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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
Kathleen C. Engel** & Patricia A. McCoy***
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.


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