Friday, October 19, 2007

Mortgage Fraud - Liar Loans

Mortgage Fraud is a huge problem in the current market. With home values on the rise in the past few years, borrowers were having a harder time obtaining financing. Traditionally borrowers had to prove that their net income was at least double that of their total projected income, including the new housing expenses. Traditionally borrowers also had to come up with down payments for purchases, as well as had to prove they had cash reserves to cover expenses if they lose their jobs etc. In order to get around the issue of increased home prices, and lack of cash for down or reserves, lenders, brokers, real estate agents and borrowers developed ways to trick the system.

Liar Loans
Lenders came up with new creative programs to qualify borrowers who did not qualify for traditional loans. These loans have been labeled "liar loans" recently. Basically borrowers were allowed to state their income on an application to qualify and never had to prove their monthly income. In many cases they were also allowed to state their assets and never had to prove they existed. In the later stages of the boom, lenders really pushed the envelope and allowed borrower to obtain 100% financing on Purchases and refinances, no money down loans, with no employment, income, or assets proven! The unbelievable truth is someone could purchase a home with no job, no income and no assets, as long as they had a decent credit score.

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