Liar Loans Highly Prevalent In The US
‘Liar loans’ can be broadly termed as home loan applications where applicants commit fraud while disclosing their monthly income. Borrowers and brokers tend to show an exaggerated monthly income of the applicant while putting down the loan application papers. According to several market analysts, such practices can increase the rate of home foreclosures and prolong the home market slump even further. According to a data report collected by FBI and Washington based Mortgage Bankers Association, mortgage lenders lose around $1 billion due to such false practices of availing loan.
According to Robert W. Russell, who is the counsel to the director of the Office of Thrift Supervision, such types of fraudulent applications are coming in every day. According to him, brokers are making false statements about the applicant’s employment and his income. They are just filling up a figure which is required to qualify for the loan.
These sort of false practices are usually risky. However, the brokers are paid high commissions for making such transactions. Brokers and borrowers are misusing the provision of low documentation loans. These sorts of loans were introduced during 1980s to help self-employed and non U.S citizens whose pay was difficult to verify. According to Center for Responsible Lending, a Durham, North Carolina based firm, around 2.4 million homes in the U.S. are in danger of foreclosure.
Many mortgage companies are formulating their own measures to stem such frauds. According to Laura Oberhelman, who is the spokeswoman for New Century Financial Corp., a California-based mortgage firm, their company utilizes electronic as well as manual systems in order to locate and prevent any frauds. According to Laura, only those loan applications are approved which are supported by documents showing evidence of loan repayment capability. New Century Financial Corp. is the second largest subprime lending firm in the U.S.
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