Subprime Scriveners

Abstract

Although mortgage-backed securities (“MBS”) and other financial products that nearly caused the collapse of the global financial system could not have been issued without attorneys, the legal profession’s role in the financial crisis has received relatively little scrutiny. This Article focuses on lawyers’ preparation of MBS offering documents that misrepresented the lending practices of mortgage loan originators. While attorneys may not have known that many MBS would become toxic, they lacked incentives to inquire into the shoddy lending practices of prominent originators such as Washington Mutual Bank (“WaMu”) when they and their clients were reaping considerable profits from MBS offerings. The subprime era illustrates that attorneys are unreliable gatekeepers of the financial markets because they will not necessarily acquire sufficient information to assess the legality of the transactions they are facilitating. The Article concludes by proposing that the Securities and Exchange Commission impose heightened investigative duties on attorneys who work on public offerings of securities.

Keywords: Financial crisis, legal profession, securitization, subprime mortgages, WaMu, legal ethics