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Never hear anyone suggesting we start charging people who lied on their loan applications even though it was rampant. People frequently would say they were goi

Never hear anyone suggesting we start charging people who lied on their loan applications even though it was rampant. People frequently would say they were going to make $X/yr where that number came from the amount of money they expected the home to go up, not actual income on a W2. Banks were selling the loans so they often didn't care to get real documentation of income either.

lupire 5y ago
> were going to make That's a documented risk the lender knew about and encouraged.
not2b 5y ago
I've often seen this take, but what it misses is that at the height of the liar loan boom, those loan applications with the lies were often filled in by the loan originator, knowing it was a lie, and they would then sell that loan off as soon as it was issued. The borrower often didn't even know what was on the form. They thought they could get away with it because they believed real estate could only go up, so if the borrower defaulted the lender could get the house and still make money.
- goodcanadian 5y ago
  Yep. Happened with my mortgage; I only know about it because the bank actually asked for evidence to support a level of liquid assets that I never claimed to have. In my case, it wasn't really a problem as the mortgage was in line with what I knew I could afford. What was surprising, however, is that the bank offered to loan me considerably more than I could afford. I found it all very odd, but I didn't understand the meaning of it at the time. A few years later when it all blew up, I realised what had been going on. Again, I was fine as I did my own math, but I can imagine many people were sold on mortgages that they were never going to be able to afford.
  - at-fates-hands 5y ago
    Yep, happened with me too. I remember my wife being adamant about a fixed rate mortgage while the banker was being super pushy about doing a 5 year arm. About a month after we got our house, we started getting the letters, "Your loan was sold to Bank XYZ, your new loan holder is ABC company." Literally every month our loan was getting sold multiple times. Then Wells Fargo started calling about re-financing our mortgage around late 2006. We were like, "Huh? We're on a fixed rate." and the guy was like, "Says here your 5-year ARM you signed is expiring in 2008 and your rate is going to go way up." Alarm bells started going off. We made an appointment to sit down with the guy at Wells Fargo. Sure as shit, the guy who was pushing us to do a 5 year ARM falsified our loan papers. Inflated a bunch of our assets to get us qualified for a bigger loan that we didn't need. He put us into a 5 year adjustable rate that was set to increase wildly in 2008. We refinanced and got our mortgage into a fixed rate again. We talked to an attorney about suing them, but by then the crisis was starting to gain some real steam and the company who did our original loan had already been out of business for six months.
    - bliteben 5y ago
      I really feel like we need more stories like this catalogued. Glad it seems like it all worked out.
      - not2b 5y ago
        It didn't all work out for many: when real estate crashed in 2008 a lot of people lost everything: they had huge negative equity in a house that was suddenly worth 20% or more less than what they paid with 5% or less down payment, lost the house and their savings and wound up bankrupt, at a time when the economy was tanking so many lost their jobs as well. Many people had invested their retirement savings in bonds based on all these crappy loans, thinking that this was a conservative investment (real estate! Only ever goes up!).
    - WalterBright 5y ago
      In the late 90s I decided on an ARM with a teaser low rate for the first year, then it would jump up. So I refi'd after one year for another. Refi'd a year later. I think I did this 3 years in a row, then sold the house. I read the mortgage agreements carefully. I didn't write them, and the contracts allowed this. A side effect was each refi came with a home appraisal, paid for by the mortgage company. Every year, my property tax valuation went way up, every year I appealed, attached the bank appraisal, and got it back down.
- rr808 5y ago
  OK charge the originator then too.
- deleted 5y ago
  [deleted]
rconti 5y ago
You're not wrong, but I always wonder why this is a reply when suggesting we charge and prosecute the bankers. To create an equivalency? To change the subject? Why?
- okboomer9 5y ago
- rr808 5y ago
  Because the investment banks took loans and repackaged them, then didn't do anything illegal. The most sketchy thing they were accused of was repackaging loans when they should know the documentation was fraudulent, ie borrowers were lying on their forms. Its a long chain of paper pushers who are blaming each other, I'm not convinced anyone is worse than the others, just GS is most famous.
  - bcrosby95 5y ago
    Actually, the transfer and repackaging of loans was not done legally, and courts had to rubber stamp massive amounts of backdated paperwork when cleaning up the mess so the houses could actually be foreclosed upon.
  - worik 5y ago
    > Because the investment banks took loans and repackaged them, then didn't do anything illegal. They did very illegal things. They lied, flat out lied, to their customers about what was in the financially engineered structures. Lied. That is a crime (in civilised jurisdictions, and in the USA)
    - rr808 5y ago
      Please tell me which customers you are talking about? Is it the hedge funds who bought billions of CDOs but says they didn't understand what they were? Are they the people you're concerned about.
      - 5y ago
heavenlyblue 5y ago
> Never hear anyone suggesting we start charging people who lied on their loan applications even though it was rampant. Loan industry operates on “victim blaming” philosophy. If you give money to someone who could not afford the loan you are on the hook. That’s reasonable.
ryanmarsh 5y ago
It's because these loans usually don't make it through underwriting. Most of the time they don't even make it past the originators desk. Banks have no incentive to prosecute people who "forget" to mention there's a lien on their house. Also, who is to prosecute in cases where documentation of income isn't required? For instance, if I say I make $200k/yr because my boss told me I'd make that much in this new sales job am I lying if it turns out I won't make that much and documentation wasn't required? People have such a school-house view of how the world works.

