Liar Loans

Living easy

Loving free

Season ticket on a one way ride

Asking nothing

Leave me be

Taking everything in my stride

Don’t need reason

Don’t need rhyme

Ain’t nothin’ I would rather do

Going down

Party time

My friends are gonna be there too, eh

I’m on a highway to hell

On the highway to hell

Highway to hell

I’m on the highway to hell

Highway to Hell — AC/DC



“The Road to Hell is Paved with Good Intentions.” — Samuel Johnson. Most people who took out a “liar loan” did so to provide shelter for their families and hopefully make a few dollars speculating in real estate. Most people did not intend to defraud anyone when they took out the loan, but they ended up doing so by walking away from their payment obligations. This Highway to Hell is paved with good intentions, and it is very well traveled.

State Income Loans

One unique phenomenon of The Great Housing Bubble was the utilization of state-income loans, also known as “liar loans” because most people were not truthful when stating their income. Loan documentation is usually a routine part of obtaining financing. Lenders ordinarily require a borrower to provide documentation proving income, assets and debt. However, during the final stages of the Great Housing Bubble, loan documentation was seen as an unnecessary barrier to completing more transactions, and loan programs which circumvented normal documentation procedures flourished. The fact that these programs existed at all is a remarkable proof of the risk lenders were taking through the relaxing or outright elimination of lending standards. According to a study by Credit Suisse, 81% of Alt-A purchase originations in 2006 were stated income, and 50% of subprime originations in 2005 and 2006 were stated income. Stated income loans increased from 18% of originations in 2001 to 49% in 2006 according to Loan Performance. In a related study by the Mortgage Asset Research Institute, 60% of stated-income borrowers had exaggerated their incomes by more than 50%. Obviously, lying about one’s income to obtain a loan is not a conservative method of financing a property purchase.

Stated Income Loans

The stated-income loan, also known as liar loan due to the built-in incentive to exaggerate one’s income, was originally provided to borrowers such as the self-employed who most often do not have W-2s to verify income. When these loan programs were first started, they were not made available to borrowers with W-2s as the transparency of the lie would have been obvious to all parties. During the bubble rally, these loans were made available to anyone, and not just were the borrowers encouraged to lie, they were often assisted in fabricating paperwork by aggressive loan officers and mortgage brokers. Since the loan could be packaged and sold to investors who had no idea what they were buying, there was a complete lack of concern for whether or not the borrower actually made the money stated in the loan application and thereby could actually make the payments on the loan. Everyone involved was making large fees, the borrower was obtaining the real estate they desired, and for a time, the investor was receiving payments from the borrower. As long as prices were rising, everyone benefited from the arrangement. Of course, once prices started to fall, borrowers did not want to continue making payments they could not afford, and the whole system collapsed in a massive credit crunch.

Today’s property is a WTF listing price in Northwood II. This neighborhood is getting destroyed, and most sellers are losing money on their 2004 and 2005 purchases; however, today’s seller believes his property is different, and in fact, it has appreciated over 40% since he bought in 2004. I imagine he wishes liar loans were still available so someone could come up with the money to buy him out.

31 Lily Pool Front 31 Lily Pool Kitchen

Asking Price: $1,699,000IrvineRenter

Income Requirement: $424,750

Downpayment Needed: $339,800

Monthly Equity Burn: $14,158

Purchase Price: $1,237,000

Purchase Date: 11/9/2004

Address: 31 Lily Pond, Irvine, CA 92620


Beds: 5
Baths: 4.5
Sq. Ft.: 3,963
$/Sq. Ft.: $429
Lot Size: 6,000 Sq. Ft.
Type: Single Family Residence
Style: Mediterranean
Year Built: 2004
Stories: Two Levels
Area: Northwood
County: Orange
MLS#: P620491
Status: Active
On Redfin: 1 day

New Listing (24 hours)

Kool Aid Man

Absolutely Gorgeous , Luxurious Home in Gated community! Very Open , Roomy Floor Plan. Incredible Highly Upgraded top to Bottom. Professional Paradise Landscape! AttractiveCustomised paint all inside house, * * Crown Molding , Hardwood Floors, Customised Carpet, Wood shutters, Large Gourmet Kitchen w/ Granite Counter Top & Huge Island, Luxurious master suites w/ walk-in closet. Large walk-in Pantry, Extended Family Room , Charming water fountain in Backyard. Best Location in NW II.



