BeenWondering if That Would Happen

Had been hearing some speculation on this (though mostly uninformed, I guess) from people who know about this stuff (link):

FBI Will Not Go After Borrowers Who Lied on Mortgage Applications

Feb 21, 2008

Borrowers who defrauded lenders by lying on their mortgage application could be thrown in prison for up to 30 years and forced to pay a $1 million fine under the current federal law. But the FBI says there is no intention to pursue borrowers at this time.

BY PAT SUMMERS

In 2006, the FBI studied three million mortgage loans and found that 30 to 70 percent of early payment defaults can be linked to misrepresentations in mortgage loan applications.

The figures aren't really surprising when you consider the fact that most of the defaults occurring right now involve borrowers who have not yet seen a payment reset. It is blatantly obvious there were an overwhelming number of borrowers approved for mortgages they could not afford.

The only way for this to happen was for someone to lie on a mortgage application. Some media stories have implied that it was lenders who did the lying and that most borrowers are victims of predatory lending schemes.

The truth is that borrowers did their fair share of lying too. More than 40 percent of subprime borrowers received loans without having to document their ability to pay. The borrowers simply 'stated' their income on the mortgage applications.

Almost 60 percent of stated-loan applicants inflated their incomes by at least 50 percent, according to the Mortgage Asset Research Institute. The worst part is that everyone knew the income was being inflated. The industry even had a name for these kinds of loans--'liar's loans.'

Source: Homeguide123. Get that bit about how "the borrowers did their fair share of lying too." From an industry trade mouthpiece, I'd take that as an iceberg-sized concession that a good deal of the lying was not done by the buyers--but rather was induced by the lenders, no strike that the brokers, who got their money in front and had a powerful incentive to bloat and exaggerate and flat-out lie whenever they got the chance.

What really gets me is how nobody up the line flagged the problem. There must have been hundreds of tweendecks underlaborers who processed this stuff and knew perfectly well that a lot of it was bollox. Apparently nobody had an incentive to own the problem, trusting, I suppose, that they would take their paycheck or commission and move on before the roof fell in.