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Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System
Abstract
At the roots of the worst recession since the Great Depression were unaffordable home mortgages packaged into securities, sold to investors, and used as capital assets by financial institutions. The process of securitization, as well as financial institution over-leveraging associated with it, has been well documented and explored. However, there is one company that was a party to more questionable loans and foreclosures than any other and yet has received virtually no attention in the academic literature. Mortgage Electronic Registration Systems, Inc., commonly referred to as “MERS,” is the recorded owner of over half of the nation’s residential mortgages. MERS operates a computer database designed to track servicing and ownership rights of mortgage loans anywhere in the United States. But, it also acts as a proxy for the real parties in interest in county land title records. Most importantly, MERS is also filing foreclosure lawsuits on behalf of financiers against hundreds of thousands of American families. This Article explores the legal and public policy foundations of this odd, but extremely powerful, company that is so attached to America’s financial destiny. It begins with a brief explanation of the origins of the county real property recording systems and the law governing real property liens. Then, it explains how MERS works, why mortgage bankers created the company, and what MERS has done to transform the underlying assumptions of state real property recording law. Next, it explores controversial doctrinal issues confronting MERS and the companies that have relied on it, including (1) whether MERS actually has standing to bring foreclosure actions; (2) whether MERS should be considered a debt collector under the federal Fair Debt Collection Practices Act; and (3) whether loans recorded in MERS’ name should have priority in various collateral competitions under state law and the federal bankruptcy code. The article culminates in a discussion of MERS’ culpability in fostering the mortgage foreclosure crisis and what the long term effects of privatized land title records will have on our public information infrastructure. The Article concludes by considers whether the mortgage banking industry, in creating and embracing MERS, has subverted the democratic governance of the nation’s real property recording system.
... This extends a conventional understandings of the housing boom and subsequent bust, wherein only private agents engaged in legal play with property. For instance, in the hands of agents such as the Mortgage Electronic Recording System (MERS) -a consortium that centralizes mortgage deeds to facilitate their transfer in secondary markets -lenders were seen as exercising novel approaches to the organization of property claims within proprietary digital systems (Peterson 2010). In the wake of the crisis, however, developments such as widespread litigation against MERS by county property recorders, employing doctrines such as fraud and unjust enrichment, have shown how 'relational' legal doctrines (Valverde 2011) can be brought to bear on the governance of property in new and creative ways (Zacks 2013). ...
... They are further fragmented by the commodity chain of mortgage-backed securities, which reassign certain aspects of the debt relationship -such as mortgage servicing and local REO upkeep -to thirdparty entities (Newman 2009). The rapid expansion of the Mortgage Electronic Registration System (MERS) in the 2000s meant that assignment of mortgage claims within secondary markets occurred digitally -through a private, proprietary database (Peterson 2010) -cutting off one of the primary tools of property governance available to localities: its ability to use control over the public land title system to structure property-level interventions (Newman 2010). ...
This chapter examines the shifting spaces of local governance of housing markets and neighborhood stabilization in the wake of the US foreclosure crisis. In the absence of a sustained federal policy response to the local dimensions of the crisis – namely, dramatic increases in vacant, bank-owned buildings – responsibility has devolved to localities struggling with diminished tax bases and increased service costs. I focus in particular on the ‘juridification’ of urban governance within a contingent legal space seeking to rework property rights to displace responsibility for foreclosed properties back onto large banks. This juridical space has included expansion of traditional rules regarding property upkeep, new applications of eminent domain and land acquisition powers, as well as creative deployments of legal doctrines of nuisance, fair lending, and unjust enrichment within private litigation. This juridical space has critically involved bringing new agency capabilities, analytical capacities, and public-private partnerships to bear on mundane questions of ownership and property registration. However, I also focus on how this juridical space is constrained by the scalar construction of bank powers within state and federal financial regulations, which produce a hyper-local scope of legal authority, often on a property-by-property basis.
... [ Insert Table 4 The rapid success of MERS, which by 2007 registered two-third of new mortgage loans [43], suggests that the initial data governance arrangements at MERS were acceptable to charter and associate members. However, in the wake of the financial crisis, these arrangements became controversial to the public and were subsequently changed. ...
