Law Review: Mortgage mayhem generates work

To understand why Wayne Streibich's law practice defending mortgage lenders against claims by delinquent borrowers is taking off, imagine for a moment what happens when parents are away on business and teenagers take over the house.

There are some suburban towns in this country where police spend a good part of Friday and Saturday nights responding to calls from irate neighbors over out-of-control teenage parties.

A small clutch of kids gets together, alcohol is procured, and the party is on. Thanks to text-messaging and other information-revolution miracles, every teenager within a short drive is a potential guest.

It can get out of control very quickly.

And that's pretty much what happened to the nation's mortgage market starting around 2000.

Lenders, under government pressure to put more people in houses, unleashed a flood of liquidity. They were shielded from their own lax underwriting standards by a credit market in which people making the money available, bankers and brokers, had little stake in the outcome, and that too fueled the crisis.

With parents - really, responsible regulators, bankers, and brokers - out of the house, it was a heck of a party while it lasted.

But, of course, the aftermath has been a monumental mess, with foreclosures littering the landscape and real estate prices nose-diving.

Streibich and his practice group at Blank Rome L.L.P. are part of the cleanup detail - and, sad to say, business has been excellent.

They represent banks in disputes with homeowners who cannot pay their mortgages. These disputes typically focus on the claims by borrowers that the lenders acted illegally in processing the original loan or foreclosure documents.

The disputes over the way banks processed foreclosure documents, the so-called robo-signing controversy, have ballooned to such an extent that the rate of foreclosures nationwide has dropped off as banks and courts sort through the paperwork.

It is axiomatic in Streibich's practice niche that the majority of aggrieved homeowners have not been paying their mortgages, and thus face foreclosure. The best they can hope for is a loan modification, and very often they don't get even that.

In the last 21/2 years alone, Streibich and his colleagues have handled at least 5,000 such cases. And the pace has been accelerating. Streibich says only a handful of those loans were reversed based on the paperwork mistakes of his clients.

And even then, it is a pyrrhic victory: Homeowners still must give back the unpaid loan amount, and typically they are unable to.

To fully tap into this practice, Streibich and six colleagues moved two weeks ago from Dilworth Paxson L.L.P., a regional, litigation-focused firm, to Blank Rome, a 500-lawyer firm based in Center City with nine offices around the country.

Where Streibich, 49, and his colleagues had been handling only cases in the Mid-Atlantic region, they now expect to represent lenders from California to New York, making referrals in-house instead of watching that business walk out the door.

The business is evincing all the indicia of a practice area that will remain robust for some time. As of December, a total of 2.2 million homes nationally were in foreclosure. More and more firms are entering the business of defending lenders against claims by homeowners of paperwork errors. The lenders, for their part, have so much work they are demanding volume discounts from the lawyers.

"People are continuing to be unable to pay their mortgages," Streibich said. "It is a problem that is not going to go away anytime soon. The economy is not the strongest it has ever been, and it is not going to just rebound overnight."

Intense, square-shouldered, and precise, Streibich still carries himself like the four-year starter he once was on the Rutgers University tennis team. The cases remind him a bit of the asbestos litigation he defended in the late 1980s, when it seemed to him that many people, regardless of whether the claims had merit, just wanted in on the action.

"Everyone was piling on; 'They are getting something, I want some of that,' " he said of the mind-set of the time.

Yet Streibich betrays no ill will toward the homeowners who are trying to best his clients by escaping obligations they signed on to when they took out their mortgages.

New Jersey, where Streibich lives, in Moorestown, has been particularly hard hit by the housing crisis.

According to RealtyTrac Inc., one in 636 houses in New Jersey went into foreclosure in January; compared with one in 1,489 in Pennsylvania.

He says he knows fellow church members and others in Moorestown in danger of losing their homes. No one, he says, ever intended to dig themselves into a hole so deep they couldn't pay their mortgage.

"I see what it does to them; they struggle day to day with the concept that they have an obligation and they cannot pay; but they want to pay," he said.

But that doesn't mean they should get to walk away if they owe money.

"You can have compassion for someone and at the same time acknowledge and understand that there are obligations that people sign up for," he said.