California Real Estate Fraud Report

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“Liar’s Loans” to Blame for Mortgage Crisis

In Sonoma County, lenders are repossessing homes at the average of 23 per week. Many of the buyers applied for loans using stated income only. When stated income loans became popular in 2002, they were seen as a tool to help the self-employed and commission-based applicant purchase, not as a means for inflating one’s income to qualify for a loan one couldn’t afford.

According to First American CoreLogic LoanPerformance, a real estate research firm, in 2005 and 2006 more than half of all loans used to purchase Sonoma County homes were stated-income.  These loans were being handed out just as the market peaked, dooming many of the borrowers who could not count on continued increases in real estate prices to help them refinance once their low teaser rates expired.

Loan officers and processors knew for the most part that many of the income applications were inflated, yet either looked the other way or in some cases assisted the borrower in inflating his or her income, despite the fact the falsifying income on a loan application is a federal crime. They were aided by automated systems instituted by lenders to speed up the approval process, such as “E appraisals” and automated underwriting. All contributed to the removal of the checks-and-balances that would have prevented the large-scale foreclosures occuring now.

Rachel Dollar is a Santa Rosa attorney who represents lenders in fraud cases and runs the Mortgage Fraud Blog. According to her:

“The entire real estate debacle is the fault of everybody that was involved. And it was all about greed and speed. The brokers wanted their commission. The lenders wanted their premiums. The borrowers wanted their homes.”

The casual observer might note, then, that the term “liar’s loan” also applies to lenders and other real estate professionals who went along with the game in pursuit of profits.

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© Copyright 2007-2018 Monique Bryher

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The information and notices contained on The California Real Estate Fraud Report are intended to summarize recent developments in real estate fraud, mortgage fraud, short sale fraud, REO fraud, appraisal fraud, loan modification scams, loan modification fraud and other real estate related crimes occurring in Los Angeles and California. The posts on this site are presented as general research and information and are expressly not intended, and should not be regarded, as legal advice. Much of the information on this site concerns allegations made in civil lawsuits and in criminal indictments. All persons are presumed innocent until convicted of a crime. Readers who have particular questions about real estate fraud, mortgage fraud and appraisal fraud matters or who believe they require legal counsel should seek the advice of an attorney.

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