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Moderator, Regulation: Systemically Important Financial Institution (Sifi) Designations Dec 2014

Moderator, Regulation: Systemically Important Financial Institution (Sifi) Designations

Patricia A. McCoy

Moderated a roundtable discussion on proposals to subject the asset management industry to systemic risk oversight.


The Home Mortgage Foreclosure Crisis: Lessons Learned Oct 2014

The Home Mortgage Foreclosure Crisis: Lessons Learned

Patricia A. McCoy

Presentation of book chapter which explores the lessons learned from the nation's home mortgage loss mitigation initiatives.


Systemic Risk Oversight And The Shifting Balance Of State And Federal Authority Over Insurance Sep 2014

Systemic Risk Oversight And The Shifting Balance Of State And Federal Authority Over Insurance

Patricia A. McCoy

The presentation explored the implications of systemic risk regulation for the allocation of authority for state and federal insurance regulation.


Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen C. Engel, Patricia A. Mccoy Aug 2014

Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen C. Engel, Patricia A. Mccoy

Patricia A. McCoy

No abstract provided.


Countercyclical Regulation And Its Challenges Jun 2014

Countercyclical Regulation And Its Challenges

Patricia A. McCoy

The paper presented examines legal and institutional challenges to implementing countercyclical regulation in financial services. Also presented in June 2014 at a Suffolk University Law School Faculty Workshop in Boston, MA.


“The Protective Function Of Automobile Insurance From The Perspective Of Judicial Adjudication May 2014

“The Protective Function Of Automobile Insurance From The Perspective Of Judicial Adjudication

Patricia A. McCoy

This talk explored the social tensions between making mandatory auto insurance affordable and the solvency of those insurance plans.


Moderator, Big Data And The Paradigm Of Insurance Apr 2014

Moderator, Big Data And The Paradigm Of Insurance

Patricia A. McCoy

Moderated a panel on the theoretical paradigm of big data and insurance.


Market Conduct Supervisors And Their Interactions With Prudential Authorities Mar 2014

Market Conduct Supervisors And Their Interactions With Prudential Authorities

Patricia A. McCoy

This presentation addressed potential commonalities and conflicting interests of market conduct and prudential supervisors.


Rethinking Disclosure In A World Of Risk-Based Pricing, Patricia Mccoy Mar 2014

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 Mar 2014

Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen Engel, Patricia Mccoy

Patricia A. McCoy

No abstract provided.


A Tale Of Three Markets: The Law And Economics Of Predatory Lending, Kathleen Engel, Patricia Mccoy Mar 2014

A Tale Of Three Markets: The Law And Economics Of Predatory Lending, Kathleen Engel, Patricia Mccoy

Patricia A. McCoy

Predatory lending - the practice of making exploitative high-cost loans to naive borrowers - has spurred policy-makers, activists, lenders and scholars to debate whether intervention is warranted and, if so, what type of intervention is appropriate. The solution requires understanding the incentives in the home mortgage market that have fueled predatory lending. Recent changes in the credit market have created new possibilities for lenders to profit by exploiting information asymmetries to the detriment of unsophisticated borrowers. As a result, a new, predatory lending market has emerged alongside the legitimate prime and subprime home mortgage markets. Neither market forces nor existing legal remedies ...


Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen Engel, Patricia Mccoy Mar 2014

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 Mar 2014

The Cra Implications Of Predatory Lending, Kathleen Engel, Patricia Mccoy

Patricia A. McCoy

This article considers the Community Reinvestment Act's role in combating predatory lending. It provides an overview of the CRA, explains how CRA-covered lenders may enable predatory lending and explores the relationship between the CRA, federal subsidies and predatory lending. The article concludes that the CRA should be used to penalize lenders that engage in predatory lending and recommends that federal bank regulators use CRA to sanction behavior that could encourage further predatory lending.


The Cra Implications Of Predatory Lending, Kathleen Engel, Patricia Mccoy Mar 2014

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 Dec 2013

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 Dec 2012

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 Dec 2012

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 ...


The Consumer Financial Protection Bureau: Financial Regulation For The 21st Century Jun 2012

The Consumer Financial Protection Bureau: Financial Regulation For The 21st Century

Patricia A. McCoy

After existing regulatory systems failed to prevent the recent financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, a sweeping reform designed to alleviate the crisis and prevent its recurrence. Out of this Act, the Consumer Financial Protection Bureau was born. This new agency is charged with making markets for consumer financial products and services work for Americans, a task that was previously spread out among seven different federal agencies with varying priorities. This Article describes, with a series of concrete case studies, four key principles that have guided the Bureau as it strives to fulfill ...


Federal Preemption And Consumer Financial Protection: Past And Future Feb 2012

Federal Preemption And Consumer Financial Protection: Past And Future

Patricia A. McCoy

Starting in 1995 and throughout the subprime boom during the next decade, Congress failed to take action to curb predatory mortgage lending. Many states and cities filled the void by passing anti-predatory lending laws of their own. Lenders, worried about potential liability, quickly organized a full-scale attack on the state and local initiatives. Their most potent strategy lay in challenging the laws and ordinances under federal preemption rules for national banks and federal savings associations that precluded states from enforcing their anti-predatory lending laws.

The Dodd-Frank Act curtailed the preemption rules by establishing that state consumer financial laws can only ...


Public Engagement In Rulemaking: The Consumer Financial Protection Bureau’S New Approach Dec 2011

Public Engagement In Rulemaking: The Consumer Financial Protection Bureau’S New Approach

Patricia A. McCoy

No abstract provided.


Mortgage Product Substitution And State Anti-Predatory Lending Laws: Better Loans And Better Borrowers? Dec 2011

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 Dec 2010

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 Dec 2009

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 Apr 2009

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 ...


Il Contagio Dei Subprime Dec 2008

Il Contagio Dei Subprime

Patricia A. McCoy

No abstract provided.


From Credit Denial To Predatory Lending: The Challenge Of Sustaining Minority Homeownership Dec 2007

From Credit Denial To Predatory Lending: The Challenge Of Sustaining Minority Homeownership

Patricia A. McCoy

Years of discriminatory behavior against minority households have damaged their ability to build wealth. One of the most financially destructive practices endured by minority households is the excessive overpayment to finance a home purchase or access accumulated equity in a home. The market conditions that position blacks, and to a lesser extent, Latino households, to be the principal targets of predatory mortgage lending have their roots in decades of legally sanctioned housing market discrimination. Some minority households lack the financial knowledge or awareness to protect themselves. In other cases, years of discriminatory financial practices have contributed to rendering them ineligible ...


The Impact Of Predatory Lending Laws: Policy Implications And Insights Dec 2007

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 Dec 2007

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 Dec 2007

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 Feb 2007

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 ...