As the state of the national economy continues to decline many have pointed to the subprime loan crisis of 2007 as one of the major causes. Subprime loans are usually defined as loans that have higher interest rates that are presented to buyers who cannot qualify for more traditional loans with lower interest rates. Subprime loans however carry great risk. This is primarily because subprime loans entice the buyer to purchase by promoting property mortgages that initially have lower rates that will invariably, after a few years, spike tremendously. Buyers were also typically lured by the prospect of zero money down loans in order to purchase property that was previously unaffordable to them. The results have been disastrous for the overall economy and epic in size. Experts predict losses connected to subprime loans to exceed 100 billion dollars. Banking behemoth Citigroup alone has reported a whopping 9.83 billion dollar loss for the last quarter of 2007.

Given the negative effect on the real estate market it is likely that subprime loans will spawn much litigation as buyers will undoubtedly seek to relocate their losses to others. As a result companies will need to prepare for the inevitability of trial and the complexities of eDiscovery as it relates to the subprime real estate market. eDiscovery will become paramount since many cases will undoubtedly be decided on the basis of evidence generated during discovery.

Determine The Risk

Financial institutions seeking to implement best practices for conducting eDiscovery, when applied to subprime loan matters, should begin by evaluating their overall risk to the possibility of future litigation. When assessing this risk it is of supreme importance to work effectively in conjunction with all company departments: compliance, technology and legal. The synergy of intra-company collaboration is a prerequisite for quickly assessing potential company exposure to subprime litigation.

Maximize eDiscovery

If the evaluation contains the possibility of litigation then companies should wisely utilize eDiscovery to help prepare for the upcoming trial. An effective eDiscovery plan will let financial services companies facing subprime litigation locate and review all relevant electronically stored evidence. eDiscovery lets companies understand the composition of their data and will enable them to better set up their case. Common modes of critical subprime litigation data to be dealt with during eDiscovery include: databases, calendar files, spreadsheets, emails, websites, plain text files and audio files.

Once a company’s data is thoroughly assessed and understood key discovery inquiries to be asked to the opposing party need to be developed via eDiscovery. Either party to a subprime litigation matter will need to address if and when they became aware of the risks associated with subprime loans. The type of knowledge, if any, that was had as to the subprime loans will become important as well. If the party was the seller whether or not the risks of subprime loans were accurately represented to the buyer will reign supreme. Both parties will also need to delineate any due diligence that transpired as well as their general expectations when entering into the subprime deal. All of these queries will become possible only if eDiscovery is properly utilized to locate and analyze the large volumes of relevant and/or incriminating subprime electronic evidence that may exist in each party’s respective data repositories.

Proving Your Case

The data obtained via eDiscovery and the answers to the discovery questions noted above will give counsel for each party during the subprime litigation the tools necessary to prove any criminal, false/misleading and/or fraudulent activity that may have occurred. Financial services companies defending themselves will need to show that they did not hide data or engage in bad faith. These companies will need to clearly demonstrate what they knew about subprime loans and how it was communicated to the buyer in order to stave off a negative verdict.

Clearly, as noted above, the calamity created by subprime loans has already spun out of control and affected the greater national economy at large. As a result there will be, and already has been, a great deal of litigation. eDiscovery will become a crucial necessity for each party since it will impact the results of many cases due to the evidence eDiscovery will be able to locate and review. To properly weather this storm financial services companies and buyers alike should be prepared to internally collaborate to assess risk, utilize eDiscovery to collect pertinent evidence, prepare the central queries to be asked during trial and then prove their case. Only then will both party’s personal subprime crisis subside and safeguards will be able to be devised and implemented to prevent future litigation.