From Nightline
By VICKI MABREY and CHARLES HERMAN
July 27, 2007
In Sacramento, Calif., not far from where prospectors sought quick
riches in the gold rush more than a century ago, another speculative
boom is going bust.
This time, however, it's not the lure of precious metals -- it's real estate.
"The market was hot, and I decided to give it a shot," said Casey
Serin, a modern-day speculator who hoped to strike it rich quick by
buying homes, fixing them up and then flipping them for a profit.
The Lure of Quick Cash
Serin said he has always had an entrepreneurial spirit. Born in
Uzbekistan, the 24-year-old came to the United States with his family
in 1994 and became a U.S. citizen nine years later.
After graduating from high school, he found a full-time job as a Web
site programmer. But Serin was always interested in starting his own
business.
In particular, he was drawn to real estate. So Serin attended real
estate seminars and bought how-to CDs, DVDs and books.
"My first set of seminars was $15,000," he said. He was hooked,
eventually spending nearly $35,000 on what he calls his real estate
education.
"I kept spending because I thought, 'I need more education,'" Serin said.
And after he made a profit buying and selling one property, he
eventually jumped into the real estate boom that was gripping the
nation.
"My first deal was $30,000. I got a bit of euphoria. I thought I could
do this more and more. Exuberant feelings led me to buy more
property."
Buying Spree
Starting in 2005 Serin went on a real estate shopping binge, buying
eight homes in eight months in four different states. Along the way,
he quit his job to devote himself full-time to real estate investing.
In October 2005, he bought one home in Sacramento, then another one in
January 2006. The next month, he purchased two properties in New
Mexico. Next, he closed on a home in Modesto, Calif. In March 2006, he
bought a home, sight unseen, in Utah as well as another in California.
In May of that year, he bought a home in Dallas, the same way he
bought the house in Utah -- sight unseen.
In all, he acquired eight homes over eight months, and a lot of debt.
"In total I was $2.2 million in debt between mortgages and unsecured
lines of credit and credit cards," said Serin.
"It was a very tough thing to face."
Cracks in the Foundation
Serin's problems started when the home repairs often took longer than expected.
"My goal was always to fix up the house and resell it for profit
quickly," he said, "say within three to four months. [The] problem is
three to four months turned into six months, and then my money ran
out, and I couldn't finish fixing it."
Another problem was timing.
Serin started buying just as the real estate market boom was going
bust. His houses sat unsold, and his debt continued to climb.
"I created a logistical nightmare for myself trying to do too many
properties too fast. And what happened was, I ran out of money," he
said.
Creative Financing and 'Liar Loans'
To make matters worse, Serin told ABC News that he purchased his homes
using what are known in the lending industry as "low documentation"
loans. With these mortgages, borrowers provide limited documentation
-- or proof -- to confirm their income and assets, and lenders base
loans on that information with little to no verification.
Serin said that he told lenders on his loan applications that he was
making more than his actual salary of $50,000 a year from his computer
job.
"I ended up stating more than I was really making because I was able
to take advantage of what's called 'stated income loans,'" he said.
"In the industry they call them 'liar loans,' because the bank
basically allows you to state anything you want."
"Low doc" and "no doc" loans were originally intended for the
self-employed, whose income can vary year to year or for the very
wealthy, who don't want to disclose their earnings.
"Low-doc and no-doc [are] very viable … for a certain segment of the
buying public," explained Ed Smith of the California Association of
Mortgage Brokers. "For example, a person with high credit scores, the
ability to make their payments, a long-term history of being
financially prudent with their finances -- however, they don't want to
disclose full documentation of their income."
But as home prices soared, especially in states such as California,
lenders loosened credit requirements and made these loans available to
more people.
These higher-risk loans also came with higher interest rates. It is
many of those borrowers -- like Casey Serin -- who are now having
problems making their mortgage payments.
"The [loan] products that were available were mismatched in many cases
with the wrong customer's financial profile," said Smith. "Many
customers got into loan products that were ill-advised or maybe not
well thought out. There's no such thing as a bad loan; there's loan
products that fit everyone's individual profile."
Zach Gast. who analyzes the mortgage lending industry for the Center
for Financial Research and Analysis, said pressure on lenders to
continue making loans as home prices increased led to a loosening of
lending standards.
"The standards dropped in nearly everything you can imagine," he said.
"Borrowers were not required to provide documentation of their income.
They paid less in down payments. And they were also allowed to have
higher mortgage payments as a percentage of their income."
According to Credit Suisse, an international financial services group,
"low/no doc" loans accounted for nearly half of all home purchase
loans issued in 2006 in the United States, up from only 18 percent in
2001.
The Walls Come Down
Serin admitted he lied about his income on his applications.
"It was fairly common to do stated income loans. I thought, well this
must be gray area. It's kind of like speeding on the freeway.
Everybody does it. As long as you do it within reason, it's all right.
Well, I crashed my car."
