It’s rare that I’ll put forward an optimistic post about a mid-level federal agency hire. But that’s what I’m about to do. The Consumer Financial Protection Bureau just hired the man who knows more about MERS – and their deficiencies – than perhaps anyone in the country. University of Utah Law Professor Christopher Peterson will join the bureau.
A University of Utah law professor known for his critical view of payday lending has taken a job with the new Consumer Financial Protection Bureau.
Chris Peterson will take a leave from the U. law school to join the enforcement unit of the new bureau, charged with regulating everything from credit cards to mortgages.
He has called for a warning label on payday loans that would mark them as “predatory,” and he has been critical of the Mortgage Electronic Registration System, or MERS, a mega-company created by mortgage bankers that owns more than half of all residential mortgages and has been actively foreclosing on thousands of Americans.
I interviewed Peterson back in October 2010, right when I was trying to understand MERS and its impact on the housing market and the economy. He came up with the best possible resolution of the MERS mess and the securitization fail issue that I’ve yet seen:
“If you sign a promissory note on the back with your name, like endorsing a check, even a thief can cash it,” Peterson explained. “So if MERS came into possession of promissory notes for mortgages, they would have standing based on holding it. They relied upon this in court. But this hasn’t worked out so well, because the financial institutions can’t find the promissory notes!” [...]
Another possibility is that the courts could impose an equitable mortgage on the borrower on behalf of the investors. “This is a rare and unusual remedy, given normally when there’s a technical defect” in the mortgage, according to Peterson. But that’s basically where we’re at.
In that case, the judge would have a lot of discretion to set the terms of the equitable mortgage. The judge could look at an option-ARM mortgage with an exploding interest rate and say “I can reform it in the interest of justice.” Essentially, a regular court, not a bankruptcy court, could resolve the problems with title and standing to foreclose by implementing something that looks a lot like cramdown. This would depend on the individual judge, of course, and the equitable mortgage might have a different legal status, particularly in bankruptcy. But in the main, “it might not be that different than the proposal we saw in Congress… to allow the modification of home mortgages,” Peterson said.
Needless to say, that isn’t where we’ve gone, and a lot of the leverage here has been dissipated. But Peterson still has a lot of original thoughts in this area, and he’ll be bringing them to bear for the CFPB. That can only be positive. That’s especially true because CFPB has the responsibility to write lasting servicer standards, and having Peterson on the legal team will aid with that. We may even get some national regulatory standards on MERS once this is all done. That’s certainly what this appointment points toward.