Insurance Claims and Bad Faith Law Blog

Adjustable-Rate Mortgages a Fraud?

    The Federal Bureau of Investigation is reportedly investigating 17 corporations to see whether they committed Crimes and Corporate Fraud when these corporations were involved in selling adjustable-rate mortgages.  "The government is investigating whether many of these adjustable-rate mortgages were sold under fraudulent pretenses."  "Justice Dept. is Gathering Data on Mortgage Industry" p. B7, col. 4 "Business Day" Section (Reuters Report published in the New York Times Nat'l Ed., Saturday, March 22, 2008).

    Will the FBI's investigation of possible Criminal Fraud reveal actionable  Breach of Fiduciary Obligations or other Bad Faith or Unfair Dealings?

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Florida Good Faith Fiduciary Duties: Are Investment Pools Exempt?

     "It's bad faith at best and fraud at worst."  City Attorney
      for Port St. Lucie, Florida, quoted on p. A15, col. 6 of
                       The New York Times, National Edition,
                                      New Year's Day, 2008.

Maybe.  Time and Judicial Holdings in decided cases may tell. What the Port St. Lucie City Attorney was commenting on is the way Florida's State-Run investment pool was run, until recently, for investments by local governments.  State-Run investment pools are exempt, at present, from Federal oversight and regulation.  They were not supposed to invest in anything like subprime mortgage risks, but Florida's pool apparently did invest in a number of such risks, drawn by the lure of high returns and receiving instead unprotected collateral now devalued to junk bond status.

     Florida had the largest State-Run investment pool in the United States.  It now has the first State-run investment pool that experienced a run on the bank, and the first State-run investment pool to impose a freeze on withdrawals which had never previously been restricted.  The story is told by Kirk Semple & Mary Williams Walsh, "Fund Frozen, Florida Towns Feel the Pinch" p. A1, col. 3 (New York Times Nat'l Ed., Tuesday, January 1, 2008).

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