No greed here, this seller only wants to make $462,000 for a little over three years of ownership. It might have worked out if he had purchased in 2001 or 2002, but a late 2004 purchase makes him late to the party. He is not a real estate mogul, he is a bagholder.

That concludes another week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

BTW, since AC/DC is one of my favorite groups, I want to share two more songs with you.


Hells Bells



Back in Black



63 thoughts on “Liar Loans

  1. George8


    Good morning everyone.

    How wishful thinking is today’s feature list seller? I estimate it to be 20-40% over realistic market price today.

    Proof? The following 2005 built Northwood listing is over 130 days old. It is priced at $323/sf vs. $429/sf today’s seller is asking.

    What a waste of time and effort it is for all involved.

    36 Secret GDN
    Irvine, CA 92620
    Price: $999,995
    Buy with Redfin and Save $20,000*
    Beds: 4
    Baths: 3
    Sq. Ft.: 3,100
    $/Sq. Ft.: $323
    Lot Size: –
    Type: Single Family Residence
    Style: Contemporary
    Year Built: 2005
    Stories: Two Levels
    View(s): Park or Green Belt
    Area: Northwood
    County: Orange
    MLS#: S505877
    Status: Active
    On Redfin: 143 days

  2. Hmmmm

    I can’t wait to see how this one goes….

    I do like the kitchen though. Best I have seen so far. IMHO.

    It will be interesting to see which goes first…..

  3. Melbourne homes for sale

    Will the increase in the Jumbo loan assist anyone in buying this home?

    I saw where they prosecuted a lender for inisting a client take an ARM and they qualified for a 30 fixed. Lender lost case and has to get this got to jail for 5 months and 5 months half way house and pay 400,000 what a slap in the face. I think we will see some of these ARM loans were not much more then greeedy lenders and yes uninformed buyers desperate to own and investors that made a bad choice of time.

    Look forward to next week update!

  4. Mr Vincent

    6000 sq ft lot for 1.7 mil? LOL!

    Your just getting a building here that is crowded next to other buildings. You buy this place and you will never be able to anything more than what you currently have because the lot is so small.

    About 21k per year just for prop taxes.

    If I was a rich business man in Irvine, I would just rent until places like this are running about 850k. I would not pay more for it.

  5. mav

    Were these really Liar Loans?

    When they were stating their income they were just including all the HELOC money they would pull out of the home.

    Maybe they weren’t lying when they stated 50% above their actual income….. after all it was impossible for them to afford the home without this invisible yet reliable HELOC money.

    In buying a home they were getting a 50% raise….. maybe more…. their home was more like a second job; a second source of income.

    The Dumb Money loved this free money orgy.

    Much easier than getting a higher degree and actually making yourself more valuable to an employer and society.

  6. homekitty

    I was watching 23 Galaxy Isle 92694 (Ladera). 5887 sf, nice new house. I think it sold for about $260/sf.

  7. jhill

    There is an issue raised by this place that hasn’t come up on the blog yet — extremely water-intensive landscaping. I think coastal OC gets about 9 inches of rain a year. Colorado River flows are at all-time lows. The rhododendron-azalea-banana plant combo featured here, with the lush lawn (admittedly, it’s a very small lot, but still) may not be sustainable.
    At least the realtor bothered to stage this place! Complete with corny breakfast tray on bed shawl…

  8. surfing in newport

    …and obviously, the staged pink kool-aid was more important than the water feature in the back yard (notice that you just barely see the edge of it on the left).

  9. ochomehunter

    Those black granite counters over white cabinets are just too much for me to look at. too much contrast and I cant look at it everyday I have was to buy it.

  10. no_vaseline

    “Will the increase in the Jumbo loan assist anyone in buying this home?”

    No, because even if this place was priced right, they’d have to qualifiy for real financing, something nobody has done in several years.

    Highway to Hell, eh? Awesome……….BUT I think IR missed it today by shooting his load on the AC/DC catalog. He should of saved “Back in Black” for when the market turned around.

  11. tenmagnet

    Although AC/DC was a little before my time, Back in Black reminds me of college.
    For some reason, that song played at almost every party I attended.
    It was a constant, just like loud music, cheap beer, red plastic cups, and sexy coeds. Great Times!

  12. IrvinePerson

    “Will the increase in the Jumbo loan assist anyone in buying this home?”

    Actually since the conforming loan limit is 700k, this home should be selling for 900k 😛

  13. buster

    I guess this goes along with the BusinessWeek article about how a 30% – 40% of people think their home is worth more now than last year. Either this bagholder is in complete denial or this is just some kind of complete joke to make it onto the IHB.

