What you're glossing over is that your Broker #2 (the mortgage broker) doesn't get paid unless the deal closes- so he has ample incentive to "push the envelope", ethics-wise.
Case in point (actual case)- 75 year old woman comes to my office- she borrowed $200,000 on her house (to help her daughter through a divorce- daughter was helping with the payments until she lost her job, now mom's house is going into foreclosure). Mom's total income was $1,300 per month (pension and SS), payment was about the same. Her question to me: "Why did they loan me so much money, when I obviously couldn't pay on my own?"
I looked over the printed application, and called her attention to the "Income" section- In addition to her SS and Pension income (which were correct, to the penny), there was "Other income- $3,000/month". She had no idea how it got there. She had a copy of her original hand-written version, and it had only her true income. Long story short, broker did a "stated income" loan, and just "stated" the imaginary $3k in order to qualify the loan.
Mom had moved in with her daughter and they were happy with that situation; she had taken all the equity out of the house with the $200k loan; so I suggested she just let it go back, as though she had "sold" it to the bank for the $200k. (and it was worth substantially less than that after the crash). She was happy with that, and did so.
Bad news is, the crooked mortgage broker didn't go to jail.
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