Thursday, October 02, 2014

Loan Fraud Inquiry Said to Focus on Used-Car Dealers

By Jessica Silver-Greenberg and Michael Corkery, NYT
October 1, 2014 10:00 pm

Lenders in the housing boom created so-called liar loans, which enabled borrowers, even those with no income or assets, to inflate their income. Government authorities are now taking aim at a new generation of liar loans. Only this time it is subprime auto loans.

Federal and state authorities, a group that includes prosecutors in New York, Alabama and Texas, are zeroing in on the most powerful, and arguably the least regulated, rung of the subprime auto loan chain, used-car dealerships, according to people briefed on the investigations. Already, they have found hundreds of fraudulent loans that together total millions of dollars.

At their center, the people said, the investigations are examining whether dealerships are inflating borrowers’ income or falsifying employment information on loan applications to ensure that anyone, no matter what their credit quality, can buy a car.

Some of the same dynamics — the seemingly insatiable demand for loans as the market heats up and the dwindling pool of qualified borrowers — that helped precipitate the 2008 mortgage crisis are now playing out, albeit on a smaller scale, in the auto loan market. Under pressure to generate more and more loans, salesman at some used-car dealers are suspected of getting inventive.

(More here.)

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