Human Nature, Liar Loans And Defaults


Pinocchio by Enrico Mazzanti (1883)

As mentioned in our previous blog, there is an article in today’s New York Times Magazine titled My Personal Credit Crisis, summarized here, which relates to the topics discussed previously.  The subtext of the article touches upon universal themes of human nature, on a personal basis and within a corporate environment.

Given the number of recent business mishaps and mortgage foreclosures, several people might relate to the author’s circumstances.  The experiences he recounts demonstrate psychological elements relating to materialism and insatiability that contributed to the unwise use of liar loans, credit cards, and home equity advances. 

Yahoo! Finance’s TechTicker dubbed the story a subprime borrowing nightmare.

Well, perhaps Yogi Berra can best summarize the financial and housing crisis: “We made too many wrong mistakes.”


  1. @Carl:A couple credible sources reference one study (albeit sample size = 100). The Harvard paper provides a quality citation:“Understanding Mortgage Market Behavior.” Joint Center for Housing Studies, Harvard University. April 2007. P27. Available from’s 2006 report (pg 12), suggests that 90% of stated income applicants exaggerated incomes by at least 5%; 60% of applicants exaggerated income by more than 50%.’s 2008 suggests that of all reported mortgage frauds in 2008, 28% related to applicant financial statement information. 2008 FBI report states there were nearly 64,000 mortgage fraud reports in 2008, up 36% versus prior year.

  2. I have been researching the Home Mortgage Disclosure Act and information available on the internet that has lead me to your site. Banks are required to report demographics in the “Home Mortgage Lending” process. Part of the disclosure required is the amount of “stated income” on the mortgage loan application. I was looking for any studies that attempts to get to what human nature relating to reporting the amount of income earned in a year. i.e. Lisa Binkley with Rapid Reporting has data that would show that 32 % of the applications for a mortgage loan report an amount that would vary from IRS records and that of that percentage 15% overstated income by 30 to 60 %. I am looking for any other estimate of this percentage of the over stating of income on mortgage applications and the % amount of the overstatement.

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