There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem. As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default.
So, any “bailout” for mortgagees who are having trouble fulfilling their obligations will be subsidizing many people guilty of fraud. If we’re going to support those in those situations (and that’s something we shouldn’t do, in my opinion), we need to make sure we don’t reward those who are guilty of fraud.
Hat Tip: memeorandum