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2 N.E. U. L.J. 111 (2010)
Causes of the Subprime Foreclosure Crisis and the Availability of Class Action Responses

handle is hein.journals/norester2 and id is 117 raw text is: Causes of the Subprime Foreclosure Crisis and the 111 Availability of Class Action Responses CAUSES OF THE SUBPRIME FORECLOSURE CRISIS AND THE AVAILABILITY OF CLASS ACTION RESPONSES Gary Klein & Shennan Kavanagh* The pervasiveness of toxic subprimeI refinance2 mortgage loans is destroying entire communities.' Record numbers of foreclosures are being driven by astronomical default rates on subprime loans, rates that exceed twenty percent on some portfolios.4 More problems are anticipated in * Gary Klein and Shennan Kavanagh handle predatory lending class actions at Roddy Klein & Ryan in Boston, Massachusetts. Mr. Klein is a former Senior Attorney at the National Consumer Law Center in Boston and at Community Legal Services in Philadelphia, Pennsylvania. Ms. Kavanagh and Mr. Klein serve or have served as lead counsel in many of the class action cases discussed in this article. They appreciate the research assistance of Sasha Kopf in connection with Section H of the article. 1 See FATEN SABRY & THOMAS SCHOPFLOCHER, THE SUBPRIME MELTDOWN: A PRIMER 1 (2007), available at http://www.nera.com/publication.asp?p- ID=3209 (noting subprime loans are high interest loans made to borrowers who are perceived to present higher risk of default). Between 1995 and 2005 the percentage of subprime mortgage refinance loans increased from five percent to twenty percent of all mortgages made. Id. As of 2007, there is approximately $1.3 trillion in subprime mortgage loans outstanding. Id. 2 Refinance loans are distinct from purchase-money loans in that the borrower already owns the home that will be security for the loan. Federal law recognizes this distinction and provides cancellation rights to homeowners who obtain refinance loans. 15 U.S.C. § 1635 (2006). As discussed below, these rights have proven insufficient to prevent a crisis grounded in predatory lending practices. 3 See Alex Kotlowitz, All Boarded Up - How Cleveland is Dealing With Mass Foreclosures, N.Y. TIMES, Mar. 8, 2009, at MM28. See also Jennifer Steinhauer, A Cul-de-sac of Lost Dreams and New Ones, N.Y. TIMES, Aug. 22, 2009, at Al; George Packer, The Ponzi State, NEW YORKER, Feb. 9, 2009, at 81. 4 According to the Federal Reserve Board, more than twenty percent of all subprime loans are seriously delinquent, as are one in ten securitized near- prime loans. Ben S. Bernanke, Chairman, Bd. of Governors of the Fed. Reserve Sys., Housing, Mortgage Markets, and Foreclosures, Speech at the Federal Reserve System Conference on Housing and Mortgage Markets (Dec. 4, 2008) (transcript available at http://www.federalreserve.gov/newsevents/speech/ bernanke20081204a.htm). See also, e.g., DAN IMMERGLUCK, FORECLOSED: HIGH-RISK LENDING, DEREGULATION, AND THE UNDERMINING OF AMERICA'S MORTGAGE MARKET 30 (Cornell University Press 2009). See also Vikas Bajaj &

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