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75 Fordham L. Rev. 2039 (2006-2007)
Turning a Blind Eye: Wall Street Finance of Predatory Lending

handle is hein.journals/flr75 and id is 2055 raw text is: TURNING A BLIND EYE: WALL STREET FINANCE OF PREDATORY LENDING* Kathleen C. Engel** & Patricia A. McCoy*** INTRODUCTION Numerous studies have discussed the negative externalities that securitization imposes on creditors.' Scholars have paid scant attention, however, to harms caused by securitization to debtors whose loans are securitized.2 This issue has erupted in the subprime home mortgage * © Kathleen C. Engel and Patricia A. McCoy 2007. Recipient of the Best Professional Paper Award of the American College of Consumer Financial Services Lawyers, March 2007. Our thanks to Lissa Broome, Howell Jackson, Melissa Jacoby, Peter Lindseth, Jeremy Paul, Jim Rebitzer, Elizabeth Renuart, Steve Ross, Peter Siegelman, Michael Stegman, Susan Wachter, and Art Wilmarth. We also thank Kevin Byers, John Day, Dhammika Dharmapala, Kurt Eggert, Keith Ernst, Sean Griffith, Claire Hill, Kathleen Keest, Kris Rengert, Ellen Schloemer, Lalitha Shivaswamy, Alan White, and Elvin Wyly. We are grateful for the invaluable comments by faculty and other participants at seminars and colloquia at Harvard Law School, The Wharton School, the University of North Carolina School of Law, American University School of Law, and our own universities. Our gratitude to Jessica Matthewson and Margaret Montano for their superb support. Finally, thanks to the University of Connecticut Law School Foundation and the Cleveland-Marshall Fund for their generous funding. ** Associate Professor of Law, Cleveland-Marshall College of Law, Cleveland State University. J.D., University of Texas. *** George J. and Helen M. England Professor of Law, University of Connecticut School of Law. J.D., University of California at Berkeley (Boalt Hall). Professor McCoy has served as an expert witness for plaintiffs in several predatory lending cases. 1. See, e.g., David Gray Carlson, The Rotten Foundations of Securitization, 39 Wm. & Mary L. Rev. 1055 (1998); Christopher W. Frost, Asset Securitization and Corporate Risk Allocation, 72 Tul. L. Rev. 101 (1997); Edward J. Janger, Muddy Rules for Securitizations, 7 Fordham J. Corp. & Fin. L. 301 (2002); Lynn M. LoPucki, The Death of Liability, 106 Yale L.J. 1 (1996); Lois R. Lupica, Asset Securitization: The Unsecured Creditor's Perspective, 76 Tex. L. Rev. 595 (1998); Steven L. Schwarcz, Intermediary Risk in a Global Economy, 50 Duke L.J. 1541, 1580-81, 1585-86 (2001). 2. Kurt Eggert was among the first to discuss this issue, in the context of the holder-in- due-course rule. Kurt Eggert, Held Up in Due Course: Predatory Lending, Securitization, and the Holder in Due Course Doctrine, 35 Creighton L. Rev. 503 (2002). Jonathan Remy Nash also highlighted this issue in his work on securitization and environmental superliens. Jonathan Remy Nash, Environmental Superliens and the Problem of Mortgage-Backed Securitization, 59 Wash. & Lee L. Rev. 127 (2002). Other works have examined securitization's effect on third-world countries. See Carl S. Bjerre, Project Finance, Securitization and Consensuality, 12 Duke J. Comp. & Int'l L. 411, 434-35 (2002); Anupam Chander, Odious Securitization, 53 Emory L.J. 923 (2004); Tamar Frankel, Cross-Border Securitization: Without Law, But Not Lawless, 8 Duke J. Comp. & Int'l L. 255, 260, 265 (1998); David W. Leebron, First Things First: A Comment on Securitizing Third World Debt, 1989 Colum. Bus. L. Rev. 173. 2039

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