Thursday, Apr 22, 2010
Stated-income loans - liar loans.
The Business Insider via Yahoo: Confessions of a Former Mortgage Broker: What We Did Was Criminal
stated-income loans. The popular term now is liar loans...The Mortgage Asset Research Institute referred to a study that found 60 percent of applicants who used stated income exaggerated what they earned by more than 50%.... If you borrow money, you need income to pay it back. The first job of a bank is to check to see if you have income to pay the borrowed money back. If you eliminate the verification of income for a mortgage borrower, you eliminate your ability to predict the likelihood of repayment...The banks required no verification of the statements about income. By that action banks encouraged the fraud...what is clear now is that the crime of stated-income mortgages deserves to be explored fully by criminal prosecutors.
Posted by mountain goat @ 09:19 PM (1426 views) Add Comment
19 Comments
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1. amjidk said...
Yes, it was criminal and all of us are now paying for it..
2. devo said...
i blame lack of regulation
therefore, if we start regulating properly from now on, everything will be ok
lol
3. devo said...
Originating banks allowed borrowers to say or to “state” or to lie about their income and no proof was required to back up what was said or “stated” or lied about.
people lied about their bottom line?
omg, say it ain't so !!
too funny
4. devo said...
"If you borrow money, you need income to pay it back."
tell gordon
or dave
or nick
or greece
or barry
i'm sure you get the gist... don't you?
5. icarus said...
It gets much worse. Banks deliberately created bad loans so that they could bet against the CDOs derived from them.
6. devo said...
5. icarus said... It gets much worse. Banks deliberately created bad loans so that they could bet against the CDOs derived from them.
which 3 banks were the main culprits, in your opinion?
7. icarus said...
Why 3?
8. devo said...
7. icarus said... Why 3?
or 2, or 4
i'm just trying to establish how much you know
9. icarus said...
Is this a test? The main three would be The Squid, ML and WaMu, possibly Citi too,. e.g.see my post 20th April 3.55pm
10. devo said...
thanks
11. devo said...
"Fake documents, bogus loans, fraud rates of 83 per cent, and West Coast boiler rooms dumping toxic sludge into the secondary market where it was scooped up by credulous investors. This is industrial scale white collar crime."
Mike Whitney
What a life-affirming profession!
12. rumble said...
Did he pass?
13. devo said...
did he pass?
if the test was one of patience and courtesy, then yes
14. nomad said...
"It gets much worse. Banks deliberately created bad loans so that they could bet against the CDOs derived from them."
Was it not later that the Credit Default Swaps (CDS) were created thus providing insurance against any losses? For the investors of course. This freed up the bonus hunting mortgage salesmen to sell their products to totally uncreditworthy clients - eg hobos - while taking on zero risk.
15. icarus said...
nomad 14 - I gather that CDSs have been written on CDOs since 1998, when derivatives specialists at JPM Chase persuaded AIG to do this.
Making and selling bad loans and then betting against them is the perfect scam, operable on an industrial scale for a while and theoretically capable of playing a major part in the housing bubble/bust. These kinds of revelations usually come out of the US (the Financial Services Inquiry Commission there has been sitting for months) and it's easy to think these shenaningans are confined to Wall Street banks. UK economists usually look purely at technicalities and come up with explanations like 'excessive risk-taking' or Mervyn's 'mispricing of risk'.Do we know much fraud went on here?
16. nomad said...
Bar stewards, all of them.
Suckers, all of us.
17. icarus said...
nomad - the sharks have teeth to chew off arms and legs but did you know that they also filter-feed on plankton. Some aspects of high frequency trading are a scam in which banks suck in squillions of pennies. E.g. Your pension fund puts in an order to buy 100,000 shares at any price up to £2.20. The current price is £2.00 and your fund expects to buy most of its shares at or around that price. But the filter-feeders' computers get to see that order miliseconds before it hits the market, it buys up the shares and makes sure that your pension fund pays closer to its limit price of £2.20 for most of the 100,000 shares.
See http://wikinvest.com/wiki/High-Frequency_Trading_(HTF) especially the section 'How does a flash order using HFT work?' In the last section there is talk (Sept 2009) of the SEC's banning flash orders but they're still going.
18. icarus said...
Sorry, make that http://www.wikinvest.com/wiki/High-Frequency_Trading_(HFT)
19. nomad said...
Thanks Icarus, I'll have a look at that - I enjoy being depressed :-)