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69 S.M.U. L. Rev. 609 (2016)
Local Government and Risky Home Loans

handle is hein.journals/smulr69 and id is 633 raw text is: LOCAL GOVERNMENTS AND RISKY HOME LOANS* Kathleen C. Engel** I. INTRODUCTION UNICIPALITIES from the Central Valley in California to Up- state New York bear the legacy of reckless mortgage lending. Foreclosed homes and toxic titles1 have caused blight and cost communities billions of dollars. Many cities2 tried to halt the risky loans by calling on state and federal legislators and regulators to intervene. Some even passed ordinances aimed at curtailing the high-cost loans that were destroying their neighborhoods. Their pleas were dismissed and their ordinances overturned. The resulting subprime crisis played a cen- tral role in the great financial crisis that began in 2008. Millions of people lost their jobs and, as a consequence, lost their homes too. Municipalities have born the burden of empty, dilapidated homes that pepper once vi- brant neighborhoods. A handful of cities have sued financial institutions, attempting to recover their losses. The lawsuits have been complex and expensive, and limits on municipal standing have dramatically restricted the relief cities can recover. The City of Cleveland's (the City) experience demonstrates the chal- lenge municipalities faced when predatory lenders moved into town. Mortgage brokers and lenders began targeting Cleveland and its inner- ring suburbs with predatory loans3 in the 1990's. The Cleveland City *With thanks to Prentiss Cox, John Infranca, Kathleen Morris, Jim Rebitzer, participants in the Suffolk University Law School Faculty Workshop, the 2016 AALS Annual Meeting, Section on Real Estate, and the Loyola Consumer Law Review Symposium for their invaluable advice as I was developing my ideas for the article. I am also grateful to my excellent research assistants: Cherie Ching, Rebecca DeChellis, Kerry Koehler, Kevin O'Connor, and Anna Perry. ** Research Professor of Law, Suffolk University Law School. Professor Engel serves on the Consumer Advisory Board of the Consumer Financial Protection Bureau. This Arti- cle was written in her personal capacity. The views in this Article are her own, not those of the Consumer Advisory Board, the Consumer Financial Protection Bureau or the United States. 1. Titles become toxic when shoddy-and sometimes fraudulent-paperwork during the securitization process clouds the chain of title to the property. 2. Throughout this Article, I use the terms municipalities, cities, towns, and localities interchangeably. 3. In its most simple form, a predatory loan is a loan that a borrower will not be able to repay. Other predatory terms include charging people higher interest rates based on their race, deceiving or defrauding borrowers, hiding key loan terms, and requiring bor- rowers to waive their right to go to court. Kathleen C. Engel & Patricia A. McCoy, A Tale

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