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Full-Text Articles in Law
Countercyclical Regulation And Its Challenges
Countercyclical Regulation And Its Challenges
Patricia A. McCoy
What Loss Mitigation Taught Us About Housing Finance Reform, Patricia Mccoy
What Loss Mitigation Taught Us About Housing Finance Reform, Patricia Mccoy
Patricia A. McCoy
This blog post describes the implications of the recent US loss mitigation experience for housing reform.
Banking Law Manual: Federal Regulation Of Financial Holding Companies, Banks And Thrifts (Semi-Annual Supplement)
Patricia A. McCoy
No abstract provided.
Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen C. Engel, Patricia A. Mccoy
Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen C. Engel, Patricia A. Mccoy
Patricia A. McCoy
No abstract provided.
Rethinking Disclosure In A World Of Risk-Based Pricing, Patricia Mccoy
Rethinking Disclosure In A World Of Risk-Based Pricing, Patricia Mccoy
Patricia A. McCoy
In response to subprime loan abuses, it is common for policymakers to exhort consumers to comparison-shop for residential mortgages. This policy prescription ignores the fact that price revelation works differently in the prime and subprime markets, impeding search in subprime. In the prime market, lenders reveal firm prices for free, without requiring consumers to first submit loan applications. This dynamic, combined with Truth-in-Lending Act (TILA) disclosures that standardize prices, make it easy to comparison-shop for prime mortgages. In contrast, in the subprime market featuring risk-based pricing, consumers must reveal their creditworthiness before lenders can determine loan prices, which allows lenders …
Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen Engel, Patricia Mccoy
Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen Engel, Patricia Mccoy
Patricia A. McCoy
Today, Wall Street finances up to eighty percent of subprime home loans through securitization. The subprime sector, which is designed for borrowers with blemished credit, has been dogged by predatory lending charges, many of which have been substantiated. As subprime securitization has grown, so have charges that securitization turns a blind eye to financing abusive loans. In this paper, we examine why secondary market discipline has failed to halt the securitization of predatory loans.
When investors buy securities backed by predatory loans, they face a classic lemons problem in the form of credit risk, prepayment risk, and litigation risk. Securitization …
The Cra Implications Of Predatory Lending, Kathleen Engel, Patricia Mccoy
The Cra Implications Of Predatory Lending, Kathleen Engel, Patricia Mccoy
Patricia A. McCoy
Traditionally, policymakers, communities, and industry have regarded the Community Reinvestment Act ("CRA") as a positive mandate for banks and thrifts to do good by increasing investment in low- and moderate-income ("LMI") neighborhoods. When Congress enacted CRA, it was inconceivable that LMI neighborhoods might eventually receive too much credit in the form of abusive mortgages. However, by the late 1990s, predatory mortgages- exploitative high-cost loans to gullible borrowers-were ravaging the inner cities. We address the question: given the surge in predatory lending, how should CRA respond? CRA and federal subsidies to regulated lenders can create perverse incentives for lenders to engage …
The Home Mortgage Foreclosure Crisis: Lessons Learned
The Home Mortgage Foreclosure Crisis: Lessons Learned
Patricia A. McCoy
From 2007 through 2011, the United States housing market suffered a severe imbalance in supply and demand due to an excessive number both of foreclosed homes and homes awaiting foreclosure in the shadow housing inventory. Foreclosure prevention can help reduce the shadow housing inventory by keeping troubled mortgages from entering that inventory to begin with. The loan modification experience post-2008 yielded four main lessons about the best way to optimize foreclosure prevention. First, servicers should design loan modifications to lower monthly payments, including through principal reduction whenever appropriate. Second, servicers should evaluate loss mitigation as soon as possible following delinquency. …
Barriers To Foreclosure Prevention During The Financial Crisis
Barriers To Foreclosure Prevention During The Financial Crisis
Patricia A. McCoy
The number of modifications to distressed residential loans following the 2008 financial crisis has been disappointingly low compared to the number of foreclosures. This raises concerns about the presence of artificial barriers to loan modifications in situations where foreclosure should be avoidable. There are three pressing reasons to care about what the real barriers to foreclosure prevention are. First, foreclosures that could have been avoided inflict enormous, needless losses on borrowers, investors, and society at large. Second, overcoming artificial barriers to foreclosure prevention will result in loan modifications with higher rates of success. Finally, knowing what to fix is necessary …
Keeping Tabs On Financial Innovation: Product Identifiers In Consumer Financial Regulation
Keeping Tabs On Financial Innovation: Product Identifiers In Consumer Financial Regulation
Patricia A. McCoy
The financial crisis of 2008 gave rise to renewed discussion about whether financial innovations should undergo higher scrutiny for potential harm and, if so, what type? In this Article, the authors propose a new system for monitoring financial innovations through a system of registration, data collection and analysis using unique product identifiers. Creating product identifiers would increase monitoring abilities substantially at relatively low cost by facilitating the linkage of separate databases. The assignment of unique product identifiers would also minimize errors in the identification and classification of different financial products. These identifiers would be available to both the government and …
Mortgage Product Substitution And State Anti-Predatory Lending Laws: Better Loans And Better Borrowers?