lupire 5y ago

> were going to make That's a documented risk the lender knew about and encouraged.

not2b 5y ago

I've often seen this take, but what it misses is that at the height of the liar loan boom, those loan applications with the lies were often filled in by the loan originator, knowing it was a lie, and they would then sell that loan off as soon as it was issued. The borrower often didn't even know what was on the form. They thought they could get away with it because they believed real estate could only go up, so if the borrower defaulted the lender could get the house and still make money.

goodcanadian 5y ago
Yep. Happened with my mortgage; I only know about it because the bank actually asked for evidence to support a level of liquid assets that I never claimed to have. In my case, it wasn't really a problem as the mortgage was in line with what I knew I could afford. What was surprising, however, is that the bank offered to loan me considerably more than I could afford. I found it all very odd, but I didn't understand the meaning of it at the time. A few years later when it all blew up, I realised what had been going on. Again, I was fine as I did my own math, but I can imagine many people were sold on mortgages that they were never going to be able to afford.
- at-fates-hands 5y ago
  Yep, happened with me too. I remember my wife being adamant about a fixed rate mortgage while the banker was being super pushy about doing a 5 year arm. About a month after we got our house, we started getting the letters, "Your loan was sold to Bank XYZ, your new loan holder is ABC company." Literally every month our loan was getting sold multiple times. Then Wells Fargo started calling about re-financing our mortgage around late 2006. We were like, "Huh? We're on a fixed rate." and the guy was like, "Says here your 5-year ARM you signed is expiring in 2008 and your rate is going to go way up." Alarm bells started going off. We made an appointment to sit down with the guy at Wells Fargo. Sure as shit, the guy who was pushing us to do a 5 year ARM falsified our loan papers. Inflated a bunch of our assets to get us qualified for a bigger loan that we didn't need. He put us into a 5 year adjustable rate that was set to increase wildly in 2008. We refinanced and got our mortgage into a fixed rate again. We talked to an attorney about suing them, but by then the crisis was starting to gain some real steam and the company who did our original loan had already been out of business for six months.
  - bliteben 5y ago
    I really feel like we need more stories like this catalogued. Glad it seems like it all worked out.
    - not2b 5y ago
      It didn't all work out for many: when real estate crashed in 2008 a lot of people lost everything: they had huge negative equity in a house that was suddenly worth 20% or more less than what they paid with 5% or less down payment, lost the house and their savings and wound up bankrupt, at a time when the economy was tanking so many lost their jobs as well. Many people had invested their retirement savings in bonds based on all these crappy loans, thinking that this was a conservative investment (real estate! Only ever goes up!).
  - WalterBright 5y ago
    In the late 90s I decided on an ARM with a teaser low rate for the first year, then it would jump up. So I refi'd after one year for another. Refi'd a year later. I think I did this 3 years in a row, then sold the house. I read the mortgage agreements carefully. I didn't write them, and the contracts allowed this. A side effect was each refi came with a home appraisal, paid for by the mortgage company. Every year, my property tax valuation went way up, every year I appealed, attached the bank appraisal, and got it back down.
rr808 5y ago
OK charge the originator then too.
deleted 5y ago
[deleted]

rconti 5y ago

You're not wrong, but I always wonder why this is a reply when suggesting we charge and prosecute the bankers. To create an equivalency? To change the subject? Why?

okboomer9 5y ago
rr808 5y ago
Because the investment banks took loans and repackaged them, then didn't do anything illegal. The most sketchy thing they were accused of was repackaging loans when they should know the documentation was fraudulent, ie borrowers were lying on their forms. Its a long chain of paper pushers who are blaming each other, I'm not convinced anyone is worse than the others, just GS is most famous.
- bcrosby95 5y ago
  Actually, the transfer and repackaging of loans was not done legally, and courts had to rubber stamp massive amounts of backdated paperwork when cleaning up the mess so the houses could actually be foreclosed upon.
- worik 5y ago
  > Because the investment banks took loans and repackaged them, then didn't do anything illegal. They did very illegal things. They lied, flat out lied, to their customers about what was in the financially engineered structures. Lied. That is a crime (in civilised jurisdictions, and in the USA)
  - rr808 5y ago
    Please tell me which customers you are talking about? Is it the hedge funds who bought billions of CDOs but says they didn't understand what they were? Are they the people you're concerned about.
    - 5y ago

heavenlyblue 5y ago

> Never hear anyone suggesting we start charging people who lied on their loan applications even though it was rampant. Loan industry operates on “victim blaming” philosophy. If you give money to someone who could not afford the loan you are on the hook. That’s reasonable.

ryanmarsh 5y ago

It's because these loans usually don't make it through underwriting. Most of the time they don't even make it past the originators desk. Banks have no incentive to prosecute people who "forget" to mention there's a lien on their house. Also, who is to prosecute in cases where documentation of income isn't required? For instance, if I say I make $200k/yr because my boss told me I'd make that much in this new sales job am I lying if it turns out I won't make that much and documentation wasn't required? People have such a school-house view of how the world works.