As others have posted, it looks like we might be heading back to the 2007 real estate market in the next few years. There has been a 12% increase in mortgage fraud, primarily lying about one's income to be able to afford a house. Here is the article from RealtyTimes:

Scary New Trend: Lying About Income on a Mortgage Application written by Jaymi Naciri

Would you lie about your income to qualify for a mortgage? According to CoreLogic, lots of people are. “Mortgage fraud risk jumped more than 12 percent year over year at the end of the second quarter, said CNBC of the CoreLogic findings. “One in every 109 mortgage applications is estimated to have indications of fraud.”

With high home prices and rents, rising mortgage rates, and heavy competition for available properties, potential buyers are feeling more pressure to own a place than ever. “As a result, an increasing number of buyers are lying and cheating,” they said. CoreLogic’s six fraud indicators include: “identity, income, occupancy, property, transaction and undisclosed real estate debt,” and they noted the highest percentage of mortgage fraud risk in New York, New Jersey, Florida, Washington, D.C., and New Mexico.

The property data and analysis company found that fraud related to income reporting was up 22 percent in an attempt by borrowers to circumvent strict debt-to-income limits for mortgage lending. “Ominously, most of it is not traceable to criminals trying to bilk lenders out of tens or hundreds of thousands of dollars through traditional loan swindles,” said the Washington Post. “Rather, it’s increasingly what researchers call ‘bona fide’ borrowers who don’t have the income to qualify but are determined to get a home mortgage, even if they have to mislead the lender.”

They’re accomplishing this through Internet sites that help borrowers fudge their income and even provide a confirmation service on cross-check. “A casual search will result in any number of online services that will not only generate fake pay stubs, but will also answer phone calls and ‘confirm’ income verbally, all for a fee,” said CNBC. Another scam involves borrowers who claim to have received an interest-free down payment gift from a relative and who are able to disguise these borrowed funds with a faux gift letter they found online.

The Washington Post also noted that, “Fannie Mae recently warned lenders via several alerts about a loan-fraud technique in which applicants claim to work for specific companies and provide income and employment information that appears to be bulletproof but turns out to be totally bogus. Applicants frequently claim to have been students immediately before their current employment. This makes it difficult or impossible for lenders to pull tax transcripts from the Internal Revenue Service for the year spent as a ‘student.’”

The risk is high all around

Borrowers may think of padding their income as a harmless white lie that has little downside if they’re able to meet their goal of buying a home, however mortgage fraud carries with it some serious risks. “What are the possible consequences? Getting turned down for the mortgage is the least of them,” said Credit.com. “If your falsehood is discovered after you get the loan, your lender could boost your interest rate or even demand immediate repayment in full. Tax-related falsehoods could get you in trouble with the IRS. In addition, penalties for mortgage fraud—which is what lying on a mortgage application is—range as high as 30 years in prison and a $1 million fine. You likely won’t face a penalty like that for a small exaggeration or omission, but you could still end up with a fine and a conviction.”

And then there’s the risk to the housing industry if this current fraud trend is at all responsible for causing another crash; CoreLogic found a “far higher risk for fraud in loans coming from wholesale lenders or brokers—which don't fund the loans but instead gather a borrower's information and shop it to lenders,” said CNBC. “That implies brokers are also committing fraud. This was common during the last housing boom, when mortgage fraud helped bring about one of the worst financial crises in U.S. history.”

on a simple loan request a Bank wanted to audit my wife's $3000 annual income from helping her retired Bishops. They would not trust the IRS filings.

week after weeks of this and that delays, and probably weeks away from closing, we walked to our other bank and got it done.

The 100% partisan Dodd Frank regulations were the excuse the Bank used.

It mentioned paying for someone to provide fake paystubs and answer a phone to verify employment.

It mentioned paying for someone to provide fake paystubs and answer a phone to verify employment.

Fred, the lenders won't check half the time. They are under tremendous pressure to meet loan quotas, so as long as they can claim they did their "due diligence", then later all they have to do is cry fraud that they were duped.

Plus they get their $3000 - $5000 fee for originating the loan regardless, and then sell the mortgage off to Mr./Mrs. US taxpayer. What does the bank care if they default? Their books are clean.

No Sid, the banks really do care. When the loan goes bad the originator can be forced to buy back the loan plus all costs associated with its transfer. Over past years several lenders have had big profit drops due to this. Compliance violation additionally generate more gov. scrutiny adding more overhead costs.

Coplin, I need to clarify...I'm not after Bankers in the traditional sense. I'm referring to people like these guys, who have far fewer regulations to deal with and appear to be riding the wave of relaxed regs.