Patricia A. McCoy
Mounting foreclosures and disclosures of abusive lending practices led many states to adopt new anti-predatory lending (APL) laws. Researchers have examined the impact of such laws on credit flows and the cost of credit. This research extends the literature by examining whether the market responded to these laws by substituting different mortgage products for those restricted by APL provisions. The evidence indicates that the laws were effective in restricting loans with targeted characteristics, and that the market substituted other product types to maintain access to credit and affordability in the face of these restrictions. The laws reduced the involvement of …
The Subprime Virus: Reckless Credit, Regulatory Failure, And Next Steps
The Subprime Virus: Reckless Credit, Regulatory Failure, And Next Steps
Patricia A. McCoy
In this lively new book, Kathleen C. Engel and Patricia A. McCoy tell the full story behind the subprime crisis. The authors, experts in the law and economics of financial regulation and consumer lending, offer a sharply reasoned, but accessible account of the actions that produced the greatest economic collapse since the Great Depression.
Federal Preemption, Regulatory Failure And The Race To The Bottom In Us Mortgage Lending Standards
Federal Preemption, Regulatory Failure And The Race To The Bottom In Us Mortgage Lending Standards
Patricia A. McCoy
No abstract provided.
Securitization And Systemic Risk Amid Deregulation And Regulatory Failure
Securitization And Systemic Risk Amid Deregulation And Regulatory Failure
Patricia A. McCoy
During the recent housing boom, private-label securitization without regulation was unsustainable. Without regulation, securitization allowed mortgage industry actors to gain fees and to put off risks. The ability to pass off risk allowed lenders and securitizers to compete for market share by lowering their lending standards, which activated more borrowing. Lenders who did not join in the easing of lending standards were crowded out of the market. Meanwhile, the mortgages underlying securities became more exposed to growing default risk, but investors did not receive higher rates of return. Artificially low risk premia caused the asset price of houses to go …
The Impact Of Predatory Lending Laws: Policy Implications And Insights
The Impact Of Predatory Lending Laws: Policy Implications And Insights
Patricia A. McCoy
Over half the states and several localities have enacted statutes and ordinances to regulate abuses in the residential mortgage market. The effect of these statutes is a matter of debate. This paper seeks to improve the understanding of this increasingly important issue and pays particular attention to the role that legal enforcement mechanisms play in this context.
We created a legal index of laws governing mortgage lending terms and practices, giving each state an overall score for the strength of its laws. In addition, we disaggregated the index to create sub-indices along three dimensions: (1) the scope of loans covered …
The Moral Hazard Implications Of Deposit Insurance: Theory And Practice
The Moral Hazard Implications Of Deposit Insurance: Theory And Practice
Patricia A. McCoy
No abstract provided.
The Legal Infrastructure Of Subprime And Nontraditional Mortgage Lending
The Legal Infrastructure Of Subprime And Nontraditional Mortgage Lending
Patricia A. McCoy
This paper provides a critical analysis of the legal landscape of residential mortgage lending and explains how federal law abdicated regulation of the subprime market. First, the paper presents the historical backdrop to government oversight of mortgage lending and identifies the changes to and innovations in the lending process that contributed to the recent transformation of the residential mortgage market. We then describe recent attempts at the state and federal level to re-regulate and the backlash initiated by the federal banking agencies to thwart regulation of their constituent banks through preemption, resulting in parallel universes of regulation. Next, the article …
Turning A Blind Eye: Wall Street Finance Of Predatory Lending
Turning A Blind Eye: Wall Street Finance Of Predatory Lending
Patricia A. McCoy
Today, Wall Street finances up to eighty percent of subprime home loans through securitization. The subprime sector, which is designed for borrowers with blemished credit, has been dogged by predatory lending charges, many of which have been substantiated. As subprime securitization has grown, so have charges that securitization turns a blind eye to financing abusive loans. In this paper, we examine why secondary market discipline has failed to halt the securitization of predatory loans.
