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More Mortgage Lying

By Larry Doyle on December 18, 2009 at 11:00 AM in Current Affairs, Economy, Mortgage Crisis, Mortgages, Sense on Cents (Larry Doyle blog)

When lying is not properly addressed and punished, it will perpetuate.

We witness that dynamic in almost all corners of our economic and political landscape. In the world of finance, no market segment seems to have fostered more lying than the mortgage business. It continues. Let’s navigate.

A strong and vibrant mortgage market is vitally necessary in order for our country to regain its economic health. Regrettably, the mortgage business has a bad reputation given the preponderance of lying. Far too many people took out oversized mortgages based upon inflated incomes. Those ‘liar loans’ have defaulted at exceptionally high rates.

Let’s turn the page as many mortgages are attempting to be modified. What do we learn? People are once again lying about their incomes, this time understating income in an attempt to have their mortgages modified to a lower level.

Thanks to 12th Street Capital for sharing a release from Making Home Affordable:

Permanent HAMP Waiver for Elimination of the 25% Trial Period Restart Rule #20091203 Supplemental Directive 09-01 (issued April 6, 2009) required borrowers to be reevaluated for a HAMP trial period if their verified income (as evidenced by the borrower’s documentation) exceeded the initial income information used by the servicer to place the borrower in the trial period by more than 25%. The borrower would be reevaluated based on the program eligibility and underwriting requirements and, if eligible, would have to restart the trial period.

With the issuance of this waiver, borrowers are no longer required to restart the trial period. The trial period payments would not be adjusted, but the permanent modification terms would be based on the borrower’s higher verified income.

What does this mean? In plain English, if a person intentionally understates his income level (that is, lies about his income), he no longer needs to restart the mortgage modification process but merely continues from that point based upon verified income level.

In essence, this waiver will promote people to lie about their income levels. Why? There is no downside to lying. People are not thrown out of the process nor even sent to the back of the line. They stay in line, adjust their income levels if caught, and continue along.

Why is Uncle Sam promoting this practice? The numbers of successful and permanent mortgage modifications are so abysmal that Uncle Sam will do almost anything to expedite the process and inflate the numbers.

What should happen if people lie during the mortgage modification process? They should be told, “get the hell out of here and don’t let the door hit you in the back on the way out.”

What is happening? Nothing. With this waiver, people actually have an incentive to lie . . . and when not properly addressed and punished, it will perpetuate.

We have become a nation of liars.

That is no foundation for long term economic health and prosperity.

LD

  • Diana L. C.

    This is ssuch infuriating news. I worry about my young adult children as they try to build a good life for themselves. I always emphisized honesty as, perhaps, the highest virtue. I probably raised them wrong for the world they will live in.

    • Ginger Snaps Back

      I know. I keep beating myself up over the same thing. What’s the point of instilling a need to be honest and to have a strong work ethic? It is easier to game the system. When that fails, what’s left of Uncle Sam will bail you out. Problem is, Uncle Sam is officially broke.

  • FrenchNail

    There is absolutely no sanity left in the world of finances. Gone are the days when Wharton and Harvard MBAs were long term thinkers, consciensous of both the bottom line and the system at large.

    What happens to the saying “You do not kill the Golden Goose”.

    There is no more denying it, the present coterie wants to end the American wealth and get outrageously rich in the process.

    A friend of mine approached the bank holding her mortage back in May/June and offered to restructure her loan on the basis of $310,000 (the bank had $610,000 in it) The bank refused to talk to her under %340.000. She opted to go in short sale/foreclosure.

    Now the bank presently holding her mortgage (the first one was bought off thanks to our TARP money, screwing up a first short sale in the process) has accepted a second short sale offer to close end of January for $310,000. The HUD statement accepted by the bank reveals a net for the bank of $270,000.

    My friend lost her home, and her credit rating. The bank lost another $40,000 in the process. Tell me this is not deliberate run down of a country.

    • Ginger Snaps Back

      My friend lost her home, and her credit rating. The bank lost another $40,000 in the process. Tell me this is not deliberate run down of a country.

      I’m very sorry to hear that, French Nail. Unfortunately, it will get worse before it gets better. That is, assuming it ever gets better again.

      There is absolutely no sanity left in the world of finances. Gone are the days when Wharton and Harvard MBAs were long term thinkers, consciensous of both the bottom line and the system at large.

      I think while we were looking the other way, we did not notice that we are actually in a depression.

    • NomNomNom

      Do you read Corrente? lambert had a post up saying that the mortgage modification program has a clause allowing these banksters to sell your house out from under you without prior notice;
      http://www.correntewire.com/obamas_mortgage_mod_plan_lets_banksters_reject_borrowers_and_auction_their_houses_without_any_writte

      • FrenchNail

        Thanks for the link.

        I went to my share of trouble also with a restructuration program. They restructured my loan at 7% when the going rate were around 5%.

        It taught me a very good lesson. Once I sold my house and left considerable money on the table, I decided to live debt-free and under my means. Much smaller house paid in full, third hand car paid in full, no more feel-good trips to the Mall, no more China produced junk cluttering the closets.

        Contray to most of my friends this time of the year is peaceful. No more white nights, no more anxiety attacks. I highly recommend it.

  • http://www.sonicninjakitty.wordpress.com Sonic Ninja Kitty

    RIP, The American Dream: killed by the nation’s leaders, I mean looters.

  • Peggy Sue

    Thanks again, Larry, for the updated material.

    Sadly, this confirms the reason for what I’ve read over the last month or two: modifications, cramdowns and whatever other “creative” financial tools being used will not secure the housing market. This is merely pretend and extend. Those who could not afford the mortgages the first time out, still cannot afford them and will default, again.

    Perhaps the only positive on this is that [for a time] these families will have a roof over their heads, rather than being dumped into the street.

    But it won’t play forever, not when the score was crooked the first time around.

    Depressing!

  • Peggy Sue

    My post was gobbled, Larry. Retrieve if you can.

    Thanx.

    • NomNomNom

      Me too plz, thx, Nom

  • candymarl

    So if I tell them I have zero income and am lying about it I can get a really cheap mortgage. That will work well until that pesky ARM thing kicks in.

    Kewl.