    I mean, really, if I made half a million a year and was sitting on $340,000 in cash for a down payment, does Mr. Bagholder really think I’d buy that thing?

    Of course, maybe I’ll offer them full price so long as they cut me a check every month for the $14,000 negative equity burn ….

  14. hb

    The lot is so small and the house so proportionally large, the landscaping hardly matters. Much less water use than the evaporation from a swimming pool.

  15. No_Such_Reality

    I wonder if this is greed and kool-aid or just plain old desperation.

    I see these and I no longer see kool-aid drinking denial. I see desperation. I see a home debtor that needs $1.699M to breakeven. I suspect they can’t pony up the money to sell it if they get less.

    Can anybody see if a NOD is out there already? Did they HELOC? Refi? Or just option themselves to death? Those are far more common than kool-aid at this point.

    Since they haven’t been on the market, will a lender even consider a short sale if it is needed? The loss even if they haven’t added anything to principal is probably $100K plus. Will the lender go there? doubtful, they’ll need 90 days on market with nothing first.

  16. Irvine_Lurker

    Yes, “Back and Black” was a party staple for years as was “You Shook Me All Night Long” which was the next track on the album, I believe…

    Good times indeed…

  17. No_Such_Reality

    I also wonder how much of all that furniture was bought since they moved in and how much is rental stage. My gut tells me looking at the workroom/office that it is the ‘truth’ of the ‘owners’.

  18. Purplehaze


    How about “Goodbye and Good Riddance to Bad luck” from The Razor’s edge and “Some Sin for Nothin” from Blow up your Video? I am a diehard AC/DC fan and just love today’s featured videos!!
    Thank you!

  19. former_irvine_resident

    You’ll need to make the graphic bigger too since this one has a “Large Gourmet Kitchen” and a “Huge Island”.

  20. Alan

    Talk about a whopping loss…

    Last sale June 06 for $630K offered Jan 08 for $350K

    Must be a really motivated sellar (lender-short) as it looks like it is priced $60k (15%) below the next lowest comp ($415K)

  21. surfing in newport

    Hey, if we are going way back for music, how about some Jethro Tull:

    Skating Away On Thin Ice


    Living In The Past

  22. IrvineRenter

    By the time people are back in the black with their home purchases, everyone will have long ago forgotten today’s post…

  23. vernonlee

    My gut tells me looking at the workroom/office that it is the ‘truth’ of the ‘owners’.

    I thought the same thing!

  24. ex-Tangelo

    Credit-Card Pinch Leads Consumers To Rein In Spending
    Sinking home prices have made it much harder to convert home equity into cash for living expenses. At the same time, plastic has pushed into every corner of American life, making new inroads that worry some economists and card issuers.

    In past economic downturns, Americans used credit cards mainly for discretionary purchases, such as furniture, appliances and jewelry. Now, however, many of them regularly whip out plastic to pay for groceries, gasoline and other everyday necessities.

  25. ex-Tangelo

    Oh, and the Wall Street Journal is horning in on Irvine Renter’s song schtick:

    Once Bitten, Twice Bitten? Banks Return to Subprime
    The big-haired hard-rock band Motley Crue once sang of a toxic relationship, “Girl, don’t go away mad; girl, just go away.”
    You would think Wall Street would take the same approach to its own failed relationship with subprime mortgage lending. The investment banks have taken $100 billion in writedowns – and nearly as much in emergency capital infusions from foreign funds.

    But Wall Street seems to still believe there’s money in them thar failed mortgages.

  26. lendingmaestro

    It is very difficult to get a short sale approved. You can’t just look at your coming option arm recast in June and call the bank and request a short sale.

    You generally need to be 60-90 days late at least. Secondly, the bank is going to request you send in financial information like your 1040 tax returns and statements of all of your assets. They want to make sure you are really unable to pay the mortgage. You will also need proof that the property has been listed with no offers.

    After the bank (or servicing company) determines that you are in a genuine financial hardship they have to number crunch on the sales price of the home. Like anyone, they will be hesitant to take a loss.

    If all the stars align, and you are approved for a short sale, you will have to keep the buyers on the hook. The process can take an agonizing 3-5 months. This is not good when foreclosures and price drops are happening everywhere and everyday. Chances are after the 3 month approval process the buyers will have found another property.

  27. Genius

    Not like they have anything to lose. The government just proved once again that they’ll step in and bail them out at the expense of the taxpayer.