And as his homes sat unsold and he couldn't make the payments, he
continued to dig himself deeper and deeper into debt.
Part of that debt was a result of how he structured his mortgage
deals, where he not only got a home a closing, he got cash back. Serin
said he used the money to fix up the properties as well as to live on,
something that could possibly land him in trouble with law
enforcement.
"I was able to structure the deals in such a way to where I will
borrow 100 percent of the value and find a way to have the seller give
me of the money back for my repairs."
He didn't think it was illegal because, as he put it, "I just thought
as long as it was a win-win deal, it was all good."
According to his attorney, Serin is currently under investigation by
the FBI. His attorney, Kevin Mark Wray, told ABC News that "as of yet,
no charges have been brought against Mr. Serin. However, based upon
conversations with the U.S. attorney's office in California, federal
charges related to Mr. Serin's real estate transactions are expected
to be brought against him. At this time, my office is reviewing Mr.
Serin's real estate transactions. I have engaged an expert on mortgage
law and mortgage foreclosure. I expect to have a complete response in
the next two weeks."
Even before the investigation began, debt collectors were harassing
Serin, and his mailbox was filling up with delinquent notices.
Eventually, his lenders started foreclosure procedures. According to
Serin's Web site, five of his eight homes have been foreclosed on, two
of his homes have been sold and one is under contract to be sold.
Going Public
Despite what he has done, Serin has been remarkably candid about his
actions. He started a Web site where he posted everything from
pictures of his homes to a detailed list of his personal finances. His
blog, which started out as a place for him to share his experiences
with others, later became a possible business opportunity. "The
entrepreneur in me thought, 'Hey, this is great. I can maybe leverage
this into some other business later on.'"
"There was a time where I was embarrassed," he said, "but after a
while I decided, you know what? What's there to be ashamed about?
Successful people go through several of these, you know. Failure is
part of success."
Serin once envisioned the Web site and blog becoming a place where
people facing foreclosure could learn about what to expect, as well as
what options might be available to them. However, the attention from
the media, Web watchers and legal authorities has become too difficult
for him. He recently sold the domain and will soon stop blogging about
his activities. For those who loved (and hated) his adventures in real
estate, as of after Friday, August 3, Serin's story, as told online,
is expected to end.
In the Hot Seat
"I have a lot of critics that say because of me, the market is
overpriced," he said. "Because of me, the renters are priced out. It's
interesting. I've been put in a position where I'm blamed for
macroeconomic problems. I'm kind of like a mascot for what's really
going on."
By VICKI MABREY and CHARLES HERMAN
July 27, 2007
In Sacramento, Calif., not far from where prospectors sought quick
riches in the gold rush more than a century ago, another speculative
boom is going bust.
This time, however, it's not the lure of precious metals -- it's real estate.
"The market was hot, and I decided to give it a shot," said Casey
Serin, a modern-day speculator who hoped to strike it rich quick by
buying homes, fixing them up and then flipping them for a profit.
The Lure of Quick Cash
Serin said he has always had an entrepreneurial spirit. Born in
Uzbekistan, the 24-year-old came to the United States with his family
in 1994 and became a U.S. citizen nine years later.
After graduating from high school, he found a full-time job as a Web
site programmer. But Serin was always interested in starting his own
business.
In particular, he was drawn to real estate. So Serin attended real
estate seminars and bought how-to CDs, DVDs and books.
"My first set of seminars was $15,000," he said. He was hooked,
eventually spending nearly $35,000 on what he calls his real estate
education.
"I kept spending because I thought, 'I need more education,'" Serin said.
And after he made a profit buying and selling one property, he
eventually jumped into the real estate boom that was gripping the
nation.
"My first deal was $30,000. I got a bit of euphoria. I thought I could
do this more and more. Exuberant feelings led me to buy more
property."
Buying Spree
Starting in 2005 Serin went on a real estate shopping binge, buying
eight homes in eight months in four different states. Along the way,
he quit his job to devote himself full-time to real estate investing.
In October 2005, he bought one home in Sacramento, then another one in
January 2006. The next month, he purchased two properties in New
Mexico. Next, he closed on a home in Modesto, Calif. In March 2006, he
bought a home, sight unseen, in Utah as well as another in California.
In May of that year, he bought a home in Dallas, the same way he
bought the house in Utah -- sight unseen.
In all, he acquired eight homes over eight months, and a lot of debt.
"In total I was $2.2 million in debt between mortgages and unsecured
lines of credit and credit cards," said Serin.
"It was a very tough thing to face."
Cracks in the Foundation
Serin's problems started when the home repairs often took longer than expected.
"My goal was always to fix up the house and resell it for profit
quickly," he said, "say within three to four months. [The] problem is
three to four months turned into six months, and then my money ran
out, and I couldn't finish fixing it."
Another problem was timing.
Serin started buying just as the real estate market boom was going
bust. His houses sat unsold, and his debt continued to climb.
