“Given that “Liar Loans” and dishonesty were a central element of how the bubble got blow”
I went with a stated income when I bought my house, mostly because I own my own company and the paperwork is a nightmare.
The bank told me how much money I had in my account. How exactly would it be possible to lie about how much money I had?
The banks didn’t care, because they knew they could turn around and sell that loan for a huge profit.
One-time Subprime Mortgage leader Ameriquest/Argent Mortgage wasn't a bank. They had no deposits over which to exercise fiduciary responsibility.
They were part of the pirate armada that sailed out of defunct Long Beach Savings - where Roland Arnall, the Godfather of Subprime (and W's ambassador to the Netherlands), refined the craft of predatory lending.
All of Ameriquest's fraudulent "AAA" A$$paper was dumped into the economic pipeline where it poisoned the investment pond for everything from insurance companies to retirement funds - all entities looking for a high rate of return.
"We didn't change the mortgage industry - we revolutionized it"
--Argent Mortgage
That's a legitimate use of a tool created for that purpose. But...
The essence of the issue was captured in a 2008 article published by the OC Register:
"Gimein traces the history of the liars loan, which began as a way for those who earned commissions or owned businesses or otherwise had unpredictable incomes to get loans. Yet it ballooned into a huge part of the mortgage industry during the latter years of the boom. The fallout is widely felt, he writes:
(C)onsider the position of borrowers in markets where close to half the people taking out mortgage loans were lying. Keep in mind that in some places (for instance, San Diego), half the people in the market were taking out stated income loans and so bidding up prices to points where almost any house became impossible to finance for someone who did not lie."
---A brief history of the liars loan,
---Orange County Register, April 28, 2008http://mortgage.ocregister.com/2008/04/25/a-brief-history-of-the-liars-loan-and-a-poll/1069/
Once upon a time, lying when engaging in a financial transaction was called "Fraud" -- but evidently that was before...
"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission [CFTC] -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"Hos 12:7-8
7 The merchant uses dishonest scales;he loves to defraud.
8 Ephraim boasts,
"I am very rich; I have become wealthy.
With all my wealth they will not find in me any iniquity or sin."
NIV