Misrepresentation or Fraud?

How many of the mortgages sold in the run-up to the Great Recession were questionable?  An academic paper,  “Asset Quality Misrepresentation by Financial Intermediaries,” says that quite a few were.  While the authors only looked at two measures of loan quality: loan-to-value—how much the property was worth relative to the amount borrowed on it—and whether the property was going to be owner-occupied or bought as an investment to rent out, they concluded:

More than 27% of loans obtained by non-owner occupants misreported their true purpose and more than 15% of loans with closed-end second liens incorrectly reported no presence of such liens. The propensity of banks to sell loans that misrepresented asset quality increased as the housing market boomed, peaking in 2006. Overall, more than 9% of loans had one of these misrepresentations in our data. Note, however, that because we look only at two types of misrepresentations, this number likely constitutes a conservative, lower-bound estimate of the fraction of misrepresented loans.

Read that last sentence again.