... Consequently, many lawsuits were brought against MERS over this issue [28,43,48]. ...
Business-to-business interactions are increasingly conducted through interorganizational coordination hubs, in which standardized IT-based platforms provide data and business process interoperability for interactions among the organizations in particular industrial communities. Because the governance of interorganizational arrangements is believed to affect their efficiency and effectiveness, this paper explores how and why interorganizational coordination hubs are governed. Analysis of relevant prior theory and case examples shows that coordination hub governance is designed to balance the sometimes conflicting needs for capital to invest in new technology, for participation of industry members, and for the protection of data resources. Findings suggest that the governance of interorganizational coordination hubs is not the starkly categorical choice between collective (member-owned) and investor-owned forms as suggested by prior theory. Instead, many hybrid arrangements are observed in the five examined cases. Future theoretical development and empirical research are needed to understand the increasingly important phenomenon of coordination hub governance.
... US 10 . This geographical diversity is reproduced in the way in which these mechanisms are ruled and operated, which in turn renders registrations or searches within those county-based registries inefficient (in terms of both cost and time) and unreliable 11 . Some authors consider that these county registries are "a terribly cumbersome, paper-intensive, error-prone, and therefore costly process for transferring and tracking mortgage rights" 12 . ...
Study of legal reactions to the 2007 crisis in Europe.
... MERS transformed the assignment of mortgage deeds (collateral) from a localized, paperdriven recording system (as featured prominently in Rogers' account of land settlement), into a centralized, digitized, and proprietary accounting system. Started in 1994, MERS has become a critical agent in the housing finance process -representing some 60,000,000 mortgage loans as of 2007 (Peterson 2010(Peterson : 1362) -by acting as delegate for investors when mortgage claims are traded on secondary markets, and by acting as investors' agent in foreclosure proceedings against delinquent owners. As an alternative vignette to those offered by Rogers, MERS highlights how real estate as collateral has become less distinct relative to other "assets" through its integration of digital technology. ...
... Further work along these lines came in the form of the Mortgage Electronic Registration System (MERS), a GSE-sponsored initiative to centralize electronic assignment of mortgage deeds without costly and time-consuming paper recording. From its beginning in 1995, the MERS had sixty million mortgage loans registered on its system by 2007(Peterson 2009). ...
This article examines the postfinancial crisis reregulation of US housing finance, focusing on reforms to rein in excessive risk taking and reconstitute the private circulation of mortgage debt. We begin by situating current initiatives—namely, the Dodd-Frank Act of 2010—in a much longer trajectory of attempts to construct a national market for home mortgages. Following the theorization of the economy of qualities by Callon, Méadel, and Rabeharisoa, we argue that a dominant theme throughout has been creating or fixing mortgage markets by performing work on the commodities—the mortgage products—that circulate in them. In light of this history, we argue that Dodd-Frank's primary novelty lies in the way it alters relations between those products and market-supporting institutions, laws, and regulations. We conclude that this shapes a new set of contradictions and conflicts between market liquidity and risk taking, on the one hand, and the original concerns with financial safety and soundness.
This article examines the ongoing transformation of mortgage markets induced by blockchain applications for property transactions. It argues that their adoption can reshape housing finance by re-inventing the qualities of products circulating therein. This process was evident in Sweden, where a public-private consortium pioneered the use of blockchain to orchestrate the conveyance and mortgaging of residential properties. Following the interdisciplinary cultural economy literature on marketization, and building on the analysis of 24 semi-structured interviews, this article demonstrates that by integrating technology with the legacy Land Administration System (LAS), the experiment offered a way to “fix” the Swedish mortgage market, through re-engineering conveyance workflow and supplying mortgages with a transparent audit trail. Circulating such radically new products could reconcile contradictions between Swedish mortgage market liquidity and risk-taking on the one hand and longstanding concerns about its financial safety for consumers on the other. This created unanticipated risks, however, which shaped the outcome of the experiment. This research makes two contributions. First, it re-centres the critical but overlooked LAS in shaping mortgage circulation and in materializing the connection between the urban fabric, mortgage markets, and global finance. Second, it provides a more nuanced understanding of the ongoing blockchain-induced mortgage market remaking and its socio-economic impact. It contends that at this early stage of the technology adoption, taking a step back to better understand the role of LAS in structuring housing finance opens the door to consider why the outcomes of these experiments result in little more than a reintroduction of the existing socioeconomic relations.
