Real Estate Leaves One Investor High and Dry

"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."

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