Poor underwriting, predatory lending, sloppy record-keeping, neighborhood blight, ill-considered or invalid foreclosure decisions, the inability or refusal of banks to negotiate with homeowners, homeowner protection scams—all these are widespread problems that Professor Elizabeth Warren has long been addressing. She served for nearly two years as chair of the Congressional Oversight Panel, which addressed foreclosure mitigation and consumer and small-business lending while monitoring TARP bank bailout funds. Warren earned a reputation for her fierce policing and sharp critiques. She now leads the federal government’s new Bureau of Consumer Financial Protection. Among its charges: to promote fairness and transparency in mortgage lending.
Warren is not the only HLS faculty member working on these issues. Gaining increasing notice is a proposal by Professor Howell Jackson ’82, whose research and teaching focus on topics including securities regulation, consumer protection and financial institutions. As Jackson explains, the rise of mortgage-backed securities created new modes of investment, but their structure made resolution of common lending problems difficult. Jackson proposed that the federal government use its eminent domain power to buy all the mortgages on a property for fair market value, thereby resolving all questions of ownership and title, and then negotiate with the buyers to buy back the properties at current value. He first floated the idea among some senior Obama officials and a congressional staffer, but so far, it’s gotten more attention from commentators than politicians. “Politically, the challenge of using eminent domain power is that it is a novel approach to the problem,” Jackson says. “It takes the political process some time to come up with good solutions to new problems.”
Katherine Porter ’01 warns that the foreclosure crisis threatens Americans’ confidence in the law.
Katherine Porter ’01, a visiting professor at HLS this past year, emphasizes that the problem extends far beyond housing: Many investors in mortgage-backed securities, she points out, are mutual funds and pension funds—essentially, middle-class retirement accounts that now face diminishing returns, thanks to the crisis. Porter, whose blog, Credit Slips, covers issues of credit, finance and bankruptcy, has testified on the TARP Foreclosure Mitigation Program before the Congressional Oversight Panel. She has called for greater government review of foreclosure practices and is critical of the sluggish government response to the crisis. “We must do consumer protection on the front end to build a strong middle class on the back end,” she says. Why has the government not done more to end wrongful or flawed foreclosures? Porter blames fragmented regulatory authority (something she hopes will be cured by Warren’s new Bureau of Consumer Financial Protection) and a failure to see that the problems of homeowners were driving the crisis and needed to be part of the solution. She mentions that some relief may be forthcoming soon from the joint investigations of the attorneys general of all 50 states.
Ultimately, Porter warns, the foreclosure crisis threatens to undermine Americans’ confidence in the law. “Law schools need to care about that,” she says.