Subprime lenders may not have learned their lesson.

I have a friend of a friend who works for a subprime lender. One of the big problems with sub prime loans was somethng called “liar loans” in which the borrower submits no documentation — or phony documentation — about income, job etc. A large percentage of these loans are going belly up — no surprise.

You would think that lenders would stop making such loans now that things are crashing down around hem. But at least some of them are still doing it. My friend told me the story of one particular such loan in which the borrower claimed $165k in income, for a job that did not typically pay such an amount. The underwriter wanted to check the income with the IRS, but her boss said not to bother. A $700,000 mortgage was approved.

Later, after the close, the income was verified, and turned out to be $23,000. Something is not right, and this loan will have a high risk of failure.

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