In the aftermath of the subprime meltdown and the subsequent domino effect it had on both the mortgage banking industry and the general economy, it would appear that everybody, at one level or another, has been seriously affected. Originators and servicers, secondary marketing entities, homeowners and even communities have found themselves taking acute blows from the impact of the crisis.
However, there is one sector where the subprime meltdown has given rise to a buzz of profitable activity: law firms that have introduced subprime-related practice groups as part of their legal operations.
No statistics exist to confirm how many law firms have created subprime practices in the wake of what transpired. However, a growing number of firms have begun to announce this new aspect of their offerings. As a business pursuit, subprime-related legal counsel was utterly impossible to ignore.
In the case of Robert D. Friedman, a partner at the Boston-based Burns & Levinson LLP, the inspiration came during his August 2007 vacation.
‘I was watching more of CNBC than I should have when I came up from the beach,’ he recalls. ‘I noticed the faces of the newsreaders when they were reporting on what was happening with the hedge funds. They were looking for assurance that all was going to pass and the market would right itself.’
Friedman's return to the office from his vacation put him on track to investigate the matter further. Burns & Levinson launched its subprime practice in April, with the firm gathering together the leaders from its securities litigation, securities regulation, finance, public finance, bankruptcy and ERISA practices.
Elsewhere in Boston, the firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC has been operating its subprime practice group since last December. For Richard Moche, manager of the firm's public finance section, creating the practice puts the firm in the midst of history-making situations.
‘The inspiration is the fact that, without question, this is the predominant financial news story of the past year,’ he says.
Moche's firm brings together two dozen attorneys from multiple practices, and the work has kept the attorneys more than busy.
{OPENADS=zone=7} ‘We are already in the realm of multiple engagements over the course of five months,’ he says. ‘We assumed a general level of elevated activity.’
For the Cleveland-based Ulmer & Berne LLP, the subprime practice permeated their operations.
‘We are representing a number of clients who have been impacted by the subprime crisis,’ says Frances F. Goins, partner and chairwoman of the firm's financial services industry group, who noted the situation called for a stand-alone practice. ‘It seemed to us there was need for it.’
Philadelphia-based Ballard Spahr Andrews & Ingersoll LLP also found itself responding to client needs.
‘We did it as a natural evolution of our practice,’ explains Alan S. Kaplinsky, partner. "With a crisis of this magnitude, it was only natural that we would create an interdisciplinary group within our firm."
While lawyer-client confidentiality prevents the firms from discussing specific cases, all of the firms agree that their respective practices will be around for the long haul.
‘I don't think we've hit the bottom,’ says Goins. ‘We still have a few years to go. But as soon as the market corrects itself, the litigation will ease up substantially.’
But Moche notes that even if the market should begin to correct itself, new problems could easily pop up.
‘There are still ancillary effects that will cause ripples,’ he says. ‘The decline of the mortgage-related assets and the drying up of the securitization mechanism will take some time to work its way through business relationships. In some cases, the damages have not fully presented themselves – there may be a lag, where credit market turmoil can take some unexpected twists and turns, especially with bond insurers. This domino effect can spill into another market.’
If there is another domino spill, there won't be a shortage of lawyers to gather around it.
‘It's become very stylish for law firms to create subprime mortgage teams,’ says Kaplinsky. ‘I checked the Web sites of our competition in the Philadelphia area, and they're doing what we're doing. But most are Johnny-come-latelys who never had the background in consumer financial services that we have.’
For Friedman, the matter involves issues that are still evolving, thus denying anyone a quick and easy solution.
‘The 'who pays?' question is not really being addressed in any systematic way,’ he says. ‘Losses really aren't fixed yet. If the real estate market comes back, the losses will at least be known. At this stage, we're helping issuers and investors talk through the different options and scenarios available to them. In some degree, we're learning as we go.’