'Liar Loans' Contribute to Mortgage Problems

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Lax lending standards in the real estate bull market of recent years may have set lenders up to face a wave of foreclosures.

Instability in the subprime lending market — loans to people rated as credit risks — has shaken American markets worried about the fallout foreclosures could have both in the financial and real estate businesses.

Among the questionable practices prevalent during the rising real estate market was the "liar loan," where the lender makes no effort to verify the income reported by the person receiving the loan. The "liar loan" made it easy for borrowers to obtain more money than they could easily afford to pay back.

Joe Nocera of The New York Times tells Scott Simon that the market's troubles were predictable and are a larger scale rerun of subprime lending problems that surfaced in 1998.



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