We examine the effects of the Mortgage Electronic Registration System, or MERS, on mortgage origination volumes and foreclosure rates prior to the Great Recession. MERS was introduced in the late 1990s and significantly reduced the cost and time associated with secondary mortgage sales. Using novel data from the Massachusetts Registry of Deeds, we show that the introduction of MERS led to an expansion in mortgage credit supply that was primarily fueled by nonbank lenders originating mortgages to low-income borrowers. We also find that foreclosure rates were higher on these mortgages. Our paper provides a new explanation for the credit supply increases observed prior to the 2008 financial crisis and for the disproportionate supply increase observed in low-income areas.
Behind the systemic crisis originated in the United States of America in 2007 there are legal issues related to the lack or the inef ciency of the typical elements of a modern system of land credit: effec- tive land register, banking system and mortgage securities. Generalization of homeownership has been identi ed as one of the causes of the crisis origination and now homeownership is suffering its consequences; that is, that which is changed in its nancial aspect, affects also its human right one and vice-versa. The article studies how all this is in uencing the way by which housing is perceived in current Spanish private legal system, which traditionally has had not paid much attention to it. Moreover, the article stresses that relying on homeownership as the single type of housing tenure entails certain risks, some coming from institutions such as the reverse mortgage or the externalities it causes to other elds of social reality, such as employment. New intermediate tenures in Catalonia are pointed out as possible alternative housing tenures.
Several US counties and local governments have recently considered a novel solution to the foreclosure crisis. They plan to use eminent domain to compel the owners of mortgage debt—and specifically of private-label mortgage-backed securities—to sell the debt to the government at a price reflecting the loan's market value. The government would then restructure the debt and resell it to new investors. The plans are striking because—in contrast to both development-driven eminent domain and the federal subprime bank bailout—they would force investors to assume asset devaluation and increased long-term risk. Notably, the plans have emerged as an instance of financialization-focused politics in suburbs and suburban cities of color, specifically majority-black and -Latino/a suburbs. Local support for the plans, we argue, is rooted in the long-term disinvestment of these ‘suburbs of exception', which became targets of subprime lending and eventually sites where the ‘financial exception' has been localized. But these demographic shifts, fragmentation and fiscal pressures have at the same time created a suburban political terrain in which the plans have gained their strongest political support.
Liquid Foundations—Debt, Default and the Limits of Epistemology e critique of epistemology has assumed an unusually prominent role in academic reection on the recent nancial crisis. As the consequences of the subprime debacle continue to unfold in scal crises of the state, austerity measures, currency wars, and mass unemployment, attention has turned to the role played by nancial models in predicting (and failing to predict) the economic risk inherent in complex nancial instruments such as mortgage-backed securities [MBSs], col-lateralized debt obligations [CDOs] and credit default swaps [CDSs]. Retrospective analyses have focused, in particular, on the failure of economic models to predict failure-the mass delinquency, that is, of subprime borrowers whose unantici-pated levels of default set o the chain of events that led to a full-blown liquidity crisis in the summer of. Since the AAA ratings assigned to CDOs had been based on sophisticated mathematical models of credit risk, it is inferred that critical reection on the nancial crisis must be concerned with economic knowledge, its limits, and the possibility of its reform Without a doubt, it was the assumptions of neoclassical nance and the ecient market hypothesis that underwrote the overwhelming certitude of economic knowledge during this period. For economists within this tradition, the liquidity of transactions is ensured by the fact that in perfectly competitive markets, full and complete information would allow each market participant to price and trade products at their correct value. Within this perspective, liquidity requires a certain standardization of knowledge about the future-the ability, that is, to oer an objective, mathematical evaluation of future risks.
During the Global Financial Crisis, millions of homeowners received foreclosure notices. Many of these notices were sent by attorneys, and informed consumers of an impending mortgage foreclosure. Courts are split on whether foreclosures must conform with the Fair Debt Collection Practices Act (FDCPA). In order to be subject to the FDCPA, an entity must meet the statutory definition of "debt collector." Courts struggle with whether foreclosure attorneys fall under this definition. This Note examines this conflict, and suggests a fact-sensitive framework for evaluating whether foreclosure attorneys are debt collectors.
