[quote=Daniel]Great post, analyst. One comment, though: everything you’re saying holds true only if no fraud or misrepresentation was made in the loan application. I believe, and I strongly believe that, a majority of loans made at the 2005-206 peak involved fraud in one form or another. It could be a vast majority (as in 80% of loans or so). I’m not kidding. A lot of fraud went under the radar. [/quote]

A lender has two tasks:
1. Evaluate the property.
2. Evaluate the borrower.
Both are easily accomplished by a serious lender living up to lender responsibilities. Even for people with complex income situations, there are procedures for the borrower to have tax records released to the lender directly by the taxing authorities.

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.