• Selected
• Entire List

Abstract:
Predatory lending, the origination of loans with abusive terms to homeowners, is rampant in the subprime mortgage market. In the last few years, many states responded to this problem by enacting consumer protection laws. Large segments of the lending industry have opposed these laws. In large part because of these complaints, momentum is building on three fronts to standardize the operations of the subprime mortgage market.

First, federal regulators are preempting the application of these laws to a broad array of lending institutions and Congress is considering legislation to preempt their application to the remaining financial institutions that are still regulated by such laws. Second, Fannie Mae and Freddie Mac, the largest purchasers of residential mortgages on the secondary market, have indicated that they will not purchase loans with certain terms that they deem to be abusive. And finally, the three major rating agencies indicated that they will not rate securities backed by pools of residential mortgages if any of those mortgages violate their rating guidelines relating to predatory lending laws.

While the lending industry frequently promotes the increased standardization of the secondary mortgage market as an approach that will reduce predatory behavior without hurting legitimate lenders, this article reviews these three pushes to standardize the subprime mortgage market to determine if they will achieve that goal. It concludes that the federal preemption of these laws is premature, that the Fannie Mae and Freddie Mac purchasing guidelines will have an incrementally beneficial impact and, most importantly, that the rating agency guidelines will benefit investors in and issuers of mortgage-backed securities at the expense of homeowners.

The American College of Consumer Financial Services Lawyers selected this article as the best scholarly article of 2006.

predatory lending, rating agencies, securitization, subprime lending, consumer protection

Abstract:
This article provides the most comprehensive statutory analysis to date of the federal government's implied guarantee of Fannie Mae and Freddie Mac's financial obligations. Fannie and Freddie together have $4.45 trillion in mortgage-related obligations. The magnitude of their obligations can only be understood in comparison to the amount of outstanding U.S. government debt - $5.04 trillion. Given the ongoing meltdown of the residential mortgage market, it is important that the implied guarantee be understood for what it is, a contingent liability of the federal government. After explaining the nature of the implied guarantee and the risks that it poses, the article argues that Fannie and Freddie should be privatized and that the implied guarantee be terminated.

This article is timely both because of the spreading crisis in the mortgage markets and because Congress is currently considering legislation to increase regulation of Fannie and Freddie. Even if enacted, this legislation does not go nearly far enough to protect the American taxpayer from the consequences of having to bail out these two companies. And if the federal government were to fail to bail them out, the world's financial markets will face a financial crisis that could easily dwarf the 1994 Mexican peso collapse, the 1997 East Asian "flu" and the 1998 Russian bond default, the last of which triggered the collapse of Long-Term Capital Management.

Fannie Mae, Freddie Mac, Government-Sponsored Enterprise, subprime

Abstract:
Professor Baher Azmy and Professor David Reiss document how predatory home lending practices have become rampant throughout the country and, notably, among low- and moderate-income and African American communities in New Jersey. Their article analyzes this emerging problem as a sometimes devastating side effect of the rapid increase in American home ownership, an otherwise almost completely desirable phenomenon. Because predatory lending has been so difficult to define, states have struggled to regulate it. New Jersey, building on the work of a few other leading states, has drafted what many consider to be the new standard for predatory lending legislation, the Home Ownership Security Act. The article places the Act in the context of governing federal law and industry practice. Such legislation is, however, quite complex and the product of significant legislative compromise, resulting in certain ambiguities that the article documents and seeks to resolve. Their article attempts to help the relatively new scholarly debate regarding predatory lending to move forward by highlighting the inherent tension between increasing consumer protections and preserving vibrant consumer credit markets. It concludes that while the Act achieves a reasonable balance between the two goals, it could have gone even farther in promoting consumer protection interests. The article will be a definitive resource for attorneys and judges as they attempt to understand and employ this complicated and important law.

predatory lending, home ownership, mortgages, consumer protection, credit markets

Abstract:
This essay is a lightly-edited version of a talk given at the University of Maryland School of Law and the Journal of Business & Technology Law's Conference on the Subprime Meltdown in October 2008. It briefly reviews the reputational risk literature and applies it to the rating agency industry. In particular, it looks at three of the inputs into reputation - trust, transparency, and leadership - and evaluates how rating agencies fared in the period leading up to the subprime meltdown. It concludes that rating agencies did poorly when it came to all three of these reputational inputs.

rating agencies, securitization, subprime, cdo, reputation, scandal, trust, transparency, leadership, mortgage-backed securities

Abstract:
As the credit crisis unfolds, rating agencies have been properly identified as playing a central role in causing the crisis and misleading investors. What has been forgotten in this acrimonious environment is that in their quest to increase the market for their services, rating agencies also took positions that were particularly bad for many homeowners.