Introduction. Intellectual property (IP) scholars often contrast tangible and intangible property schemes on the basis of how much information is readily available about the identity of property owners and the nature of their rights. Typically, the comparison holds up tangible property – real property in particular – as the model of successful information provision. Physical signs can provide clues that a piece of land is owned by someone (often the person in possession). Public records indicate exactly who that someone is and reveal details about the physical dimensions of the parcel, how its ownership has changed over time, and whether express encumbrances (liens, servitudes, etc.) complicate ownership. These sources of information help prevent inadvertent trespass by those who wish to avoid invading private land; they facilitate consensual transactions for those who seek permission to use or buy it. IP rights, by contrast, do not so neatly correspond either to physical things in the world or to public records signifying ownership and identifying owners. Of course, physical objects can embody intellectual works – a book can embody a copyrighted story, for example. But ownership of the physical object does not necessarily (or even usually) correspond to ownership of the IP right or vice versa.
Charles Reich's visionary 1964 article, The New Property, paved the way for a revolution in procedural due process. It did not, however, accomplish Reich's primary stated goal: providing those dependent on government assistance the same security that property rights long have offered owners of real property. As Reich himself predicted, procedural rights have proven largely ineffectual, especially for low-income people. In the half-century since he wrote, growing wealth inequality and repeated cutbacks in antipoverty programs have produced the pervasive disempowerment he predicted, but concentrated in one segment of society. This is incompatible with a healthy democracy. Reich found that government largesse had become functionally equivalent to more traditional forms of property. Other analogies to property concepts can also protect low-income people, supporting recognition of the most important assets low-income people have, many of which are relational rather than tangible. Like long-time trespassers obtaining ownership rights through adverse possession, families that have long lived together in this country should be able to continue doing so despite the unlawful immigration status of some of their members. The law should value the communities that offer mutual support to low-income people in much the same way as it does common interest communities. Principles of equity that long shielded less sophisticated people against sharp operators should be revived to protect low-income people's homes against abusive foreclosures. And modern Takings Clause doctrine should recognize subsistence government benefits as property. A regime of property law that secures that which is most essential to the well-being of a broad swath of society, rather than just those items disproportionately held by the wealthy, will best promote social, economic, and political participation by all people.
The subprime mortgage crisis has been blamed on many: the Bush Administration, Bernie Madoff, the financial industry, overzealous housing developers. Yet little scrutiny has been placed on the American legal system as a whole, even though parts of that system, such as the laws that regulate high-risk lending, have been dissected to bits and pieces. In this innovative and exhaustive study, Steven A. Ramirez posits that the subprime mortgage crisis, as well as the global macroeconomic catastrophe it spawned, is traceable to a gross failure of law. The rule of law must appropriately channel and constrain the exercise of economic and political power. Used effectively, it ensures that economic opportunity isn't limited to a small group of elites that enjoy growth at the expense of many, particularly those in vulnerable economic situations. In Lawless Capitalism, Ramirez calls for the rule of law to displace crony capitalism. Only through the rule of law, he argues, can capitalism be reconstructed.
Almost everyone who follows politics or economics agrees on one thing: more regulation means less freedom. Joseph William Singer, one of the world’s most respected experts on property law, explains why this understanding of regulation is simply wrong. While analysts as ideologically divided as Alan Greenspan and Joseph Stiglitz have framed regulatory questions as a matter of governments versus markets, Singer reminds us of what we’ve willfully forgotten: government is not inherently opposed to free markets or private property, but is, in fact, necessary to their very existence. Singer uses the recent subprime crisis to demonstrate: • Regulation’s essential importance for freedom and democracy • Why consumer protection laws are a basic pillar of economic freedom • How private property rests on a regulatory infrastructure • Why liberals and conservatives actually agree on these relationships far more than they disagree This concise volume is essential reading for policy makers, philosophers, political theorists, economists, and financial professionals on both sides of the aisle.
