Posted by: Ray Brescia | September 30, 2013

Courts Still the Best Hope for Cleaning Up the Mortgage Mess

In her weekend piece in the New York Times, Gretchen Morgenson writes how judges are “scowling” at banks.  As cases from the financial crisis work their way through the judicial system, judges are given a chance to see bank misbehavior up close.  In one ruling, a federal judge in Massachusetts required Wells Fargo to produce a resolution signed by its president and board stating that the company stands by the conduct of its lawyers.  In another, Bank of America was sanctioned for its conduct in failing to honor protections afforded a borrower from the bankruptcy court.  Since the financial crisis hit, the inability of political or regulatory bodies to truly address the worst misconduct of the banks means the courts are the last bastion of hope for many homeowners saddled with predatory loans.  Unfortunately, these case-by-case instances of courts addressing bank misconduct offer some hope for individual borrowers but cannot address broader issues.  As we saw with the resolution of the Robo-Sign Scandal, however, bank misconduct can be addressed through broad settlements that offer homeowners who have been harmed a chance to get some relief from such misbehavior.  Three years ago, I wrote about the need for a “mass torts approach” to mortgage litigation in a piece I authored for the Cincinnati Law Review: Tainted Loans: The Value of a Mass Torts Approach in Subprime Mortgage Litigation.  In it, I explored the possibility that litigants–borrowers, investors, the federal government–could bring actions against banks and pursue global settlements that can get relief to homeowners and other plaintiffs.  The Federal Housing Finance Agency has pursued such an approach by suing 17 big banks for over $200 billion.  There’s talk now that JPMorgan Chase may seek some form of settlement of a range of claims against it.  If judges are willing to take banks to task in individual cases, it will be interesting to see what they do with the cases that may start to come before them that allege systemic misconduct.

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