The past decade will be known for the way rampant greed and corruption nearly killed the biggest economy in the world. Now, just as our economy is beginning to recover, the federal government is giving a wink and a nod to some of the same liars and cheaters who brought us this disaster.

The Associated Press reported Saturday that the U.S. Treasury Department has waived a requirement punishing borrowers who understated their incomes by 25 percent or more when applying for a loan modification.

The federally funded home loan modification program is designed to help borrowers who can no longer make their mortgage payments by encouraging lenders to ease the terms of their loans.

The program has set a goal of helping four million borrowers over the next three years, but it has so far fallen way short of that mark.

Lenders, understandably wary of compounding their original mistakes, are now requiring the sort of information they should have been demanding all along, like proof of income.

As many of us learned to our dismay as the mortgage crisis unfolded, loan originators in some parts of the country were so eager to write mortgages that they required no solid proof that people were employed or had incomes.

This was, as it turns out, a conscious decision. The people writing the loans were paid when deals were sealed. Obviously, it’s much easier to write a mortgage if you allow people to name their own income numbers.

The result, however, was that many people, particularly in California, Florida and the Southwest, overstated their incomes to obtain bigger mortgages and bigger homes. With housing prices rising at 10 or 15 percent per year, it seemed to many like a good bet.

The party ended, however, when the economy began to slip and thousands of borrowers found they couldn’t make their payments. As housing prices tanked, people began walking away or refusing to pay on their over-inflated mortgages.

Now, to speed up the loan modification process, the Treasury Department has waived a requirement that punishes borrowers who understate their incomes by 25 percent or more when trying to qualify for a loan modification.

“During the housing boom, borrowers had every incentive to overstate their incomes to get a bigger mortgage,” says Larry Doyle, who writes the financial blog Sense on Cents. “Now, they have every incentive to understate their incomes to get a bigger modification.”

As a result, a borrower who lies about his income suffers no penalty when that lie is uncovered in the verification process. He doesn’t even have to start the application process over again.

That’s just wrong and a slap in the face to people who are honest enough to tell the truth.

It would be great if we lived in a country that operated on the honor system, where everyone automatically did the right thing.

As we’ve seen again and again, particularly over the past decade, we do not. When there is no penalty for wrongdoing, the number of wrongdoers simply multiplies.

[email protected]

Only subscribers are eligible to post comments. Please subscribe or to participate in the conversation. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.