses inherent and probable in their loan portfolios at the balance sheet date. Lenders attempt to project expected loan losses by estimating how many of the loans will default and how much of the loan balances will be lost in the event of default. Lenders consider a number of factors in arriving at these estimates, including, for example, the current performance of the loans (current, delinquent, in default, in foreclosure), the characteristics of the loans, the value of the underlying collateral and general economic conditions. Analysis of this information typically is based on the lender's historical experience, taking into consideration factors not yet reflected in the historical data, such as trends in real estate values, economic trends and changes in underwriting standards, among other things. |
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