Effecting Responsibility in the MOrtgage Broker-Borrower Relationship: A Role for Agency Principles in Predatory Lending Regulation
![handle is hein.journals/ucinlr73 and id is 1483 raw text is: EFFECTING RESPONSIBILITY IN THE MORTGAGE
BROKER-BORROWER RELATIONSHIP:
A ROLE FOR AGENCY PRINCIPLES IN
PREDATORY LENDING REGULATION
Lloyd T Wilson, Jr. *
I. INTRODUCTION
A. Predatory Mortgage Lending Regulation and the
Applicabiliy ofAgency Principles
Four topics tend to dominate analyses of predatory lending:' (1) the
* B.A. Wabash College, 1977; M.A. Duke University, 1978; J.D. Indiana University School of
Law-Bloomington, 1982; Associate Professor of Law and Director, Central & Eastern European Law
Program, Indiana University School of Law-Indianapolis; Adjunct Professor of Business Law, Indiana
University Kelley School of Business. I would like to recognize the assistance ofDragomir Cosanici, Head
Research Librarian, Ruth Lilly Law Libraxy, and the contributions my student research assistants, Elizabeth
A. HerrimanJulia I. Maness, Richard W. Thackeray, and Cathy A. Scott.
1. Before one attempts to analyze predatory lending or propose responses to it, the term must
be defined. The absence of an accepted standard definition of predatory lending is well-documented:
Although home mortgage lending is regulated by state and federal authorities, none of the statutes and
regulations governing mortgage transactions provides a definition of predatory lending. U.S. DEPT. OF
TREASURY & U.S. DEPT. OF Hous. & URBAN DEV.,JOINT REPORT ON RECOMMENDATIONS TO CURB
PREDATORY HOME MORTGAGE LENDING 1 (June 2000) [hereinafter JOINT REPORT], available at
littp://w%,s.knosvledgeplex.org/showvdoc.html?kpid=1152&id=0. The very issue of constructing a
definition has created controversy. One position maintains that until an accepted definition exists, it is
inappropriate to think about enacting regulations. See Kathleen C. Engel & Patricia A. McCoy, A Tale of
Three Markets: The Law and Economics ofPredatoy Lending, 80 TEN. L. REV. 1255, 1259-69 (2002) (comments
attributed to Senator Phil Gramm); Elizabeth Renuart, Toward One Competitive and Fair Mortgage Market
Suggested Reforms in a Tale of Three Markets Point in the Right Direction, 82 TEN L. REV. 421,425 & n. 19 (2003)
[hereinafter Renuart, Toward One Competitive and Fair Mortgage Market] (comments attributed to U.S. House
of Representatives Financial Services Committee Chair Michael B. Oxley). A second position maintains
that no precise definition is needed. See ERIC STEIN, COALITION FOR RESPONSIBLE LENDING, QUANThFY-
ING THE ECONOMIC COST OF PREDATORY LEN,\DING 3 (2001) ([] ust as with 'safety and soundness' and
'unfair and deceptive trade practices,' there is not and should be no final definition of the term 'predatory
lending.' But just as capital ratios and delinquency rates tell a story about safety and soundness, certain
overall indicators and loan level practices characterize predatory lending (citing Federal Reserve Board
Governor Cramlich)), availableathttp://wsw.responsiblelending.org/research/ index.cfm?tid= 1 &tyid=2.
A third position maintains that no definition is possible given the fact that predatory lending describes a
virtually unlimited set of loan terms and practices that fall between appropriate risk-based pricing by
subprime lenders and blatant fraud. DEBORAH GOLDSTEIN, JOINT CTR. FOR HOUS. STUDIFS OF
HARVARD UNIV. & NEIGHBORHOOD RELNVESTMENT CORP., UNDERSTANDING PREDATORY LENDING:
MOVING TOWARDS A COMMON DEFINITION AND WORKABLE SOLUTIONS 5 (1999), available at
http://w.jchs.harvard.edu/publications/pubs-authors.html. A fourth position maintains that no
attempt should be made to define the term for fear ofproviding too limited a definition. See Kurt Eggert,
Held Up in Due Course: Predatoy Lending, Sectaitization, and the Holder in Due Course Doctrine, 35 CREIGHTON L.
REV. 503, 511 (2002) [hereinafter Eggert, Held Up in Due Course].
The existence ofthese argumentsdoes not preclude writers from the necessary task ofidentifying
the subject of their analyses. Working understandings of predatory lending are achieved in two principal
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