Tuesday, April 29, 2008

Support for Subprime Litigants

Is the market for forensic accountants going to get even tighter thanks to a flood of lawsuits filed over the subprime credit crisis? A whopping 181 subprime mortgage-related cases were filed in federal courts in the first quarter of 2008, a rate that’s close to surpassing the filing rate seen during the savings and loan crisis of the early 1990s, says First Navigant Consulting, Inc., Chicago. Someone is going to have to provide the accounting analytics to both sides of those cases, but who?

“These are complex claims,” says Navigant Managing Director Jeff Nielsen. “They generally involve the mortgage origination and securitization process, as well as securities that have been issued that are backed by mortgage collateral, so there’s an over-arching complexity to just the industry and the processes at issue here. With that backdrop, my opinion is that--depending upon where the litigation goes, and if the litigation matures-- the demand for forensic professionals is going to be substantial.”

Expertise is going to be a commodity in hot demand. “It’s not only the hard skills in terms of finance, accounting and economics, but also the deep industry knowledge and the knowledge of these products. Those are the individuals that are going to be best positioned to assist with these issues and shed light and unwind [transactions and deals] in a way that people can understand what are inherently complicated questions,” he says.

But wait. Wouldn’t those be the same people that led the industry down the rosy path and into the quicksand? “You can have extensive knowledge without having been at the center of it when the problematic loans were being made and the securities were being issued,” Nielsen says.

So if you can answer questions such as: was the risk management system adequate, were there strong internal controls in place, and if you can value illiquid securities and cogently discuss related reporting and policy issues, and you have a believable explanation as to why you weren’t part of the problem, the legal profession is going to be anxious to talk to you.

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