  28. Purplehaze

    Poor Brian Johnson! Just kidding. I love Bon Scott’s vocals but Brian does kick some serious butt.

  29. BD

    I would believe anything over 90 days on the market is over priced. By this measure we have a long way to go. Remember median household income (2 wage earners) in Irvine is about $106K (census data). Assuming they have little other debt they could typically afford 3 to 3.5 times their annual income. This should put median housing in the

  30. Major Schadenfreude

    “In a related study by the Mortgage Asset Research Institute, 60% of stated-income borrowers had exaggerated their incomes by more than 50%.”

    “The remaining 40% had exaggerated their incomes by 49%. However, the researchers are not entirely sure of their research because those polled are…liars!”

  31. No_Such_Reality

    Besides at that time, the driving back beat of “It’s a long way to the top” will make much more sense to anybody that caught a knife.

  32. Genius

    I was 3 years old when he died so I never got a chance to see him in concert, but the music they put out when he was alive has no equal.

  33. tonye

    Sex Pistols and The Talking Heads in my time.

    I’m old, but punk clubs in Hollywood and Costa Meas were really fun then if you just got plastered and stayed away from the slam bangers.

    Oh.. the ladies wore real short skirts too, a great improvement over the 70s.

  34. Kyle

    If I recall from a previous post of yours, didn’t you say you voted for Reagan? Twice? And who the hell refers to “the ladies” in short skirts? You’re hardly punk, gramps. You’d barely qualify as rock-n-roll. Lawrence Welk sounds about right for your type, though.

  35. tonye

    Ay caramba… I suppose you think that Michael Jackson was always “white”….

    You obviously are a product of the fake post rock period, with all of its rap and grunge that is really nothing more than a mixture of bullying bravado juxtaposed with Starbucks, various types of mineral waters, strong misogynistic tendencies, fake drugs, small speakers and the ownership of several tapped out VISA cards.

    In the days of punk we broke the law by driving at 65mph, had real drugs, did have to deal with AIDS, used cash and drove Vegas/Pintos/Datsuns and had real turntables with really large speakers that put out gobs of very loud music filling the entire audible spectrum.

    And we called them ladies, so what? Do you think a little respect is above your head? What that song by Rick James

    She’s a very kinky girl
    The kind you don’t take home to mother
    She will never let your spirits down
    Once you get her off the street, ow girl
    She likes the boys in the band
    She says that I’m her all-time favorite
    When I make my move to her room it’s the right time
    She’s never hard to please
    That girl is pretty wild now
    The girl’s a super freak
    The kind of girl you read about
    In new-wave magazine
    That girl is pretty kinky
    The girl’s a super freak
    I really love to taste her
    Every time we meet
    She’s all right, she’s all right
    That girl’s all right with me, yeah
    She’s a super freak, super freak
    She’s super-freaky, yow
    Super freak, super freak
    She’s a very special girl
    The kind of girl you want to know
    From her head down to her toenails
    Down to her feet, yeah
    And she’ll wait for me at backstage with her girlfriends
    In a limousine
    Going back in Chinatown
    Three’s not a crowd to her, she says
    “Room 714, I’ll be waiting”
    When I get there she’s got incense, wine and candles
    It’s such a freaky scene
    Temptations sing!
    Super freak, super freak
    That girl’s a super freak
    She’s a very kinky girl
    The kind you don’t take home to mother
    She will never let your spirits down
    Once you get her off the street, ow girl
    Blow, Danny!

    Nothing wrong with calling her a lady when she goes….At least I didn’t vote for Carter or Clinton.

  36. ipoplaya

    Would you guys feel better if I tweaked the code and remove the income phase out?

    You could at least dream that way…

  37. Kirk

    That makes Ford, Reagan, Bush, Dole and probably W. to all you little “gangsta” hoodlums out there. Now, that is a voting record to be proud of. All these men had “fly” policies. Personally, I wish these heros weren’t as intellectual as they were, but that’s what they had to be in order to get in “on the down low” “G”. “Represent” “yo”!

  38. Genius

    I could go out and get pretty smashed one weekend for $600, but I think I’ll make due without it.

  39. Kirk

    You are embarrassing yourself by posting such ignorance. I used to believe the same propaganda before I read the economics book “The Secret”.

  40. Boston2TheBay

    Perkins Palace in Pasadena late 70s/early 80s was the spot. Fear, Black Flag, Wasted Youth – those were the days. Punk hasn’t existed since then.

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