A reader has asked several important questions about liar’s loans that are critical to understanding the causes of the ongoing U.S. crisis. By 2006, half of all loans called “subprime” were also liar’s loans. Roughly one-third of all home loans made in 2006 were liar’s loans. The crisis was originally called a “subprime” crisis, but it was always a liar’s loan crisis. The reader is correct to inquire about causation and moral culpability.
“Dr. Black, are liar’s loans the same as stated income loans? In either case, how do we know whether buyers or loaners put the income for the loan? If most of these reported incomes were entered by borrowers, I would think most of the blame falls on them.”