Law Commons^™

Rebalancing Public And Private In The Law Of Mortgage Transfer, John P. Hunt

John P Hunt

The law governing the United States’ $13 trillion mortgage market is broken. Courts and legislatures around the country continue to struggle with the fallout from the effort to build a 21st century global market in mortgages on a fragmented, arguably archaic legal foundation. These authorities’ struggles stem in large part from the lack of clarity about the legal requirements for mortgage transfer, the key process for contemporary mortgage finance.

We demonstrate two respects in which American mortgage transfer law is unclear and offer suggestions for fixing it. Revisions to the Uniform Commercial Code adopted around the turn of the century …

Ten Dollars For 10,736 Mortgages: Should Nominal Consideration Supersede Real Property Recording Law, John P. Hunt

John P Hunt

Our review of mortgage securitization transactions from 2005 to 2007 suggests that many intermediate mortgage transfers structured as promissory note sales involved the exchange of only nominal or other dubious consideration. The Uniform Commercial Code requires consideration “sufficient to support a simple contract” as a prerequisite for treatment of a transaction as a promissory note sale. Treatment as a sale triggers the Code’s “mortgage follows the note” provisions, which may protect transactions from claims that the mortgages involved are unenforceable, are vulnerable to competing claimants, or were never transferred in the first place. Mortgage securitization transactions are potentially exposed to …

All In One Basket: The Bankruptcy Risk Of A National Agent-Based Mortgage Recording System, John P. Hunt

John P Hunt

Mortgage Electronic Registration Systems, Inc. (“MERS, Inc.”) owns legal title to some 30 million mortgages in the United States. The company, which was a key part of the mortgage securitization apparatus in the late 1990s and 2000s, is now under intense pressure from public and private lawsuits and investigations and faces a very real threat of insolvency. Policymakers are looking ahead to potential replacements for MERS, Inc., as a recent Fed staff proposal for a substitute system indicates. This Article examines what might happen to the mortgages that MERS, Inc. at least nominally owns in the event that the company …

The End Of Mortgage Securitization? Electronic Registration As A Threat To Bankruptcy Remotenes, John P. Hunt, Richard Stanton, Nancy Wallace

John P Hunt

A central tenet of asset securitization in the United States—that assets are bankruptcy remote from their sponsors—may be threatened by innovations in the transfer of mortgage loans from the loan-originators (sponsors) to the legal entities that own the mortgage pools (the Special Purpose Vehicles (SPVs)). The major legal argument advanced in the paper is that because the mortgage is an interest in real property, the bankruptcy-remoteness rules applicable to real property, including § 544(a)(3) of the Bankruptcy Code, create a risk to the bankruptcy remoteness of mortgage transactions unless proper recording occurs. We review the traditional mortgage transfer process and …

Credit Ratings In Insurance Regulation: The Missing Piece Of Financial Reform, John P. Hunt

John P Hunt

Many commentators, including the Financial Crisis Inquiry Commission, have identified the poor quality of credit ratings as an important cause of the recent financial crisis. The leading agencies all have acknowledged poor performance in some areas. One popular explanation for agencies’ poor performance is the incorporation of ratings into regulations. Rating-dependent regulation arguably reduces agencies’ incentives to do a good job (by creating artificial demand for ratings) and amplifies the negative effects of their doing a bad job (by creating regulatory consequences for rating downgrades).

Last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act apparently embraced this explanation wholeheartedly: …