First off, many kudos to Joe Nocera of the NY Times, the source of much of the info and inspiration in this post in his 11/27/2010 article:

"Liar Loans" a/k/a "stated income" loans were the forte of Countrywide, which may come to represent the dirtiest of all the subrime lenders. However, other companies also made stated income loans, in all fairness, and stated income loans have been around in one form or another since the 1980s.

However, Countrywide went around looking to purchase the "stated income" loans made by other companies, banks and lenders.

To help you understand this "behind the scense" squabbling between the banks and government, I quote from Stephanie Strom’s November 27, 2010, NY Times article:

"Take, for instance, that litigation between Countrywide and the Mortgage Guaranty Insurance Corporation (Ginnie Mae). For some time now, the mortgage insurer has refused to pay claims on thousands of stated-income loans it insured, on the unsuprising grounds that the loans were fraudulent at their inception and thus violated the terms under which the company insured them. In December, Bank of America (Countrywide) filed suit on behalf of its Countrywide unit, arguing, in effect that it doesn’t matter whether the loans were fraudulent. Since the insurer never asked for income verification – and accepted the fact they were stated income loans – it has to pay up. (Nearly a year later the litigation is just getting started.)

Now contrast that stance with Countrywide’s (B of A’s) effort to force smaller mortgage originators to buy back loans it had purchased. In these cases Countywide makes the exact opposite argument: because the loans were made fraudulently, the smaller companies have an obligation to buy them back. [ ]

Thus, when it serves Countrywide’s purposes (now owned by B of A) to argue that everyone knew the loans were fraudulent, it happily makes that case. But when it is better served by arguing that it is shocked – shocked! – to discover gambling in the casino, it makes that opposing argument wtih similar ease. Isn’t that the dictionary definition of hypocrisy?"

See "The Give and Take of Liar Loans", by Joe Nocera, NY Times Saturday, November 27, 2010.

http://www.nytimes.com/2010/11/27/business/27nocera.html

Many Kudos to Joe Nocera – a nicely written article!