This article first reviews the explosive growth of the subprime mortgage market. It then discusses the ways in which the leading rating agencies, Standard & Poor's, Moody's and Fitch, acted as government-approved gatekeepers to the financial markets and contributed to the rapid expansion of the subprime market. These three entities profited from the growth of that market and suppressed efforts by states to crack down on the predatory lending practices that had become endemic to it.

The article concludes that ongoing efforts to reform the regulation of the rating agencies fail to address their systemic bias against the public interest. As their regulators seek to tighten oversight of these important players in the financial markets, it is important to ensure that future regulation provides additional protection for consumers as well.

rating agencies, subprime, securitization, consumer protection, predatory lending, cdo, mortgage-backed securities, mbs, housing finance

Abstract:
The federal government recently placed Fannie Mae and Freddie Mac, the government-chartered, privately owned mortgage finance companies, in conservatorship. These two massive companies are profit-driven, but as government-sponsored enterprises they also have a government-mandated mission to provide liquidity and stability to the United States mortgage market and to achieve certain affordable housing goals. How the two companies should exit their conservatorship has implications that reach throughout the global financial markets and are of key importance to the future of American housing finance policy.

While the American taxpayer will be required to fund a bailout of the two companies that will be measured in the hundreds of billions of dollars, the current state of affairs presents an opportunity to reform the two companies and the manner in which the residential mortgage market is structured. Few scholars, however, have provided a framework in which to conceptualize the possibilities for reform.

This Article employs regulatory theory to construct such a framework. A critical insight of this body of literature is that regulatory privilege should be presumed to be inconsistent with a competitive market, unless proven otherwise. The federal government's special treatment of Fannie and Freddie is an extraordinary regulatory privilege in terms of its absolute value, its impact on its competitors and its cost to the federal government. Regulatory theory thereby clarifies how Fannie and Freddie have relied upon their hybrid public/private structure to obtain and protect economic rents at the expense of taxpayers as well as Fannie and Freddie's competitors.

Once analyzed in the context of regulatory theory, Fannie and Freddie's future seems clear. They should be privatized so that they can compete on an even playing field with other financial institutions and their public functions should be assumed by pure government actors. While this is a radical solution and one that would have been considered politically na¿ve until the recent credit crisis, it is now a serious option that should garner additional attention once its rationale is set forth.

Fannie, Freddie, secondary mortgage market, regulation, housing finance, housing policy, government-sponsored enterprise, gse

Abstract:
This is an entry on the Regulation of Subprime and Predatory Lending for THE INTERNATIONAL ENCYCLOPEDIA OF HOUSING AND HOME (Elsevier Ltd, 2010). This entry provides a brief introduction to the explosive development of the subprime mortgage market. It then enumerates the abusive practices that were found in that market until it was effectively shut down at the outset of the ongoing credit crisis. It then reviews the limited federal and state legislative and regulatory responses to various abusive practices. It concludes that abusive practices will likely resurface once underwriting standards loosen, as they inevitably will.

subprime, mortgage, consumer protection, housing finance, predatory lending

Abstract:
This book chapter explores how the three largest rating agencies, Standard & Poor’s, Moody’s Investor Service and Fitch Ratings, exploited their privileged regulatory status to profit from the booming subprime mortgage market at the expense of homeowners. These rating agencies boosted their own bottom lines and assisted predatory lenders by effectively vetoing state consumer protection initiatives. While regulators have identified enhanced investor protection regulation of credit rating agencies as a priority, future regulation must ensure that the systemic biases of the rating agency industry are no longer permitted to trump legitimate state consumer protection initiatives.

rating agencies, subprime, securitization, consumer protection, predatory lending, cdo, mortgage-backed securities, mbs, housing finance

Abstract:
This article provides a brief introduction to the role of the Fannie Mae/Freddie Mac duopoly in the American housing market. First, it defines the “government sponsored enterprise,” which is the type of hybrid public/private entity that Fannie and Freddie are and provides an introduction to the other significant GSEs. It then explains what Fannie and Freddie do in the American mortgage market and provides a brief history of how the two companies developed. Finally, it evaluates the two companies as duopolists in the conforming mortgage market and concludes that the current financial crisis presents an opportunity to rethink whether the Fannie/Freddie duopoly continues to serve the public interest.

