Latest Articles Texas Makes Lying on Loans a Felony
We all know what they are. In the industry, we call them stated income loans. The rest of the world likes to call them liar loans.
A little known law that took effect in Texas last September will hold borrowers responsible if the personal and financial information they disclose on the loan application is false. What could it cost someone? If found guilty, the offense is punishable by two to 99 years in prison and a $10,000 fine.
As many of you know, I live in Texas – 10 years now. In a state known for “Bubble laws” – legislation that has no apparent purpose (like trying to pass a Constitutional amendment that every citizen has the right to hunt and fish) – I often question the sanity of some of the bills that come up for debate. But this time, I think my tax dollars were put to some decent use.
Of course, like anything else, the law has limitations and challenges. The first is that enforcement will be an issue. If a lender or broker gets information from a potential borrower that won’t pass the sniff test, that mortgage professional is required to report them to a new mortgage task force made up of law enforcement agencies. They aren’t even allowed to give the consumer notification they are being reported.
I know what your thinking. What broker is going to throw a consumer under the bus when they might be participating in the process? Hey, I didn’t say it was perfect. I’ll get back to this challenge in a moment.
Second, many people don’t know the law exists. I didn’t find out until Steve Brown of the Dallas Morning News wrote about it in his weekly column in early January. I called a few colleagues in Texas who still work in the industry and none of them knew about it. So for all the good intentions, somebody forgot to issue a press release.
Why is all this important? First, it puts Texas at the forefront of passing such a law. With a little hope, maybe others will follow suit. Second, given the lack of publicity that exists, I think it’s up to those of us who want to fix the incredible mess that’s been made by taking action wherever we can. So I did.
A former employee contacted me last week with a story of a borrower who was trying to pass off a totally fraudulent application – job, income, the whole thing was a mess. I informed him of the law (he also didn’t know it existed) and we decided to call the task force. At this stage I don’t have any more to report, but keep reading. I’ll continue to blog as information unfolds. Hopefully, in the not too distant future, a posting will start with the headline “Broker Turns in Lying Borrower”.
By the way, has somebody called down to hell recently? If I didn’t know better, I’d say that it was starting to freeze over.
99 years in prison for putting false information on a financial document. The Taliban is alive and well in Texas.
John,
Keep in mind this is Texas. We kill more people through the use of the death penalty than anywhere else. Good times.
Is there a provision to except people who accidentally provide the wrong number? A lot of people who have used stated income loans say that the incorrect number was an accident, like a typo.
If there was such a law in California, we would need to put everybody in house arrest.
Welcome to another politically-motivated, selectively-enforced law.
A liar loan is a contract between the bank and its customer.
It is not the customer’s fault that the bank loses a limb when FMAC is securitizing something it had no business securitizing without verifying the facts.
Now, if you make a mistake, or don’t have sufficient evidence to back up your loan application, you are guilty until you prove your innocence. The bank doesn’t even have to lose money in the deal because this is criminal law.
Texas likes jailiing as many people as possible - except the illegals
Wait — is this only applicable to borrowers?
This sounds like workers’ compensation, where the law comes down really hard on workers’ factual accuracy but seems to have no penalty at all when the insurer falsifies statements or dates on the same forms.
Does Texas make this apply only to the borrower, no matter who puts the wrong information on the paperwork?
The key here is the loan officer or someone at the lender’s shop would have to report the borrower. It would seem unlikely that a loan officer would falsify information then call attention to the situation by throwing the borrower under the bus. Keep in mind that borrowers sign the application indicating the information is correct.
As for the loan officers, we’ve seen cases already where loan officers or others involved in creating a fraud have received fines or jail time for their actions. The specific law that I wrote about relates just to borrowers.
I agree that borrowers must sign the loan application, but you are assuming that they will read it or wont be told that this is just the information that you have given us, “sign here”. As of yet, I dont think anyone has read their ARM rider.
What does an agreement between a bank and its customer have to do with the government assuming its not a government insured loan? If the bank does not do its due diligence before funding the loan, then its between the bank and the customer who falsified the information to begin with. But to make a literally a Federal Crime is crazy.