Mortgage Litigation Index Tumbles

As the government shifted its resources from civil to criminal mortgage-related cases, the Mortgage Litigation Index sank by more than half. Active cases totaled 75 in the second-quarter report, which reflects mortgage-related legal actions covered by Mortgage Daily between April 1 and June 30. The report was prepared in conjunction with Patton Boggs LLP.

Activity tumbled 52% from the first quarter and was 40% lower than a year ago, Mortgage Daily and Patton Boggs find.

As the government executed Operation Stolen Dreams, an anti-fraud effort coordinated by the interagency Financial Fraud Enforcement Task Force, mortgage fraud criminal actions leapt, sending the mortgage fraud index higher.

But criminal fraud cases – except those primarily involving an insider at the mortgage lender – are generally excluded from the Mortgage Litigation Index. The reallocation of government resources cut into actions related to modifications, foreclosures and non-fraud criminal cases helped drag down overall activity, Mortgage Daily and Patton Boggs say.

‘Don't be fooled by what appears to be a lull in the government's civil litigation efforts against the mortgage industry,’ says Anthony Laura, a partner in Patton Boggs' New Jersey office. ‘Once federal resources are reallocated in response to the sweeping financial reform legislation passed earlier this year, expect civil enforcement efforts to increase beyond the levels we saw prior to [the second quarter].’

A big decline in mortgage insurance litigation was primarily the result of a burst in the prior quarter's Federal Housing Administration-related activity that did not continue into the latest period.

The only category that saw an increase in cases from the first quarter to the second quarter was servicing litigation, which includes cases relating to escrow issues, transfer of servicing and the servicing of loans for borrowers in bankruptcy and foreclosure.

SOURCE: Mortgage Daily


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