After months of relentless shopping, you finally do what Mr. Blandings did: discover your dream house. Hallelujah.

To make it yours, though, the bank says you need an income after your down payment of $100,000 a year. Your annual earnings are only $82,000, so you fib and tell the bank that you’re making $100,000, hoping somehow you’ll find a way to work it out and that the bank will never check (which it rarely does).

Such scenarios led to a phenomenon that made its debut in 1998, when the housing market was booming and stated-income loans (those based on what you tell the bank you’re earning) became the rage. Given widespread income exaggeration by eager home buyers, such loans soon became known in the real estate industry as the “liar’s loan.”

In 1998, liars’ loans — those with little or no documentation — amounted to 24% of all mortgage originations, according to the Mortgage Brokers Association for Responsible Lending, an advocacy group in Redwood City, Calif., whose stated goal is to protect consumers and the loan industry from outlandish and counterproductive loan programs. So far this year, the association notes, liars’ loans have shot up to an estimated 62% of mortgage originations.

Interestingly, a recent sampling of 100 stated-income loans by an auditing firm in Virginia (based on IRS records) found that 90% of the income statements were exaggerated by 5% or more, while almost 60% of the stated amounts were exaggerated by more than 50%.

The significance of this is that the liar’s loan could wreak havoc on the economy, the president of MBARL, Steven Krystofiak, says. In fact, this is precisely what he expects.

Why so? For starters, he says he believes that of this year’s estimated stated-income loans, “most, if not all, are fraudulent.” Against this background, he points out that roughly $1 trillion worth of American home mortgages will be reset over the next year (about 11% of the $9 trillion of mortgages outstanding), most at higher rates because of the steep rise in interest rates in recent years. In general, he says, the mortgage rate will rise by 0.5% to 1.5%, meaning, he says, many monthly payments could easily rise 50%.

For example, he notes, a 4.5% interest rate on a fixed mortgage from three years ago could be reset at more than 6%, leading to that 50% hike in monthly payments.

In response to this financial burden, Mr. Krystofiak says, untold numbers of homeowners will simply no longer be able to afford their homes. They’ll face a double whammy: their mortgage payments will increase and they won’t be able to refinance because the value of their homes has declined. What’s more, he points out, they won’t be able to sell them because they’ll owe more money on their homes than they’re worth.

This housing horror show, he predicts, will lead to an explosive rise in delinquencies and foreclosures.

The hardest-hit areas in this respect, he believes, will be New York, California, Florida, Boston, Arizona, and Colorado.

The latest word from the Mortgage Bankers Association tends to give some credence to Mr. Krystofiak’s concerns. About a week ago, it reported late payments and new foreclosures on American homes in the third quarter rose versus the prior quarter, and it predicted further growth as a massive wave of adjustable-rate mortgages reset at higher interest rates.

Looking at specific numbers, the mortgage delinquency rate rose to 4.67% in the third quarter from 4.39% in the prior quarter, and 4.44% in the third quarter of last year. Meanwhile, new foreclosures, climbing at a much slower clip, rose to 0.46% from 0.43% in the prior quarter.

Majority thinking on Wall Street has it that the housing slump will bottom out around mid-2007, and that therefore fears of a full-blown housing crisis are way overdone. Mr. Wystofiak, a mortgage broker — admittedly, not an economist — disagrees. He says his sense is that the enormous number of liars’ loans, along with the huge wave of rate resetting, falling home prices, and slowing sales, will lead to a significantly greater housing downturn than expected and unmistakably put the economy at risk

Thus, he figures that a hard landing, not the widely expected soft landing, is a foregone conclusion; he also thinks there’s a strong chance that housing difficulties could precipitate a nasty recession in the second half of 2007 that could easily spill over into 2008.

The bottom line from our mortgage broker is hardly encouraging: The full brunt of the housing weakness has yet to be seen. If he’s right, of course, hopes for a soft landing may be little more than a passing dream.

dandordan@aol.com