When investors buy securities backed by predatory loans, they face a classic lemons problem in the form of credit risk, prepayment risk, and litigation risk. Securitization …
The Home Mortgage Disclosure Act: A Synopsis And Recent Legislative History
The Home Mortgage Disclosure Act: A Synopsis And Recent Legislative History
Patricia A. McCoy
This article describes the provisions of the federal Home Mortgage Disclosure Act (HMDA), tracing its legal evolution since 1989, when Congress expanded HMDA to require reporting of home mortgage lending by ethnicity and race. HMDA requires most lenders to report the demographic makeup and geographic distribution of home mortgages to the federal government. The 1989 amendments and later developments transformed HMDA from a law exclusively concerned with geographic disinvestment to one concerned with lending disparities by ethnicity and race. In the process, HMDA evolved from an obscure reporting statute to a flashpoint for debates over lending discrimination and subprime lending.
Rethinking Disclosure In A World Of Risk-Based Pricing
Rethinking Disclosure In A World Of Risk-Based Pricing
Patricia A. McCoy
The residential mortgage market in the United States has changed significantly since the passage of current federal mortgage disclosure laws in the 1960s and 1970s. In this Article, Professor Patricia McCoy advocates for the reform of these traditional disclosure rules. After describing the evolution of the subprime mortgage market and providing a description of current federal disclosure laws, she explores how these new market dynamics cause the traditional disclosure rules to break down in the subprime market. Professor McCoy concludes with proposals to counteract false advertising practices, facilitate "meaningful comparison-shopping, and formulate streamlined disclosures addressing loan applicants' greatest concerns in …
Predatory Lending And Community Development At Loggerheads
Predatory Lending And Community Development At Loggerheads
Patricia A. McCoy
For decades, cities have invested in decaying neighborhoods, leading to increases in home values and home equity. As a result, these neighborhoods have become ready targets for predatory lenders, who market their abusive loans to financially unsophisticated homeowners with home equity and no relationships with traditional lenders. Some borrowers lose their homes; others forsake home repairs to avoid default and foreclosure. Neighborhoods that once were stable become littered with abandoned and neglected homes, resulting in increased crime, falling home values, rising demands for social services, and lower tax revenues.
In the wake of the devastation done by predatory lenders, the …
A Behavioral Analysis Of Predatory Lending
Predatory Lending: What’S Wall Street Got To Do With It?,
Predatory Lending: What’S Wall Street Got To Do With It?,
Patricia A. McCoy
In this article, we examine the contention that the secondary market will exert sufficient market discipline to drive predatory home loan lenders from the subprime marketplace. Using a so‐called lemons model, we identify the potential risks that investors encounter if they buy securities backed by predatory home loans. We then explain how structured finance, deal provisions, pricing mechanisms, and legal protections shield investors from much of the risk that those loans entail.
While the secondary market does impose some discipline on the subprime home loan market, it is not enough to bring predatory lending to a halt. We provide rationales …
Predatory Lending Practices: Definition And Behavioral Implications
Predatory Lending Practices: Definition And Behavioral Implications
Patricia A. McCoy
No abstract provided.
Realigning Auditors' Incentives
A Tale Of Three Markets Revisited
Financial Modernization After Gramm-Leach-Bliley
Financial Modernization After Gramm-Leach-Bliley
Patricia A. McCoy
No abstract provided.
Musings On The Seeming Inevitability Of Global Convergence In Banking Law
Musings On The Seeming Inevitability Of Global Convergence In Banking Law
Patricia A. McCoy
No abstract provided.
The Law And Economics Of Remedies For Predatory Lending
The Law And Economics Of Remedies For Predatory Lending
Patricia A. McCoy
No abstract provided.