This bill would reward everyone who took out Liar Loans. If passed, it, among other things, would allow bankruptcy judges to lower the principal and interest payments on a home loan to the amount the borrower could now afford based on their income when they filed for bankruptcy.
Lets look how this would affect two couples who were looking to buy a home in Orange County. Both couples went house hunting in Costa Mesa in the summer of 2006.
First we have Jane and Joe Liar. The Liars got a no-money-down loan to buy a 2,500-square-foot home in Costa Mesa for $850,000. On the Liars’ non-verified loan application they stated their income was $11,200 per month.
At least it had been for the last six months. Both Joe and Jane were in sales and with the economy humming along their commission checks were higher than normal. Their 4% adjustable- interest only loan payment was $2,834 per month. With taxes of $850 their total house payment was $3,684 month.
The other couple; Bill and Sarah Doright, were also looking for a home in Costa Mesa. They too were in sales and the humming economy also shot up their incomes.
Some months, with help from large commission checks, they also made $11,200 per month. The couple also saved $45,000 over the last four years by not eating out, forgoing expensive vacations and continuing to drive their eight-year-old cars.
Their lender verified their average income over the last two years and even though they wanted a single-family home they were only qualified to buy a 1,100-square-foot condo for $450,000; which they did. Being on the conservative side they put down $45,000 and got a 30-year 6% fixed loan for $405,000. The loan payment was $2,135, and with taxes and association dues their total house payment was $2,735 per month.
