Reply #22: OK, let's talk about lying

[Godhumor]

Lying about whether a property is income or residency is a massive detail. The customer might only see the legal forms, but for the banks this is serious business. If a bank underwrites a loan that proves to be a misrepresentation of reality, and claiming a property as primary residency instead of income is a pretty massive misrepresentation, than the servicer or security holder can force the bank to repurchase the loan.

In other words, Freddie Mac turns around, tells the bank that it lied about meeting agency guidelines, and can create a legal showdown where the bank has to reabsorb the mortgage and loses the government-backed peace of mind if it goes belly up.

The banks have massive incentive to make sure loans are exactly what they are supposed to be, and they keep in-house Risk/QC groups whose entire function is to make sure there is no cheating that would lead to misrepresentation.

Secondly, the data comes directly from MLS (If you've ever bought a house, you can search by MLS number on any of the realty sites) collected information--or, to put it another way, the actual listed out facts behind the sale. It is not a biased number.

Thirdly, lying on mortgage forms did not lead to the housing collapse.

Finally, yes, some people do game the system and get away with lying, as is the case with any transaction involving disclosure. But the number of people who do get away with it is miniscule and would certainly not translate into a massive enough number to unfairly skew the pending and existing sales charts.

All that said, investors have taken advantage of the climate and abundance of distressed properties just like everyone else who has the means and desire to own a home. However, they don't represent a majority of business--they never have in any month.