by Mary Kane
The debate over what caused the mortgage mess and how best to fix it is now taking a sharp turn, as new problems surrounding liar's loans and payment-option mortgages reveal the pervasive fraud, lying and deceit that permeated the market at its height.
As loans made to borrowers with decent credit begin to fail at a surprisingly rapid rate, it's becoming clear that widespread fraud helped support the entire mortgage system -- from borrowers who lied on their loans, to brokers who encouraged it, to lenders who misled some low income borrowers, to the many lenders, investors and ratings agencies that conveniently and deliberately looked the other way as profits rolled in.
Despite its widespread role, fraud hasn't yet been at the forefront of proposed rescue plans, which center on refinancing people out of loans now resetting to higher rates. That may begin to change as the mortgage market continues a meltdown that seems to have no end. As fraud becomes a focus, the question of who did most of the lying and cheating will be crucial in deciding who deserves help in any housing rescue plan.
And the search for causes of the crisis may challenge long-held but erroneous beliefs about what homeowners did and why. Many people think borrowers got in trouble by buying bigger houses than they could afford, but the numbers show the majority were refinancing their homes.
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