A new wave of foreclosures is coming, and these may last for the next two years, as mortgages that were approved without asset or income verification go into default.
These so-called "liar loans" are often called Ninja Loans, short for "no income, no job, and no assets." They are seen most often in the states worst hit by the subprime mess: Florida, Nevada, Arizona, and here in California. The situation is going to be even worse for these borrowers, not only due to dropping housing prices, but because of lenders who are now requiring full documentation of income and assets.
Half of the losses registered by Fannie Mae and Freddie Mac in the three month period between April and June of this year (about $3.1 billion) were in these liar loans, which are also called Alt-A loans, because they are given to less than A-credit/prime borrowers.
When you consider that the loan broker who arranged these questionable loans, with their higher interest rates and fees, could net commissions that were four or five times higher than a fixed-rate loan, you can see why they were so popular in the industry during the boom.
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