aTypical Joe: a gay New Yorker living in the rural South

Tuesday, April 10, 2007

Lying and Lax Lending Aided Real Estate Fraud

The real estate analogue to resume padding:

Mortgage lenders in theory have a right to compare loan documents to a buyer’s tax returns, but they rarely do. In the few cases where it has been done, results were startling. In a study published by the Mortgage Asset Research Institute, one lender sampled 100 stated-income loan applicants and found that 90 had exaggerated take-home pay by 5 percent or more and that nearly 60 inflated their pay by more than 50 percent.

That from a WaPo story looking at rampant fraud in the mortgage industry. Atlanta was among those cities hardest hit. The fraud hurt honest home buyers first by artificially inflating prices and later by putting several thousand homes into foreclosure, driving down values. The suggestion is that fraud played a role in fueling the real estate bubble; the point in the excerpt above is that lenders didn’t bother checking.

By the way, lying about your income on a mortgage application is a federal crime.