Sense on Cents

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 almost do anything to expedite the process and inflate the numbers.

What should happen if people lie? 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

This entry was posted on Thursday, December 17th, 2009 at 11:36 AM and is filed under General, Mortgage Crisis, Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.