Liar Loans: The New Real Estate Problem

The new real estate problem after foreclosure being faced by the people are the liar loans. This is a type of loan/mortgage that has been approved without any prior proof of the income or assets of the borrower. The worst of this loan are known as ninja loans, which means unable to repay due to no income, no job, and no assets. So far, the biggest problem that was being faced by the housing market nationwide was the subprime foreclosures. But now the liar loans has stood as a big threat to the defaulters and their numbers are increasing rapidly.

According to the housing economist of Virginia, Thomas Lawler, this liar loans problem are more prevalent in those areas where the prices of home are dropping sharply. Some of these places include Nevada, Florida, Arizona, and California. In fact in some parts of US, the bad loan conditions are expected to restore the mortgage crisis for another two years which is turn is going to increase the rate of foreclosure homes. Lawler says that these loans are going to have a very bad effect. The homeowners undergoing the problem of liar loans in this ongoing foreclosure market are unable to refinance as the prices in those markets have plunged and also the lenders are seeking for the income and assets documentation.

IndyMac Bank, Bear Stearns, and American Home Mortgage banks, which specialized in those loans, have now become inoperative. The biggest buyers and backers of mortgages of the nation named Fannie Mae and Freddie Mac have been reported with a loss of about $3.1 billion between the periods from April to June. About half of the credit lost by them came from liar loans. Countrywide Financial Corp, which is a part of the Bank of America Corp., used to be counted among the biggest providers of liar loans. This type of loan earned huge popularity when there was a stable real estate market in US, especially among those investors who wanted to get properties fast. Besides, the mortgage industry found this loan to be very profitable as they enjoyed higher interest rates and higher fees.

First American CoreLogic has put forward that nearly 13 percent of the borrowers of liar loans have almost defaulted by two months on their payments in the month of May. Some of the mortgage bankers and brokers who have been able to survive have said that they were also brushed up by the housing problem to some extent.

Popularity: 7% [?]