If Everyone's Finger-Pointing, Who's to Blame?

January 22, 2008
If Everyone's Finger-Pointing, Who's to Blame?

A wave of lawsuits is beginning to wash over the troubled mortgage market and the rest of the financial world. Homeowners are suing mortgage lenders. Mortgage lenders are suing Wall Street banks. Wall Street banks are suing loan specialists. And investors are suing everyone.

Two questions lie at the heart of many of the cases. The first is whether lenders and investment banks alerted borrowers and investors to the risks posed by subprime loans or securities backed by them. The second is how much they were legally obliged to disclose. "Those are the two issues that are frequently raised," said Jayant W. Tambe, a partner at the law firm Jones Day.

As defaults and foreclosures rise, the various players in the housing market are all pointing fingers at each other. State prosecutors like Andrew M. Cuomo, the attorney general of New York, are investigating whether investment banks that packaged mortgages into securities disclosed the risks to investors and credit ratings agencies. Investment banks, in turn, are accusing lenders and mortgage brokers of shoddy business practices.

"What strikes me here is that this a tainted system from A to Z," said Tamar Frankel, a law professor at Boston University. "Everybody blames everybody else. If you look at what is being said, there isn't one who doesn't blame another and there is half-truth in everything."