Beginning hints of liar loans, which are loans made without verifying people's finances, are emerging back into the housing market, according to a Bloomberg article.
Liar loans widely participated in the hoopla that contributed financial crisis, but this time around they only bear passing resemblance to the ones that proliferated in the mid-2000s. And they’re not nearly as widespread.
The article explained that liar loans are trickling back in the market through companies like Velocity Mortgage Capital.
The story begins earlier this year, when a TV producer bought the cream-colored home. His lender, Velocity Mortgage Capital LLC, says it writes mortgages for people buying homes only for business purposes, such as renting them out, and requires all customers to sign documents stating their intentions.
But here's the problem:
When a reporter recently knocked on the door in Manhattan Beach, the buyer answered and said he never planned to rent out the place. Nor, he said, had he signed documents stating he would. He was living in the house with his family.
The loophole is because Velocity and other specialty lenders can offer certain mortgages with limited reviews since the rules exempt mortgages made for “business purposes.”