More than seventy-seven million Americans have a debt in collections. Many of these debts will be sold to debt buyers for pennies, or fractions of pennies, on the dollar. This article details the perilous path that debts travel as they move through the collection ecosystem. Using a unique dataset of eightyfour consumer debt purchase and sale agreements, it examines the manner in which debts are sold, oftentimes as simple data on a spreadsheet, devoid of any documentary evidence. It finds that in many contracts, sellers disclaim all warranties about the underlying debts sold or the information transferred. Sellers also sometimes refuse to stand by “the accuracy or completeness of any information provided.” After discussing potential explanations for these issues, the article suggests that lax regulation and a collective action problem prevents the market from self-correcting. It concludes by recommending that the Consumer Financial Protection Bureau declare the collection of consumer debts sold in this way as an unfair or deceptive act or practice.
The housing crisis has left in its wake an ongoing legal crisis. After housing markets began to collapse across the country in 2007, foreclosures and housing-related bankruptcies surged significantly and have barely begun to abate more than six years later. As the legal system has confronted this aftermath, courts have increasingly accepted claims by borrowers that lenders and other entities involved in securitizing mortgages failed to follow requirements related to perfecting and transferring their security interests. These cases – which focus variously on issues such as standing, real party in interest, chains of assignment, the negotiability of mortgage notes, and the like – signal renewed formality in nearly every aspect of the resolution of mortgage distress. This new formalism in the aftermath of the housing crisis represents something of an ironic turn in the jurisprudence. From the earliest history of the mortgage, lenders have had a tendency to invoke the clear, sharp edges of law, while borrowers in distress have often resorted to equity for forbearance. The post-crisis caselaw thus upends the historical valence of lender-side formalism and borrower-side flexibility. Building on this insight, this Article makes a normative and a theoretical claim. Normatively, while scholars have largely embraced the new formalism for the accountability it augurs, this consensus ignores the trend’s potential negative consequences. Lenders have greater resources than consumers to manage the technical aspects of mortgage distress litigation over the long run, and focusing on formal requirements may distract from responding to deeper substantive and structural questions that still remain largely unaddressed more than a half decade into the crisis. Equally telling, from a theoretical perspective, the new formalism sheds light on the perennial tension between law’s supposed certainty and equity’s flexibility. The emerging jurisprudence underscores the contingency of property and thus reinforces – again, ironically – pluralist conceptions of property even in the crucible of hard-edged formalism.
This essay critically examines MERS' structure which incorporates principles of dubious legality such as a theory of common agency as well as a duality of roles held by MERS. The article examines many recent decisions in state, federal and bankruptcy courts in order to identify current trends regarding MERS-related jurisprudence. The essay also provides an in-depth discussion of the historical issue of severing a promissory note and a mortgage, and how that can prove to be fatal in some cases but not others (depending especially on the forum). The article concludes with a proposal for the creation of a federal data clearinghouse akin to the EDGAR system for publicly held companies, to document ownership and transfers of mortgages and promissory notes in a secondary market.
In order to understand why unjustified enrichment creates property rights it is necessary to understand what we mean by property rights in general, and trusts in particular. Confusion has been created by failing to distinguish between the different kinds of property rights there are.The paper seeks to defend the general treatment of property rights within the Restatement (Third) of Restitution and Unjust Enrichment.
In the current fallout from the foreclosure crisis and the securitization of mortgages, an old procedural doctrine is becoming increasingly relevant to homeowners facing foreclosure. The doctrine of standing is surfacing in the contexts of judicial foreclosure and bankruptcy proceedings as a defense to the foreclosing party’s right to foreclose. Defendants and debtors are affirmatively compelling lenders to produce evidence of ownership of the underlying note and mortgage, and lenders are increasingly falling victim to the same haste and lack of foresight that led to the crisis. Additionally, courts are beginning to raise these issues on their own, a sign that they are inclined not to allow lenders to foreclose without properly protecting the homeowners at risk. This protective stance, however, fails to reach the homeowners whose foreclosures occur outside the judicial system. Numerous defects in standing and ownership of the mortgages pass through non-judicial foreclosure without any scrutiny, and homeowners’ interests in retaining ownership of their property will continue to suffer unless legislators respond with laws requiring proof of ownership of the loan before foreclosure.
