Are a bunch of standard risk factor excerpts your best shot?
Yes, risk factor warnings can sound very scary. Just read these 10-K excerpts:
"It is reasonably possible that the Company could experience an increase in foreclosure-related litigation in the future. However, the amount of any losses in connection with such matters cannot be reasonably estimated given the inherent uncertainty around the outcome of such matters."
"the Company has received inquiries from regulators and attorneys general of certain states as well as from the Committee on Oversight and Government Reform of the U.S. House of Representatives and the U.S. Senate Judiciary Committee, requesting information regarding foreclosure practices, processes and procedures, among other things."
And how about these:
"Litigation and government proceedings may require that we pay significant legal fees, settlement costs, damages, penalties or other charges, or undertake remedial actions pursuant to administrative orders or court-issued injunctions, any of which could adversely affect our financial results."
"Losses incurred in connection with actual or projected loan repurchase and indemnification claims may exceed our financial statement reserves and we may be required to increase such reserves in the future. Increases to our reserves and losses incurred in connection with actual loan repurchases and indemnification payments could have a material adverse effect on our business, financial position, results of operation or cash flows."
Clearly these statements sound like a lot of trouble. Look at the language they are using: "material adverse effect", "adversely affect our financial results", inquiries from regulators, the House of Representatives and the U.S Senate Judiciary Committee... must be a pretty big problem.
Except that all of these excerpts are taken from the PHH Corp and Ocwen 10-K.
The truth is that you could step through the risk factors of just about any financial company and cherry pick scary litigation language in the risk factors.
We all know, and I'm sure you know, that mortgage companies are constantly subject to legal proceedings. As Impac stated on the CC, "in the course of business there is always a lawsuit pending"
Yet Impac addressed a question specifically about its remaining legal issues during the third quarter conference call with the response that "we don't have any large lawsuits currently" and that they are comfortable with the position they have taken on those.
The one remaining legal issue, which is the repurchase demands from Fannie Mae, showed a decrease in repurchase requests from $2.3 million to $1.8 million quarter over quarter and they are following the falling trend that you see at other originators like PHH.