Welcome to America; land of opportunity. That includes the opportunity to defraud mortgage lenders and banks when getting a loan. (Chicago Tribune article on Liar Loans)
Individuals found guilty of participating in the creation of fraudulent loans say they shouldn’t have to pay any restitution to the BofA for losses because the bank should have known better. After all, the loan programs used to finance several properties under their scheme didn’t ask for, nor require, verification of certain income and/or assets information.
According to these defendants, the bank should have figured that applicants for these type of loans would lie about this information. Why not? Everybody does it. Heck, it’s like lying on your tax returns. The bank, like the government, has the big bucks, they don’t need the money.
Of course, BofA sees it differently. These programs were created to help those who had hard to verify information, with good credit, to obtain financing at reasonable rates.
Self-employed borrowers and those with intricate investments, or business structures that might make it a little difficult to validate their full income and asset picture.
Unfortunately, things got a little out of hand and these loans were used by those with much more traditional means of income and assets which, for the most part, would have been easy to verify.
The credit standards (minimum FICOs) were also lowered to help qualify more buyers. Why not? These consumers would have probably qualified anyway.
Heck, property values were rising at record paces. If the loan went bad the borrower, and lender, would have plenty of equity to cover a resale of the property and recovery of any losses, right? Then, 2008 happened…
Still sounds a little farfetched that these defendants would use this defense for doing something wrong. Then again, I believe the same defense was used by several lenders when asked to repurchase their loans or cover losses sustained by investors to which they sold them. Hey, they created these “liar loans,” we just originated them in accordance with their parameters.
The fact remains that right is still right and wrong is still wrong and lenders and consumers should know the difference. This is all the more reason to originate quality, compliant loans.
Perform the required pre and post-closing reviews to ensure everything is being done right on your loans. This small investment will help you, and your customers stay out of court.
Trust but verify. The devil is in the details.