Many state courts draw heavily from federal justiciability principles to determine whether they can and should resolve particular disputes. Other state courts, however, diverge from Article III doctrine by offering advisory opinions, resolving moot disputes, and deciding political questions. In this Article, Professor Hershkoff examines whether the premises of federal justiciability doctrine are applicable to state judicial systems, in particular when state courts adjudicate disputes involving positive rights and structural provisions in state constitutions that are absent from the federal Constitution. Federal justiciability doctrine, she argues, rests on concerns that relate to common law traditions, separation of powers, and federalism and are not completely apposite to state court adjudication. She contends that, rather than automatically adhere to a federal model, state courts should independently construct judicial access rules to promote the purposes of state and local governance, including the need to encourage self governance and public participation, to promote community through the provision of public goods, to curb faction-dominated decisionmaking, and to cure adverse externalities and spillovers. Recognizing that some commentators may argue that her proposed approach to state justiciability doctrine places undue strain on state judicial systems, she suggests that state courts can alleviate some of these concerns through the use of adjudicative techniques that distinguish the form of judicial decisionmaking from that of other governmental actors and also protect important public and private interests.
In the past two decades the American home mortgage lending market has seen the development of controversial loans which consumer advocates, federal regulators, as well as many lenders have come to call "predatory." Critics of these businesses complain that lenders make loans borrowers cannot repay in anticipation of foreclosing on the family home. Responding to the complaints of their constituents, dozens of state legislatures and local governments have passed statutes and ordinances attempting to prohibit unfair contractual terms. At the same time federal banking regulators have moved to preempt these state laws, placing state and federal leaders on a collision course. Moreover, Congress is actively considering the elimination of all state mortgage lending regulations. This article reviews predatory lending contractual terms; discusses current and past social policy focusing on the American tradition of combined federal and state regulation; and, explores potential unintended consequences from federal preemption of state law. Finally, it suggests current efforts to preempt state and local predatory lending law have more to do with a deregulatory agenda than with regulating commercial activity at the most efficient level of government.
The greatest fear of many families in serious financial trouble is that they will lose their homes. Bankruptcy offers a last chance for families save their houses by halting a foreclosure and by repaying any default on their mortgage loans over a period of years. Mortgage companies participate in bankruptcy by filing proofs of claims with the court for the amount of the mortgage debt. In turn, bankruptcy debtors pay these claims to retain their homes. This process is well-established and, until now, uncontroversial. The assumption is that the protective elements of the federal bankruptcy shield vulnerable homeowners from harm. This Article examines the actual behavior of mortgage companies in consumer bankruptcy cases. Using original data from 1700 recent Chapter 13 bankruptcy cases, I conclude that mortgage servicers frequently do not comply with bankruptcy law. A majority of mortgage claims are missing one or more of the required pieces of documentation for a bankruptcy claims. Fees and charges on claims often are poorly identified and do not appear to be reasonable. The bankruptcy data reinforce concerns about the overall reliability of the mortgage service industry to charge homeowners only the correct and legal amount of the debt and to comply with applicable consumer protection laws. Mistakes or misbehavior by mortgage servicers can have grave consequences. Bloated claims can jeopardize a family's ability to save their home in bankruptcy. On a system level, mistakes or misbehavior by mortgage servicers undermine America's homeownership policies for all families trying to buy a home. The data also reinforce concerns about whether consumers can trust financial institutions to adhere to applicable laws. The findings are a chilling reminder of the limits of formal law to protect consumers. Imposing unambiguous legal rules does not ensure that a system will actually function to safeguard the rights of parties. Observing the reality that laws can underperform or even misfire has crucial implications for designing legal systems that produce acceptable and just behavior.
