Nightline Plotline

By VICKI MABREY and CHARLES HERMAN

April 13, 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.
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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.
Watch the full story on 'Nightline' tonight at 11:35 p.m. EDT
"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 homes 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.
"I started looking for additional loans that I could take out to float additional deals. So I was borrowing from Peter to pay Paul," he explained. "I should have just stopped and faced the consequences, and that might have been better."
Debt collectors started harassing him, his mailbox filled up with delinquent notices and eventually, his lenders started to foreclose. At the end of March 2007, four of his eight homes had been foreclosed on, two of his homes had been sold and two were under contract with other potential buyers.
Going Public
Despite what he has done, Serin has been remarkably candid about his actions. He started a Web site where he posts everything from pictures of his homes to a detailed list of his personal finances.
"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."
He has few worries about his how his business venture performed. "In terms of business debt, it doesn't bother me so much anymore."
And his blog, which started out as a place for him to share his experiences with others, has now become a possible business opportunity. "The entrepreneur in me thought, 'Hey, this is great. I can maybe leverage this into some other business later on.'"
He envisions the Web site becoming a place where people facing foreclosure could learn about what to expect, as well as what options might be available to them.
In the Hot Seat
Not everyone sees a silver lining in Serin's actions or his Web site.
"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."
Commentators on Serin's and their own blogs also express anger at Serin's lifestyle.
"I make things worse by telling them part of the money last year was used for my wife, and I to go on vacation. Well, people don't realize this is one thing we did. Everything else was very frugal," he said.
"We have scaled back in a lot of ways, and we have cut our expenses down. But what happens is people focus on the drama. They see that I'm supposedly living a frivolous lifestyle, they see that I went to a Starbucks or a Jamba Juice … and they say, 'You need to be on rice and beans all the time. You need to be eating Top Ramen all day.'"
Undeterred Despite Debt
Serin maintains that his critics don't realize the severity of his situation.
"You can't just send $5 toward your credit card; they will still continue their collection process," he said. "With foreclosures you can't just pay them a partial payment. They will still do the foreclosure."
While Serin wants to work out deals for his remaining debt, he said he is trying his best to avoid declaring bankruptcy.
"People say maybe you should give up after eight bad deals," he said. "Well, I'd like to say they weren't all bad, and I have learned a lot through it. So I'd like to think the next deal I am going to do is going to be successful."
So, Serin continues to search for his eureka moment and hopes to strike gold.