It is quite apparent that directors and officers are getting sued over decisions related to subprime, while investors such as pension funds are suing lenders due to subprime losses. The finance sector led the way for class action suits, with 47 Wall Street firms sued in 2007, more than four times the number sued in 2006. Mom and pop operations are not the targets of big lawsuits, however, as law firms target major banks and investment houses. To that end this effort from Rhode Island seems to be a preventive measure:
Rhode Island yesterday became one of the first states to require all mortgage originators who are not employed by a bank or credit union to register with a national licensing system designed to improve regulatory oversight and “fight mortgage fraud and predatory lending,” according to a statement released yesterday by the Rhode Island Department of Business Regulation.
One must ask if banks and finance companies hire qualified individuals as mortage officers. Will a state effort, such as the Rhode Island example above, drive motivated but unqualified employees to ‘safer’ employment of less scrupulous nationwide finance companies? Time will tell. It is interesting to note that federal and state regulators said they would step up inspection of lenders outside of federal oversight. A typical complaint to a federal regulator is answered by a major bank and shuffled to the state level because a state license is required. The OCC has blocked state intervention in federally charted banks, thus causing part of the problem.
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The Subprime Mortgage Crisis Before, During, and After
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