A pitched battle is currently being waged for control of the American banking industry. For over a hundred years, the federal and state governments have maintained a complex, but relatively stable truce in their contest for power. At the beginning of our republic, state governments were the primary charterers and regulators of banks. In the wake of the Civil War, the National Bank Act created parity between federal and state banks, cementing the notion of a dual banking system that endured through the twentieth century. But in the past five years, the federal government has increasingly used its powers under the Supremacy Clause of the U.S. Constitution to grab new authority for federal banking regulators and for federally chartered depository institutions. A series of controversial federal regulations have preempted the application of state consumer protection laws directed at prevention of predatory lending by national banks and thrifts. The preempted state laws address a recent rash of fraudulent, deceptive, and unconscionable lending that is having a corrosive effect on minority communities, senior citizens, and the entire lower middle class. In a related move, federal banking regulators have also recently preempted the application of state law to independent contractors of national banks and thrifts. This essay explains the potentially far reaching impact of federal preemption of state regulation of independent contractors. If these determinations are upheld, thousands of businesses, including insurance agents, mortgage brokers, and automobile dealers, will be placed beyond state oversight - provided that they have agency relationships with a national bank or thrift. Moreover, this essay uses economic agency cost theory to explore the potential for mischief posed by placing bank and thrift agents beyond the reach of state government. In particular, I argue that bank and thrift agents, by their nature, have lower incentives to forego predatory lending than the depository institutions themselves. Given the limited resources of federal banking regulators and their primary focus on safety and soundness, I conclude that preemption of state regulation of bank and thrift agents is currently inadvisable.
This short and accessible paper, based on a keynote speech for a law review symposium, addresses how and why the financial crisis occurred and what should be done to avoid future crises. Among other things, the paper explains why neither the making of subprime mortgages nor the originate-and-distribute model pursuant to which these mortgages were monetized was per se evil; why the governmental regulatory structure failed to deter the crisis; and why the governmental bailout plan under the Emergency Economic Stabilization Act is critically needed and where it may be deficient. The paper also explains the difficulties in valuing mortgage-backed securities and in locating the ultimate holders of risk under credit default swaps and the relationship between financial market breakdown and counterparty risk.
Statements of General Policy or Interpretation Staff Commentary on the Fair Debt Collection Practices Act, 53 Fed) 197. Stubbs, 330 B.R. at 730 (footnote omitted). 198. LIPTON, supra note 26
- S Rep
- Tale Of
- Greed
- And Fraud
- Ignorance
S. REp. No. 95-382, at 3-4 (1977); Statements of General Policy or Interpretation Staff
Commentary on the Fair Debt Collection Practices Act, 53 Fed. Reg. 50,097, 50,103 (Dec. 13, 1988)
197. Stubbs, 330 B.R. at 730 (footnote omitted).
198. LIPTON, supra note 26, at 3.
199. 14 POWELL ON REAL PROPERTY, supra note 31 § 82.03[2][b].
200. Id. § 82.01 [1][b] (quoting 1 RECORDS OF THE GOVERNOR AND COMPANY OF THE
MASSACHUSETTS BAY IN NEW ENGLAND 306 (N. Shurtleff ed. 1853».
207. RICHARD BITNER, CONFESSIONS OF A SUBPIUME LENDER: AN INSIDER'S TALE OF GREED,
FRAUD, AND IGNORANCE 45 (2008).
) (dismissing complaint for plaintiff's failure to establish ownership of mortgage)
- Fargo Wells
- Bank
Wells Fargo Bank, Nat'l Ass'n v. Reyes, No.
5516/08,2008 WL 2466257 (N.Y. Sup. Ct. June 19,2008) (dismissing complaint for plaintiff's failure
to establish ownership of mortgage).
219. An especially clever strategist would continue to make the payments for a year or more while concealing the proceeds and running the same scheme several times over. 220. See, e.g., Cary Spivak, Criminal Past No Barrier to Mortgage Field
- Johnson V Melnikoff
Johnson v. Melnikoff, No. 10548/2007, 2008 WL 4182397, *1 (N.Y. Sup. Ct. Sept. 11,
2008).
219. An especially clever strategist would continue to make the payments for a year or more while
concealing the proceeds and running the same scheme several times over.
220. See, e.g., Cary Spivak, Criminal Past No Barrier to Mortgage Field, MILWAUKEE J.
SENTINEL, Mar. 14,2009, at AI.
221. CJNosek v. Ameriquest Mortgage Co., 386 B.R. 374, 379 (Bania. D. Mass. 2008) (attorneys
sanctioned for defending Ameriquest in an eight day trial while never advising the Court that
Ameriquest was neither the note holder nor the mortgagee).
The Great Bailout of2008-09
- Frederick Tung
- Emory Bankr J Dev
Frederick Tung, The Great Bailout of2008-09, 25 EMORY BANKR. DEV. J. 333,336 (2009);