NYT’s: “There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem.”
There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem. As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default.
Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers. Too often, mortgage originators and middlemen looked the other way rather than slowing down the process or insisting on adequate documentation of income and assets. As long as housing prices kept rising, it didn’t seem to matter.
In other words, many of the people now losing their homes committed fraud. And when a mortgage goes into default in its first year, the chance is high that there was fraud in the initial application, especially because unemployment in general has been low during the last two years.
Keep that in mind when you hear about a bailout!
January 13, 2008 - 08:00 PM on January 13th, 2008
[...] Here’s another interesting post I read today by Right Voices [...]
January 13, 2008 - 11:58 PM on January 13th, 2008
The mortgage brokers weren’t looking the other way. They were actively encouraging/ advocating the misstatement of income in order to get their commission checks. I saw it happen when I went to refinance. I stated my income honestly to the mortgage broker only to have him send me forms to sign with it highly inflated. I didn’t refi my mortgage when I saw that. I may do so again in a few months, but not through that broker.
January 14, 2008 - 12:26 AM on January 14th, 2008
One other thing that has lead to a lot of these foreclosures have been VERY unscrupulous mortgage brokers. Mortgage originators get paid a percentage based on how much the lender is going to make over the life of the loan. As a result, they will increase interest rates and points to jack up their own commissions. The same mortgage broker that had me sign fraudulent documents also submitted them to a lender for a program that would’ve certainly cost me my house. It was an ARM that was over 8% and was adjusting to 13% after only 6 months. While the initial payment was less than I’m paying now, it would’ve gone up $400/month after 6 months. I’ve learned to read through good faith estimates carefully and once I saw that, I told the broker that if he couldn’t do any better than that, forget it. He mumbled about how he didn’t know why THAT lender was sending me a good faith estimate as he hadn’t been planning on using them, but he wasn’t able to come up with anything else either. I take that as an indication that he was lying and had been caught in it.