NINJA Loan: Predatory Lending in the 2008 Financial Crisis

Table of Contents


What is a NINJA Loan? 

A NINJA Loan, or No Document ‘No-Doc’ Loan, refers to a loan offered to a borrower with little to no verification of a borrower’s assets or ability to pay the money back. NINJA not only stands for “no income, no job, and no assets,” but also references ninjas (covert agents in feudal Japan) as borrowers often disappeared after defaulting on the loan.

It is a form of liar loan, which refers to any loans that require little to no documentation to acquire. Some have more extensive verification processes, but NINJA loans definitely have the least requirements out of all types of liar loans. 

Most lenders require borrowers to present evidence of their income, assets, or other sufficient collateral to ensure loans get paid back. That’s standard, basic due diligence. NINJA loans, however, completely bypass that verification process. 

Unsurprisingly, NINJA loans presented a major opportunity for economic foul play before they were nearly outlawed completely by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Many (This American Life, Planet Money, Forbes, etc.) have attributed the 2008 subprime mortgage crisis to these No-Doc loans, which perhaps led to the aggressive growth of the mid-2000s housing bubble and the subsequent crash. 

The Zero Theft Movement, along with our community, is striving to eliminate the rigged parts of the U.S. economy so the ethical parts can thrive. In this article, we will take a look at the NINJA loan, how it played a part in the 2008 financial crisis, and why it might have rigged the economy against us. 

Structure of a NINJA Loan 

NINJA Loans generally had the following framework:

  1. Borrower must meet a credit score threshold
  2. Initial terms
  3. Repayment schedule

1. Meeting the credit score threshold

As long as the borrower had a credit score at or above the threshold, lending institutions could offer a NINJA loan. No additional verification necessary. These financial products typically came from subprime lenders, credit providers specializing in low-rated, or subprime, loans.

Meaning, lending institutions that typically serviced individuals with less-than-ideal credit scores were the ones that typically offered NINJA loans. 

2. Initial terms

The initial terms of NINJA loans perhaps accounted for the main reason why they became so popular. They often had an introductory or ‘teaser’ interest rate much lower than the high rate usually assigned to high-risk loans. For the overzealous, impatient, or impulsive, the short term benefits of NINJA loans proved extremely attractive.

There’s a catch, of course.

The interest rate on NINJA loans would later spike to properly reflect the lender’s risk. What initially seemed like a steal soon became cost prohibitive. 

3. Loan repayment

The final component of NINJA loans was the repayment schedule. Just like any other loan, the lender and borrower agree on a timeframe in which the loan would be paid back in full with interest. Failure to repay the loan (i.e. default) lowers the borrower’s credit score, impeding them from receiving future loans.

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Advantages & Disadvantages of NINJA Loans

NINJA loans had their advantages and disadvantages, much like any other financial instrument. In practice, the balance between the two sides arguably skewed very much to the latter. 


The two main advantages of the NINJA loan come down to its simplicity and accessibility. 

For most loans, lending institutions have to go through an extensive verification process to approve an application. A NINJA loan was granted with a simple credit score check, thus minimizing paperwork and speeding up the process for both the borrower and the lender. 

Also, NINJA loans offered credit access to borrowers who could not qualify through traditional lending institutions. They could now purchase large assets (e.g. automobile, property, etc.). 


The drawbacks of NINJA loans are their high risk and lack of an extensive verification process. 

They carried a huge risk for both borrowers and lenders. Borrowers could take out much bigger loans than they could ever pay back, increasing the risk of default. Lenders, without evidence of collateral, were handing out loans without any security. They could not seize any assets to ensure some degree of repayment. 

The lack of an extensive verification process is a double-edged sword. It simplified and sped up the loaning process, but also enabled borrowers to receive loans they had no chance of paying back. When the teaser rate ended and high interest kicked in, many citizens defaulted on their loans. This tanked the credit market and contributed to the collapse of the global economy.

The NINJA Loan Default in the 2008 Financial Crisis

Slate claims that the NINJA loan was created in order to benefit salespeople who work on commission, business owners, free lancers—essentially those who did not have one established and consistent income stream. But “[a]t the height of the mortgage boom… especially in pricey markets, the liar’s loan became a routine way of doing business…In 2006 in some parts of the country, these loans made up as much as half of new mortgages, for both subprime borrowers and for homebuyers with high credit scores.”

Borrowers, charmed by the teaser rates of NINJA loans, were taking on debt to primarily purchase houses. Lending institutions welcomed the demand, reckless supplying the loans without having to go through the extensive verification process. The simplicity of the lending process resulted in a huge volume of high risk loans and thus, a huge bubble on the verge of bursting.

Making matters worse, NINJA loans were underwritten as mortgage-backed securities (MBSs), sold to major financial institutions, and included in asset-backed securities known as collateralized debt obligations (CDOs). They were advertised as having AAA credit ratings (the highest) even though they included these risky junk bonds. CDOs became a particularly popular product on the shadow banking system, minimally regulated markets.

Global Insurance of CDOs

Source: Business News Daily

According to the UC Berkeley-backed Institute for Research on Labor and Employment, “Banks gave risky loans, such as ‘NINJA’ loans…and Jumbo loans (large loans usually intended for luxury homes), to individuals who could not afford them, knowing that the loans were likely to default. Banks that created mortgage-backed securities often misrepresented the quality of loans. For example, a 2013 suit by the Justice Department and the U.S. Securities and Exchange Commission found that 40 percent of the underlying mortgages originated and packaged into a security by Bank of America did not meet the bank’s own underwriting standards.”

Mortgage delinquency rates spiked to 14%, and the value of the CDOs (which included NINJA loans) plummeted. Bear Stearns, Lehman Brothers, and the other investment banking firms had purchased the financial product along with credit default swap (CDS) insurance. But those who had issued CDSs, including AIG, could not cover the sudden billions in debt they had to cover. 

Through the Troubled Asset Relief Program (TARP), hundreds of billions of taxpayer dollars went to bailouts and resuscitating the economy. Millions had to push back their retirements. Millennials who had just joined the workforce could not even get started as the job market dried up. They remain behind in savings to this day. 

According to Better Markets, the 2008 financial crisis has reportedly cost upwards of $20 trillion in productivity due to “Wall Street’s reckless, high-risk, legal and illegal activities.”

Did NINJA Loans Rig the Economy? 

Thomas Herndon, assistant professor of economics at Loyola Marymount University, claimed “The estimated conservative lower bound for what portion of losses in Liar’s Loans can be considered excess is 30%. Projected to the level of the entire market, this implies that $345 billion of the $500 billion in losses to foreclosure in this market are accounted for by Liar’s Loans. Roughly $100 billion, or 20% of total market losses, can be considered excess losses caused by fraud in Liar’s Loans.”

Do you think the NINJA loans contributed to the 2008 financial crisis? Did lending institutions have poor practices, which set borrowers up for failure? Did the public experience avoidable financial losses caused by Wall Street

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The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.   

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