Law Commons^™

Countercyclical Regulation And Its Challenges

Patricia A. 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.

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

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

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 …

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

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

Patricia A. McCoy

No abstract provided.

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

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 …

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

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

Patricia A. McCoy

No abstract provided.

Realigning Auditors' Incentives

Patricia A. McCoy

No abstract provided.

A Tale Of Three Markets Revisited

Patricia A. McCoy

No abstract provided.

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

Patricia A. McCoy

No abstract provided.

Technology Shifts And The Law: Year 2000 Readiness For Banks And Thrifts

Patricia A. McCoy

No abstract provided.

Review, International Banking By Michael P. Malloy

Patricia A. McCoy

No abstract provided.

Levers Of Law Reform: Public Goods And Russian Banking

Patricia A. McCoy

No abstract provided.

A Political Economy Of The Business Judgment Rule In Banking: Implications For Corporate Law

Patricia A. McCoy

No abstract provided.