Posted by Frugal on 30th September 2006
What exactly is a Liar’s Loan? A Liar’s Loan is another term for the low-doc or no-doc loan. It’s also called stated income loan. Here is the quote from LA Times:
Industry insiders have a nickname for low-doc and no-doc mortgages: liar’s loans. The phrase reflects the suspicion that many of the borrowers who get such loans don’t have the income or assets to qualify the old-fashioned way.
Who in their right minds will opt for paying higher interest rate instead of documenting their income? Unless they are like self-employed businessman who may have a hard time for documentation, they are probably unqualified liars.
What’s some statistics of lying on such loans? Only about 10% of people were telling truth in an example.
One lender recently compared 100 stated-income loans with the borrowers’ tax returns and found that only 10 of the borrowers were telling the truth about their wages, according to Mortgage Asset Research Institute, a division of data firm ChoicePoint Inc.
Sixty of the borrowers had exaggerated their incomes by more than 50%, according to the institute, which didn’t identify the lender.
I don’t know what’s the percentage of self-employed, but I bet that there cannot be one third of Californians all self-employed and need such kind of loans?
As the state’s boom went on, the mortgages became so popular that they now account for a third of new loans, according to data tracking firm First American LoanPerformance.
So it goes without saying that a significant percentage of these loans most likely will crumble down at the expenses of others, when the boom turns bust.
Our American values have sinked so low that not only lying on the loans is perfectly okay for many people, but getting free rides from loan applicants makes perfect business sense. I contacted a homebuilder designated lender once. The lender gave me a higher interest rate quote, and told me that they only do no-doc loans. But the lender asked me whether I can document the loan. I said yes. And then, the lender dared asking me whether I can document the loan for them, even though I don’t need to document it. And I said NO. I asked the lender, “why should I document my income for you while not getting a better interest rate?” Apparently, most newhome buyers have being taken advantages without knowing it.
For the poor renters who have been leap-frogged by such homebuying liars or “investors”, I can share with you a trick. This is just what I heard, and I did not verify this. In the state of California, the state laws favor tenants than landlords (this is a fact). I heard that someone was simply paying rent every other month, effectively cutting the rent price in half, and the landlord couldn’t get him out for a very long time because he was making partial payments.
Californians in the golden state? Liars against cheaters? Is this the state that we’re in? I guess if Californians can sell their FICO score of 680 for some fraud housing ATM money of half of a million dollar (or probably less), they will all flock to do it. Have you read this from Housing Panic blog? A 24-year old kid lied through all the loan doc and has over two millions in real estate, but his networth is negative $200K. Think hard about who is going to take up the tab, about what ramifications these incidents have on the society? Who will be the real losers when the housing bubble bursts?
Do you choose money or your values? You don’t need to let me know. I’m certain you know about it, and if you don’t know, don’t worry. God knows all about it.