Saturday, January 19, 2008

It’s now a Felony to LIE on a Loan Application

Liar Loans are now a felony in Texas. Punishment is a $10,000 fine and prison for 2 to 99 years! This new law certainly penalizes the individual home buyer that fudged his financial numbers on an application to fool the lenders into giving him a loan. But, was that really the problem?

Where is the new law that addresses the predatory lenders that were in this mess as well? In fact, I would hazard to say that the majority of the fault lies in the lenders lap. You can’t tell me they were fooled into making bad loans.

The new state law took effect in September 2007 and makes borrowers swear in an application that all their financial and personal information is correct. If a lender suspects fraud or misleading statements, they are required to report the case to a mortgage task force made up of law enforcement agencies.

For some reason, I thought you were supposed to tell the truth on loan applications all along. The same with job applications, resumes, etc. Whatever happened to character? Integrity? honesty?

It seems the subprime housing debacle comes down to an issue of morality. A person of character would not lie on a loan application. A person of character would not give a loan to an individual that has no hope of repaying it. Does that seem rather harsh and judgmental to lump all of these loan defaulters and bad lenders into one pile and call them immoral? Does it help to sugar-coat it and say that their character is weak?

It’s interesting, I know of people who assess loan applications for a living and have approved a lot of bad loans. They believe that they were just doing their job. They have been given the authority to grant questionable loans. Because someone else authorized this action, they seem to feel absolved from the situation. “I was just following orders”. When everyday people start thinking in those terms, society starts breaking down. Your actions are always your responsibility.

Yes, its easy to criticize. What would I have done in that situation? I would like to think that I would have resigned.

For more on a study that measured the willingness of participants to obey an authority figure who instructed them to perform acts that conflicted with their personal conscience check out the Milgram experiment. It is amazing what people will do. Ordinary people, simply doing their jobs, and without any particular hostility on their part, can become involved in a terribly destructive process. And even more disconcerting, when they realize the destructive results of their work, very few people have the personal strength of character needed to resist authority.


  1. I agree with you. Your comment Your actions are always your responsibility is right on. Often people over extend themselves in investments and it pays off. Sometimes though, they lose their shirts because of it. When they lose, its their own fault and they need to deal with it on their own.

  2. Thanks. I appreciate the comments.