Definition
A NINJA loan commonly refers to a mortgage loan product that does not require substantial documentation of income or assets by the applicant. It is an acronym for “No Income, No Job or Assets.”
Analysis
NINJA loans are sometimes referred to as “stated income” loans. The lender assumed that the information on the loan application was correct, and may not have required significant documentation to prove that the amounts were correct.
From 2004-2006, NINJA loans were very common in some of the more active housing markets in the U.S. Many states lacked the consumer protection laws that allowed for both the sale of exotic mortgage products and for fraudulent mortgage applications to be filed.
Mortgage brokers often had substantial financial incentives to overstate income for the applicant. Many coached the applicants on how to lie on their loan applications.
As a result, homeowners began defaulting on their mortgage loans in record numbers beginning in 2006 and continuing through 2008. The financial institutions that bought these loans on the secondary market began to suffer as loan losses led to massive bad debt write downs. These eventually caused stockholder panic which led to rapid declines in stock prices and the failure of multiple financial institutions.