Fannie, Freddie, duopoly, monopoly, antitrust, secondary mortgage market, housing finance, government-sponsored enterprise, GSE

Abstract:
This book chapter describes the role of Fannie Mae and Freddie Mac in the ongoing financial crisis. The chapter first explains the hybrid public-private nature of Fannie and Freddie, which are what is known as Government Sponsored Enterprises (GSEs). Fannie and Freddie were originally chartered by the federal government to create a national mortgage market. The chapter then explains how the two GSEs morphed into extraordinarily large companies that profited enormously from their special relationship with the federal government, while providing only modest benefits to American homeowners. In what turned out to be a disastrous trade-off for American taxpayers, Fannie and Freddie ended up needing a bailout measured in the hundreds of billions of dollars. Ultimately, Fannie and Freddie exhibited the common failings of poor GSE design — after fulfilling their original purpose, they took on monstrously large lives of their own that defied political oversight. The chapter concludes that Fannie and Freddie should be privatized, with their remaining public functions assumed by pure government actors.

Fannie, Freddie, secondary mortgage market, housing finance, government-sponsored enterprise, GSE

Abstract:
This brief article reviews the various policies that the Obama Administration can choose from as it considers how Fannie Mae and Freddie Mac should exit conservatorship. It first reviews the benefits and costs associated with the two companies. It then reviews four broad positions regarding the appropriate role of Fannie and Freddie in the housing finance market. It argues that the two companies should be privatized because Fannie and Freddie pose a systemic risk to the financial system, unfairly benefit from their regulatory privilege and do not create net benefits for the American people. Finally, it reviews four concrete plans to fundamentally change Fannie and Freddie’s structure, each involving different degrees of government involvement. It concludes that the two companies should be converted into generic financial holding companies and their public functions be reassigned to various federal instrumentalities.

, Freddie, secondary mortgage market, housing finance, privatization, government-sponsored enterprise, GSE

Abstract:
The absence of stable financing options has long caused difficulties for owners of small multifamily buildings. Despite the ongoing maturation of a secondary mortgage market for small multifamily mortgages, this housing stock continues to shrink due to abandonment, demolition, foreclosure and other causes. As these buildings house many low-income households, some have suggested subsidizing the financing costs for the owners of these buildings. Any proposal to subsidize these landlords to meet affordable housing goals, however, should be predicated on determinations that (i) it is an efficient means to provide housing to the neediest tenants and (ii) the multifamily mortgage market is subject to failures that make such government intervention appropriate.

This article first describes what little is known about small multifamily properties and their owners. It then describes the lending environment for real estate entrepreneurs over the last hundred years. Finally, it evaluates the role the government should play in the small multifamily mortgage sector. The article concludes that subsidizing owners of small apartment building is an inefficient and unwarranted affordable housing policy and that more direct subsidies to low-income households, such as housing vouchers, are preferable.

multifamily, mortgage, housing finance, secondary mortgage market, cmbs, commercial mortgage-backed security, landlord, tenant, rental, residential, apartment

Abstract:
This is a short book review of Dan Immergluck, FORECLOSED: HIGH-RISK LENDING, DEREGULATION, AND THE UNDERMINING OF AMERICA’S MORTGAGE MARKET (Cornell University Press 2009). The book provides a good introduction to the causes of the crisis in the mortgage market. Given, however, that the book was written before the crisis has fully taken its course, it does have certain limitations. In particular, the book deals with some fundamental questions too superficially. These fundamental questions include, what is the right level of complexity for the secondary mortgage market? What is the right level of credit access for subprime borrowers? And, what are the strengths and limitations of a heightened regulatory response to the problems in that market?

foreclosure, subprime, mortgage, consumer protection, housing finance, predatory lending , secondary mortgage market