Borrowers who used notorious subprime loans typically paid higher mortgage rates. Many of them also misrepresented their income and assets, and lenders took their word for it. These so-called "liar loans" afforded consumers the perfect opportunity to dupe lenders.

According to Moody's, 10 million Americans now owe more on their mortgages than their homes are worth. Although most of the blame for the current mortgage crisis is leveled against unscrupulous mortgage brokers, predatory lending practices, and exotic loans with dangerous adjustable-rate mortgages, many ordinary consumers were also participants in their own trickery.

Subprime loans offered the perfect opportunity to con lenders without engaging in complex financial schemes. They were sold as so-called "low documentation" loans. That means that the borrower's income wasn't verified by actual fact checking of documents, like tax returns and pay stubs. Instead, borrowers just filled out loan applications and stated how much money they made by filling an amount into a box on the application form. Add a zero on the end of your real income, and suddenly you're rich, at least in the eyes of the lender. It was the next best thing to having a banker hand you a blank check.

Borrowers swore to tell the truth under the threat of criminal prosecution if they made intentionally fraudulent statements. But since nobody did a background check, many borrowers fudged-or boldly overstated-the numbers. Now, subprimes and other "low-doc" mortgages are nicknamed "liar loans."

Liar, liar everywhere

Consumers managed to trick plenty of mortgage companies into giving them the keys to the vault by other means. One borrower was paying $500 a month in rent before she got her mortgage. But she qualified for a mortgage with payments of more than $1,500 a month. How did she get approved?

• First she emptied her checking account to pay off credit cards. When they checked her credit she had no outstanding balances.
• Then, she borrowed the maximum on her credit cards and deposited all the proceeds back into her checking account.
• When the lender asked to see her checking account statement, the balance was inflated and she got a loan that she couldn't afford, and later defaulted on.

Other similar "shell game" strategies to dupe lenders went undetected because they were too busy making money to concern themselves with such fundamentals as underwriting procedures. Sneaky borrowers had no intention of holding on to their loans long enough to get caught. Instead, they planned to borrow massive amounts of money, buy property, and then quickly resell for a profit to pay off their loans, and pocket some fast cash. They didn't have to worry about paying the typically higher mortgage rates associated with subprimes, either, because they paid back the loans before the low introductory teaser mortgage rates expired.

Alas, all good things come to an end. When borrowers with oversized mortgages began defaulting in record numbers, the bubble burst, and the fallout from it continues to spread pain.