Whether it be interest-only, high LTV, high DTI or a 50-year-mortgage, for years subprime mortgage investors have weeded out one type of loan or another fearing borrower default. But the one wild card that continues to rear its ugly head - fraud - is not always found in the expected places.

For example, if one were looking for mortgage fraud, most would point directly to no, or limited, documentation loans, which are also known as "liar loans." But while most CDO managers say they either shy away from such loans altogether or carefully choose the originator they'll buy them from, the effects of mortgage fraud on the least expected products could hurt buy-and-hold investors given the U.S. housing market's downward spiral.

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