Could 'liar loans' help bring back the housing market?

Ann Brenoff
Liar loans: Where are they when we need them?
Liar loans: Where are they when we need them?

There is one surefire way to reinvigorate the housing industry and it's such a simple solution that regulators should be embarrassed they have to be reading about it here: Re-institute the liar loan.

In polite circles, these loans were called stated income loans or "no doc" -- short for "no documentation" loans. They allowed borrowers to say that their income was whatever the bank wanted to hear it was and then, with a wink and a nod, get their money to buy a house. Everybody was happy and no, this alone did not lead to the housing collapse -- although it may lead to its recovery.

First, in their defense: It was those adjustable rate loans with crazy low initial interest rates that jumped into the stratosphere at about the time you lost your job that led to the housing collapse. It was also the fact that some homeowners kept borrowing against the paper equity in their homes under the false assumption that the home's value would continue to appreciate. It didn't.

But liar loans? Puh-lease. They may have hurt those who lied to the extent that their noses grew, but that wasn't most people. Most people inflated their income 15% to 19%, says the research. And that was basically the populace disagreeing with the government about how much of our earnings we should spend on our housing. The regulators thought 25% was enough. I, for one, didn't.