We all know what they are. In the industry, we call them stated income loans. The rest of the world likes to call them liar loans.

A little known law that took effect in Texas last September will hold borrowers responsible if the personal and financial information they disclose on the loan application is false. What could it cost someone? If found guilty, the offense is punishable by two to 99 years in prison and a $10,000 fine.

As many of you know, I live in Texas – 10 years now. In a state known for “Bubble laws” – legislation that has no apparent purpose (like trying to pass a Constitutional amendment that every citizen has the right to hunt and fish) – I often question the sanity of some of the bills that come up for debate. But this time, I think my tax dollars were put to some decent use.

Of course, like anything else, the law has limitations and challenges. The first is that enforcement will be an issue. If a lender or broker gets information from a potential borrower that won’t pass the sniff test, that mortgage professional is required to report them to a new mortgage task force made up of law enforcement agencies …. 

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