Sounds familiar? Just like how our housing agents try to blow the housing valuation up to get more CPF $$$ out.

CORRUPTION

And these shenanigans represent the easy, early corruption. If history is any guide, the really juicy stuff is no doubt still waiting to be uncovered.History teaches that easy money corrupts, and on this count, subprime has lived up to the lofty standards set by the junk bond and tech stock bubbles. Liar loans involve a lot of lying, of course, which in its most common form works like this: An independent mortgage broker takes an application from a borrower of dubious means and calculates ahead of time what income level an underwriter such as New Century would require to make the loan. The broker then instructs the borrower to claim the required income or simply fills in the blank himself. The underwriter winks at this obvious deception because it is merely passing the loan on to the packager, who also winks because the packager is merely processing the loans into bonds and selling them to Asian or European pension funds. The result is a daisy chain of fraud and negligence. One recent study found that 60 percent of stated-income loans were exaggerated by at least 50 percent.

Interesting articule to share here.

BAILOUTS AND REGULATIONS

Like all bursting bubbles, subprime?s collapse has panicked those whose job it is to ?do something.? Mortgage lenders and investment banks have an obvious stake in containing the damage. And U.S. federal and state governments fear an army of dispossessed former homeowners roaming the countryside and voting for change. So, the solutions are flying fast and furious.

Freddie Mac is offering to buy US$20 billion in subprime mortgages, although what it intends to do with them is unclear. Bear Stearns? EMC Mortgage has created a ?Mod Squad? loan-workout team that travels the country helping borrowers avoid default. And Washington Mutual has pledged US$2 billion to help its subprime borrowers refinance into fixed-rate loans. More banks are announcing similar programs daily.

At the state level, Ohio is offering to refinance subprime ARMs with 30-year fixed-rate loans, and in mid-May, Florida?s legislature was debating various homeowner tax breaks. Regulators, meanwhile, are pressuring lenders to offer generous workout terms to borrowers. In a joint statement, agencies charged with overseeing banks noted that ?existing regulatory guidance and accounting standards do not require immediate foreclosure on homes when borrowers fall behind on payments.?

And, of course, now that the horse has wandered onto the nearby freeway, the U.S. Congress is pressuring regulators to close the barn door. In April, Senator Charles Schumer (D, NY) threatened new banking rules that would ?ensure borrowers can repay loans and hold mortgage originators accountable? and proposed giving nonprofit groups federal money to help homeowners refinance.

Will any of this work? If the S&L bailout of the early 1990s is a reliable model, socializing subprime risk will make it easier to bear or at least hide the true costs. But the proposed regulations are unlikely to have much effect?first, because the market is already imposing the previously missing discipline and, second, because most of the egregious lending was done by entities not under regulatory purview. ?There aren?t any regulatory fires to put out because most of the risk is held by nonbanks; the regulators really can?t do anything about it,? says Whalen.

But one piece of legislation that might have an impact is Ohio Senate Bill 185, which would prevent certain subprime mortgages originated in that state by nonbank entities from being included in securitization pools. In response, Wells Fargo quickly discontinued its stated income/limited documentation wholesale loan programs in Ohio. ?If other states pass similar legislation,? says Zelman, ?this could be a major event.?