Friday, September 07, 2007

Liar loans 

We know about "liar loans," a pejorative for a mortgage one might take out for buying a house where the borrower doesn't have to supply proof of his stated income. But what happens if the liar is a mortgage broker?
Al Ynigues, 65, said in an interview Wednesday that Carrington Capital Management refuses to modify his adjustable rate mortgage and that he faces foreclosure since his monthly payments have ballooned to $2,374. ...

Ynigues said that a Twin Cities broker misled him about the terms of the $270,000 home loan he originally got in 2004 from New Century Financial Corp., and that the lender and loan servicer turned deaf ears to his plight. Ynigues (pronounced INN-a-guess) said he wants to ask Carrington General Manager Bruce Rose to get him into a conventional fixed-rate loan with affordable terms. ...

A guitarist who runs his music lessons and recording business from his Apple Valley split-level, Ynigues said his income fluctuates between $1,500 and $3,000 a month. He said he recently discovered that his broker had inflated his monthly income on his loan application to $10,000.

Carrington's Rose did not return phone calls Wednesday and neither did the mortgage broker.
Now hang on here just a minute. A guy who's income "fluctuates between $1,500 and $3,000 a month" is trying to buy a $270,000 house? I understand that the broker may have duped the lender, and the lender is now unhappy (though if you are offering liar loans, you have to expect you'll get a few liars.) But a guy with less than $30,000 a year in income is stepping up to buy a $270,000 house? Did he read his application? No alarm goes off in his head that says "you know, this might be a little rich for me"? Does he bear no responsibility for his decision?

The article points out that leftist activist groups like ACORN are pushing for government action. The Economist writes this week:
State-led rescues are fraught with moral hazard: what investor wouldn't take on that �liar loan�, knowing that the taxpayer is ready to jump in and help when it all goes wrong? Money should go first, and perhaps only, to those who can show they were defrauded or deceived.
I tried to write something else here, but I struggle with having both the words "defraud" and "liar loan" in the same sentence. He has a cause of action against the broker, but the lender?