Liar liar

From the New York Times:

When the Truth Goes Begging

FOR those who have a hard time documenting enough of their earning history to qualify for conventional loans, a popular option has become the so-called “stated income” mortgage.

Such mortgages are often sought by self-employed people or contract workers who typically do not receive W-2’s and thus lack the kinds of income documentation that underwriters rely on to process most conventional loans. The loans cost roughly one-half a percentage point to three-quarters of a percentage point more.

As you might guess, stated-income mortgages are also popular among borrowers who are committing fraud, knowingly or not. According to a recent study of 100 stated-income mortgages by the Mortgage Asset Research Institute Inc., an industry consulting company in Reston, Va., 90 percent of those who apply for stated-income loans exaggerate their income by 5 percent or more. Nearly 60 percent exaggerate their income by more than 50 percent.
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Stated-income loans are, Mr. Larson said, one of the primary ways people obtain loans for which they could otherwise not qualify.
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But stated-income loans also sometimes involve borrowers who know that if they told the truth about their finances, they could not get a mortgage. That, too, is fraudulent, of course, since buyers entering into mortgage settlement contracts must sign statements testifying to the accuracy of their financial information. It is also risky, mortgage professionals said, since not telling the truth could ruin a borrower’s credit in the long term.
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In the second half of last year, about 12 percent of all new loans were obtained with reduced or no financial documentation, according to the Mortgage Bankers Association.
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Otherwise, he said, stated-income mortgages are not for sale. “There’s not really a nice way to say it,” he said. “We have a nickname for them in the industry. They’re called ‘liar loans.’ ”