how borrowers and brokers use liar loans
low doc and no doc loans are called liar loans because they open the door for abuse or lies when borrowers their mortgage brokers or loan officers overstate income or assets in order to qualify the borrower for a larger mortgage borrowers or brokers might do this in order to secure mortgages that would otherwise not be authorized the proliferation of liar loans was a contributing factor in the 2007 2008 financial crisis and housing bubble liar loans potentially accounted for 100 billion in losses or 20 of total losses registered during the crisis 3borrowers received approvals on mortgages that exceeded their ability to repay some mortgage brokers pushed these loans particularly prior to 2008 because the overall real estate market saw a significant run up in valuations in effect over speculation led to unscrupulous behavior often individuals who had no intention of repaying their mortgages were allowed to come into ownership of a residence after the financial crisis regulatory reforms such as the dodd frank wall street reform and consumer protection act put new constraints in place to deter and prevent such activity going forward the reforms required lenders to make a reasonable and good faith determination of a borrower s ability to repay any loan secured by a dwelling 4frequently asked questions faqs 