"I created a logistical nightmare for myself trying to do too many
properties too fast. And what happened was, I ran out of money," he
said.
Creative Financing and 'Liar Loans'
To make matters worse, Serin told ABC News that he purchased his homes
using what are known in the lending industry as "low documentation"
loans. With these mortgages, borrowers provide limited documentation
-- or proof -- to confirm their income and assets, and lenders base
loans on that information with little to no verification.
Serin said that he told lenders on his loan applications that he was
making more than his actual salary of $50,000 a year from his computer
job.
"I ended up stating more than I was really making because I was able
to take advantage of what's called 'stated income loans,'" he said.
"In the industry they call them 'liar loans,' because the bank
basically allows you to state anything you want."
"Low doc" and "no doc" loans were originally intended for the
self-employed, whose income can vary year to year or for the very
wealthy, who don't want to disclose their earnings.
"Low-doc and no-doc [are] very viable … for a certain segment of the
buying public," explained Ed Smith of the California Association of
Mortgage Brokers. "For example, a person with high credit scores, the
ability to make their payments, a long-term history of being
financially prudent with their finances -- however, they don't want to
disclose full documentation of their income."
But as home prices soared, especially in states such as California,
lenders loosened credit requirements and made these loans available to
more people.
These higher-risk loans also came with higher interest rates. It is
many of those borrowers -- like Casey Serin -- who are now having
problems making their mortgage payments.
"The [loan] products that were available were mismatched in many cases
with the wrong customer's financial profile," said Smith. "Many
customers got into loan products that were ill-advised or maybe not
well thought out. There's no such thing as a bad loan; there's loan
products that fit everyone's individual profile."
Zach Gast. who analyzes the mortgage lending industry for the Center
for Financial Research and Analysis, said pressure on lenders to
continue making loans as home prices increased led to a loosening of
lending standards.
"The standards dropped in nearly everything you can imagine," he said.
"Borrowers were not required to provide documentation of their income.
They paid less in down payments. And they were also allowed to have
higher mortgage payments as a percentage of their income."
According to Credit Suisse, an international financial services group,
"low/no doc" loans accounted for nearly half of all home purchase
loans issued in 2006 in the United States, up from only 18 percent in
2001.
The Walls Come Down
Serin admitted he lied about his income on his applications.
"It was fairly common to do stated income loans. I thought, well this
must be gray area. It's kind of like speeding on the freeway.
Everybody does it. As long as you do it within reason, it's all right.
Well, I crashed my car."
And as his homes sat unsold and he couldn't make the payments, he
continued to dig himself deeper and deeper into debt.
Part of that debt was a result of how he structured his mortgage
deals, where he not only got a home a closing, he got cash back. Serin
said he used the money to fix up the properties as well as to live on,
something that could possibly land him in trouble with law
enforcement.
"I was able to structure the deals in such a way to where I will
borrow 100 percent of the value and find a way to have the seller give
me of the money back for my repairs."
He didn't think it was illegal because, as he put it, "I just thought
as long as it was a win-win deal, it was all good."
According to his attorney, Serin is currently under investigation by
the FBI. His attorney, Kevin Mark Wray, told ABC News that "as of yet,
no charges have been brought against Mr. Serin. However, based upon
conversations with the U.S. attorney's office in California, federal
charges related to Mr. Serin's real estate transactions are expected
to be brought against him. At this time, my office is reviewing Mr.
Serin's real estate transactions. I have engaged an expert on mortgage
law and mortgage foreclosure. I expect to have a complete response in
the next two weeks."
Even before the investigation began, debt collectors were harassing
Serin, and his mailbox was filling up with delinquent notices.
Eventually, his lenders started foreclosure procedures. According to
Serin's Web site, five of his eight homes have been foreclosed on, two
of his homes have been sold and one is under contract to be sold.
Going Public
Despite what he has done, Serin has been remarkably candid about his
actions. He started a Web site where he posted everything from
pictures of his homes to a detailed list of his personal finances. His
blog, which started out as a place for him to share his experiences
with others, later became a possible business opportunity. "The
entrepreneur in me thought, 'Hey, this is great. I can maybe leverage
this into some other business later on.'"
"There was a time where I was embarrassed," he said, "but after a
while I decided, you know what? What's there to be ashamed about?
Successful people go through several of these, you know. Failure is
part of success."
Serin once envisioned the Web site and blog becoming a place where
people facing foreclosure could learn about what to expect, as well as
what options might be available to them. However, the attention from
the media, Web watchers and legal authorities has become too difficult
for him. He recently sold the domain and will soon stop blogging about
his activities. For those who loved (and hated) his adventures in real
estate, as of after Friday, August 3, Serin's story, as told online,
is expected to end.
In the Hot Seat
"I have a lot of critics that say because of me, the market is
overpriced," he said. "Because of me, the renters are priced out. It's
interesting. I've been put in a position where I'm blamed for
macroeconomic problems. I'm kind of like a mascot for what's really
going on."
